Weekly Review
Only a few weeks ago, the USD was dominant. A lack of oil passing through the Hormuz strait, combined with hot data, high inflation and new fed chair WARSH insistent that the FED will do everything in it's power to lower inflation. All led to the market predicting two extra rate hikes before year end. But during the week starting Monday 10 August, cracks in the narrative started to widen.
Although the Hormuz risk remains, the market is becoming increasingly dismissive of the apparent fact there is no resolution in sight. The price of oil currently stagnant around the $80 mark. But the big news is this week's data, inflation metrics and retail sales reported below forecast. A couple of years ago, this would have been termed 'goldilocks', meaning the data is 'not too hot' / 'not too cold'. But just right, a slightly slowing economy, which could indicate a 'gradual rate cut cycle' isn't too far away. Essentially, the 'soft landing' remains a strong possibility.
Of course, we've been here before. The soft landing appears within reach and all of a sudden, a new risk appears. Be it the Ukraine war, tariffs, AI concerns, middle east concerns. Just when you get comfortable, the market has a habit of throwing something else at you. But as things stand, I'll begin the new week with a bias for 'risk on trades'.
I continue to think the CHF is a very good short option, particularly following a period of CHF strength that pauses and creates support. But to my mind, the USD has strongly entered the equation as a short option. A quick look at the AUD USD weekly chart shows a lot of potential room to the upside:
In other news, JPY 'intervention chatter' has gone quiet. I still view the YEN as a potential short opportunity but with the caveat that impromptu bouts of JPY strength could happen at any moment.
The RBA delivered a 'hold' still airing on the hawkish side of neutral, which 'should' support the AUD.
And although the S&P 500 has been doing its own thing for a while, the fact the index continues to hit fresh all time highs provides confidence in the risk on environment.
On a personal note, starting off slowly, I waited until after Wednesday's CPI data. Once CPI and the week's subsequent data supported my risk on bias, I placed three trades.
As tempting as it was to short the USD based on the data, I stuck with my thesis that the CHF remains the currency with the least going for it. I particularly like 'fading CHF strength'. And I particularly like a chart where the profit target can be placed at or below a recent high.
Wednesday's GBP CHF was closed in profit before end of day. Thursday's AUD CHF hit profit and Friday's GBP CHF also hit profit.
Let's see what the new week brings, as mentioned, I do think the USD has become a strong contender as a 'short option'. I'll be keeping an eye on DXY and particularly the USD 2 YEAR bond yield for further signs of USD weakness.
Results:
Trade 1: GBP CHF +0.7
Trade 2: AUD CHF +1.4
Trade 3: GBP CHF +1.2
Total = +3.3%
Total since start of blog = +67.2% (risking 1% per trade).