Weekly Review.
BOND YIELDS went on a wild journey during the week starting Monday 1 September. The week kicked into gear during Tuesday's European session, a UK cabinet reshuffle caused GILTS to rise rapidly as the market grows increasingly concerned about the government's ability to guide the economy. Other countries YIELDS rose in tandem, the market became concerned about rising debt payments and we had a yields up / stocks down = risk off session.
Interesting to note the JPY also weakened at the time, aligned with its 'US 10 YEAR inverse correlation'. Rather than conforming to, stocks down = strong JPY. Which was a sign the market perhaps wasn't too concerned. When the mood is 'seriously risk off', the JPY inverably strengthens.
But, during Tuesday's North American session, the yield narrative started to turn, US ISM data began a slue of slightly soft US data, particularly pertaining to jobs, we started to see a return of the 'goldilocks narrative', meaning that the data is softening just enough to warrant the FED cutting rates into a reasonably strong economy. The US 10 year yield reversed all it's gains and dipped below the 4.2 'stubborn technical support area'.
With a September FED rate cut almost certain, expectation grew for a 'lively' NFP release. And the market wasn't disappointed, a very soft headline number induced a bout of USD Selling. And there is now a '3 rate cut before year end narrative', there is even talk of a 0.5bp cut at the next meeting. And the US 10 YEAR seemingly cemented below 4.2.
The question now becomes: Will the market think the data is worryingly soft, causing recession fears. If that's the case, we'll likely see 'yields down + stocks down = risk off'. And the 'narrative' will be plastered in front of us. In that scenario, we may very well find ourselves with a 'shortable' USD' in a 'risk off' environment.
In other news, Canada also had some very disappointing jobs data on Friday. And I'll begin the new week with a bias for USD or CAD shorts. Especially if the price of oil continues to fall.
On a personal note, it was a week of two trades. A stopped out AUD JPY, which is a trade I class as a mistake. I do take solace that my bias for the chart direction was correct. But I feel I was premature with my entry timing, as there wasn't enough 'ooomph' in the JPY reversal at the time.
Friday's EUR CAD long saved the week. It was an interesting one because if I'd have been at the charts and hour earlier I suspect I would have traded the USD short. It was more good fortune rather than magic timing. But all we can do is make decisions with the information we have in front of us, at the times we are available to trade.
Results:
Trade 1: AUD JPY -1
Trade 2: EUR CAD +1.2
Total = +0.2%
Total since start of blog = +43.9% (risking 1% per trade).