Weekly Review.
The week starting Monday 21 September ended with a 66% probability of an October FED rate hike. The recent hawkish FED narrative backed up by higher than forecast US SERVICE PMI data, the 10year bond yield sits comfortably above 5% and the USD continues to benefit. Just how much further the USD, YIELDS and the DXY have left to run is likely to boil down to two metrics: US data and perhaps most pertinently, the price of oil.
For the past few weeks, it has seemed it like could be a very long time before the Hormuz strait re-opens. This week, we did get glimmers of hope and with US mid-term elections approaching, an unpopular war and high oil price is the last thing the government needs. The high price of oil is a large reason inflation expectations have risen lately. If the Hormuz strait opens, oil and yields will likely roll over and the market will be in 'risk on mode'. But it could get interesting as to how the currencies react. Will we get a standard 'risk on correlation'? Or will we get the unusual situation of the CHF (the interest rate lagged of late) strengthening in a risk on environment as the yield differential narrows?
I'll begin the new week keeping an eye on headlines, if it looks like it'll still be a while before the Hormuz strait opens, I'll continue to look for 'interest rate differential trades'. If we do suddenly get an announcement that the strait will be opening, it'll be a case of studying the 'price action' and making a decision from there.
In other news, mixed jobs data from Australia has the market questioning just how hawkish the RBA will continue to be. With a rate hike priced in for this coming week, it's a high bar to further announce more hawkish forward guidence.
The SNB deliverd a neutral hold as expected, reaffirming the possibility of intervention to weaken the currency if it's deemed too strong.
Finally, post last week's BOJ meeting, the JPY sprent most of the week on the back foot. It took until Friday for intervention chatter to re-emerge and give the yen a bout of strength. If I was holding JPY short trades for more than 24 hours I'd be leaving the yen alone at the moment. But I do think on a day trading basis, JPY short is a potential trade. But for the time being, I'll continue to close any trades before end of day.
On a personal note, I placed four trades. Continuing my preference for interest rate differential trades. Feeling the post BOJ JPY weakness had a little further to run, I placed AUD JPY long trades on Monday and Tuesday. Both trades were closed in profit before end of day.
Post SNB, I switched to CHF short, placing AUD CHF on Thursday, which stopped out and EUR CHF on Friday, which was closed for a loss before end of day.
As mentioned, I'm very intrigued to see how the CHF reactes if the price of oil rolls over.
It is frustrating that currently a lot of my trades are closed incomplete before end of day. But I still think I it's the prudent thing to do for the being. And the theory is that if you're trading with the underlying fundamentals, more of the trades should be closed in profit than not.
Let's see what the new week brings.
Results:
Trade 1: AUD JPY +0.7
Trade 2: AUD JPY +1
Trade 3 AUD CHF -1
Trade 4: EUR CHF -0.4
Total = +0.3%
Total since start of blog = +72.7% (risking 1% per trade).