Weekly Review.
Continued US / IRAN escalation caused the price of oil to rise during the week starting Monday 30 July, Yields followed oil higher and the overall mood was particularly sour.
As has been the case recently, the currencies once again didn't conform to standard 'risk off' correlation. Instead, in the main, followed interest rate differential. As strange as it is seeing the CHF and JPY struggle in a risk off environment, I am finding the current 'price action' quite pleasing.
Historically, interest rate differential has been a core driver of currency movement. But for what feels like a long time, this hasn't been the case. Thinking about it, I would suggest interest rate differential has taken a back seat since the JPY carry trade begin to unwind post pandemic. But for the time being, lower yielding currencies are under pressure, which means the CHF and JPY once again couldn't 'get off the floor'. And I begin the new week with a 'hope' that this theme will continue. The risk to any CHF or JPY trade being that they do eventually return to following 'risk off correlation'. The fact that the JPY comes with its own seperate 'intervention risk' has led me to a preference of shorting the CHF.
In other news, the NZD had a period of weakness this week, despite solid data. I couldn't see a fundamental reason for the weakness and I put it down to AUD NZD liquidity, as the AUD strenghtened considerably following 'hot jobs data'.
The ECB held rates, offering a hawkish narrative, which keeps a September hike on the table.
The higher oil price supports the CAD, which otherwise could be a contender for the lower yielding part of an interest rate differential trade.
'Capex' once again comes under the spotlight as earnings season ramps up. The price of ALPHABET and TESLA fell, adding to the overall subdued market sentiment. The mega cap companies have such a high bar, anything less than superb is seen as a disappointment. A slue of huge companies report during the upcoming week. We also have the FED interest rate decision, a hawkish hold is expected but have WARSH and co. Might have other ideas.
On a personal note, it was quite pleasing to place 4 trades. All CHF short, three hit profit and one stopped out. As previously mentioned, I've been looking for short CHF Vs 'whichever currency I feel has the most going for it at the time. Which played out as AUD, USD on Monday and Tuesday. Rightly or wrongly, I sat Wednesday out. Thursday's AUD CHF stopped out and by Friday I felt the NZD weakness was too overdone and placed NZD CHF long.
Given the recent low volume, I have opened myself to accepting a lower risk reward, even placing one 1:1 and one 1.2:1, in an attempt to ensure the trade has the best chance of completion.
As the new week begins, my current bias is to continue looking for CHF (or JPY) shorts. Aware that anything could change at any moment, also aware that the CHF has been so weak lately that it must be due a pull-back at some point.
Results:
Trade 1: AUD CHF +1.5
Trade 2: USD CHF +1
Trade 3: AUD CHF -1
Trade 4: NZD CHF +1.2
Total = +2.7%
Total since start of blog = +59.8% (risking 1% per trade).