Weekly Review.
The week starting Monday 28 September ended with a question for the market: Is Friday's 'accross the board soft NFP data' enough to derail hawkish FED expectations?
Before we get to the answer, there is the small matter of the week as a whole, in which I found it difficult to form a strong bias in the direction of the currencies. Hope of progress towards opening the Hormuz strait was tempered by a complete lack of progress. Heightened BOJ 'intervention threats' tempered 'weak JPY sentiment'. Governor BULLOCK'S suggestion that recent RBA rate hikes are yet to filter through to the economy, tempered AUD strength despite this week's hike. Throughout the week, FED board members pushed back on the possibility of an October rate hike, which tempered USD strength.
On Thursday, higher than forecast US PMI SERVICE data, looked like it was going to push the needle towards even higher yields. Inducing potential growth concerns and the currencies behaved in a standard risk off correlation. But that scenario was quickly tempered by Friday's soft NFP data. Which brings us back to the question for the market: Is the NFP data enough to derail hawkish FED expectations?
The current view appears to be that although an October rate hike is likely off the table, another hike is still expected before year end....Unless inflation falls faster than expected. So, all eyes remain on the price of oil and the market's attention turns to the next round of US CPI data.
Where does that leave us? Given the USD strength over the last couple of weeks, there could be room for some post NFP profit taking. But until oil is passing through Hormuz and the price of oil consistently drops, I have to think the USD will remain supported over the medium term (or at least until we get a significant drop in CPI data).
On a personal note, as mentioned, I found it difficult to form a bias. I maintained my preference for interest rate differential trades, but Intervention threats kept me out of the JPY and I felt the CHF had too much strength throughout the week to feel confident enough to short it.
Maybe I've missed things... USD CAD continues its march upward and as mentioned, the AUD had a disappointing week and was arguably tradable short. But I just couldn't find enough confidence to place those trades. That's not to say I'm right, all any of us can do is trade with our own convictions at the moment we are at the charts.
I did find enough confidence to place one trade. Post NFP I felt the news was enough to weaken the USD, at least for the rest of the day. Placing a GBP USD long, I went with with the GBP as I felt it would benefit from Thursday's UK GDP data.
The trade was eventually closed in profit to avoid weekend risk.
It's now a case of keeping an eye on headlines, price action and particularly US YIELDS as the new week begins.
Results:
Trade 1: GBP USD +0.6
Total = +0.6%
Total since start of blog = +73.3% (risking 1% per trade).