Weekly Review.
Two opposing narratives vied for dominance during the week starting Monday 15 June.
The week began with news the M.O.U would be signed by Friday, putting an end to any doubts. The price of oil particularly bore the brunt. But although the currencies were behaving in a risk on manner, there wasn't any particular momentum. Perhaps the market had an eye on Wednesday's FOMC decision. During the buildup, there was a lot of uncertainty how Chair WARSH's first time in the hot seat would go. And he came out swinging, adamant that the focus remains on getting inflation back to 2%.
The market took it as hawkish and it was almost one-way USD strength for the rest of the week. The CAD and CHF became particularly vulnerable as both narratives (war reversal and interest rate differential) gave reason to sell both currencies. Recent soft data, a non committal BOC and falling oil hit the CAD. The general positive mood and 0% interest rate, with an open preference for a weaker currency, ensures good reason to short the CHF.
Ordinarily, a hawkish FED would create a blanket risk off mood. But the anticipation of peace and oil flowing through the Hormuz strait kept sentiment supported, that's what I meant about two opposing forces. At some point, one of the narratives will take control. Will the fragile truce breakdown? Or will the prospect of lower inflation put the breaks on 'rate hike chatter'?
For now, we can only trade what is on front of us. Which I would suggest is either CHF, CAD or possibly JPY short. Vs whichever currency has the most going for it at the time.
Speaking of the JPY, with USD JPY comfortably past the 160 mark, it can only be a matter of time before intervention or strong warnings of intervention. I still consider JPY strength to ultimately become a yen short opportunity.
Finally, amongst mixed data and political uncertainty, the GBP continues to be remarkably resilient. With the prime minister reportedly considering his future over the weekend, it'll be interesting to see how the pound reacts next week.
On a personal note. Given that I missed the standout trading opportunity of the week (immediate FOMC aftermath and Thursdays European session). I still managed three trades.
Following Mondays the 'M.O.U will be signed on Friday announcement', I placed a AUD USD long. The trade was closed at break-even before end of day.
On Tuesday the BOJ disappointed JPY bulls and I placed a NZD JPY long. Which was eventually closed for a small profit.
Missing out on the USD strength post FOMC, I had to wait until Friday to place a USD CHF long trade. Which hit its 1.1 profit target. If nothing changes, it's a trade I will consider placing again on Monday.
Results:
Trade 1: AUD USD 0
Trade 2: NZD JPY +0.6
Trade 3: USD CHF +1
Total = +1.6%
Total since start of blog = +56.1% (risking 1% per trade).