Weekly Review
It was a bit of a slow burn but the market appeared to sober up during the week starting Monday 11 May.
The week started serenly enough, an initial opening gap lower was once again filled and it seemed we would be in for another week of the market focusing on AI positivity and looking past war risk. Even hotter than forecast US CPI data didn't cause a stir. Perhaps due to an expectancy of a positive outcome from the Trump / Xi meeting.
But Wednesday's US PPI data added to the 'inflation narrative' and then the Trump / Xi meeting ended without any concrete positivity. Market sentiment started to deteriorate. Simultaneously, GBP relesilence started to crack thanks to continued political uncertainty. And by Thursday, the currencies at least, showed signs of a 'risk off' market. Bond yields came to the fore, the USD in particular flexing its muscles with a rate hike now looking more likely than a rate cut.
By Friday, even the S&P conformed to the negativity and we had a 'Yields up / stocks down = 'risk off' market. New Fed chair Warsh entered his first day with the US 10year at a 12 month high.
I'll begin the new week a little torn. The base case is for Thursday and Friday's narrative to continue. And given the USD weakness over the past month, it could have a lot of room to run to the upside. But I would be equally unsurprised if Friday was a mere blip and the market reverts to 'AI earnings / looking past war' = 'risk on'.
In particular I'll be keeping an eye out to see if bond yields continue to rise or roll over. And I'll be watching the VIX to see if it substantially pushes above 20.
On a personal note, on Monday, when I felt we were in the midst of 'opening gap lower / recovery mode', I placed an AUD JPY long. Sticking with session by session trading the trade was closed at break even before end of day.
Unfortunately, that was it for the week. Post US CPI, I felt USD strength (and negative risk sentiment) would have been more pronounced. But Tuesday and Wednesday were a little flat, I felt the market didn't want to commit to negativity, instead waiting for the outcome of Trump / Xi.
With my trades per week average slowly dwindling, I did find myself questioning if I'm too reticent to trade at the moment. Am I becoming an under trader? When GBP started to seriously weaken, the pound went on the 'to short list' but I felt GBPUSD in particular was in a permanent 'over stretched state', particularly on the 4hr chart. But it just kept going down.
I found myself waiting for a pullback that didn't materialise.
Plus, given the added complication of JPY intervention threat, I was wary that any USD long trade could be subject to volatility at any moment thanks to USD JPY liquidity.
For now, I've come to the conclusion that I'm not under trading. It's just an extremely complicated environment. And we could do with either:
A) The strait of Hormuz reopening.
B) The market embracing the disastrous situation if the strait won't be opening any time soon.
Let's hope for option A.
Please feel free to email any thoughts or questions: johnelfedforexblog@gmail.com
Results:
Trade 1: AUD JPY
Total = 0%
Total since start of blog = +55.1% (risking 1% per trade)