Weekly Review: My thoughts on the narrative and the week ahead.
Understanding the USD'S 'price action' during the week starting Monday 12 October could be described as complicated.
It didn't start out that way, in fact, the first half of the week was very straightforward. US CPI data was due on Wednesday, a high reading would enhance the rate hike narrative (strong USD), a below forecast reading would quell the rate hike narrative (weakening the USD).
CPI came in 'hot' and the USD strenghtened significantly. With an October rate hike back on the table, all that was left was the simple task of 'longing' USD pull-backs for the foreseeable future. At least until something came along to dent the rate hike narrative.
If only it was that simple, we've learned by now that something is never too far away from upsetting the applecart. We usually get at least 24 hours of a narrative, but this time, 'that something' came just a couple of hours after the CPI data.
AI infrastructure concerns came along to spoil the dollar's party.
It emerged that a company called coreware is struggling to meet its finance obligations. A lot of weight has been put on AI'S shoulders regarding future growth. But it is costing a lot more money than thought to set up the infrastructure.
If the 'AI roll-out' doesn't happen as planned, that dents growth projections. Yields rolled over in a classic 'growth concerns flight to safety move'. The CHF in particular benefited from its safe haven status, the USD did not. Instead, following yields and interest rate expectations lower, rather than strengthening as a safe-haven in a risk off environment.
And that's where we find ourselves as the new week begins, with the USD stuck in the middle of a narrative.
In other news, with hindsight, the most straightforward trade post AI concerns, was probably AUD CHF short. As the AUD was dented by disappointing data and the risk off environment, whilst the CHF was benefitting from its safe-haven status.
Political instability in France continues to weigh on the EUR. And BOJ intervention chatter was put to one side as Treasury secretary Bessent canceled his trip to Thailand.
As the new week begins I'll be keeping an eye on the AI story, alongside the usual suspects of: The Middle East and the price of oil, central bank rate expectations, US data, BOJ intervention watch. And not forgetting that earnings season kicks into gear.
I begin the new week without a clear bias. If pushed 'my preference' would be for the AI story to calm down, in which case, I think CHF and JPY (particularly CHF) will weaken as interest rate expectations rise.
But if the negativity surrounding AI infrastructure continues, I am prepared to trade accordingly, something like AUD CHF short, or even AUD CAD short if the price of oil remains high and USD CAD continues lower.
For now, it's a case of keeping an eye on the headlines and making a decision at the time I'm able to trade.
On a personal note, I began the week with a mind for 'interest rate expectation trades' and following CAD employment data the previous Friday, I entered USD CAD long. The trade 'just' hit the profit target before reversing. As mentioned last week, (when the opposition happend), it's a game of fine margins.
On Tuesday I felt CHF was primed for a reversal after recent strength, placing GBP CHF long. The trade was eventually closed for a small profit.
Post CPI and AI shenanigans, I was arguably too resoulte in sticking to my long USD bias, as mentioned, perhaps 'AUD CHF short' would have been a higher probability trade. But sticking with a long USD bias did work out non the less, Thursday's EUR USD short was closed at break even and Fridays AUD USD short hit the profit target.
Let's see what the new week brings.
Results:
Trade 1: USD CAD +1.3
Trade 2: GBP CHF +0.4
Trade 3: EUR USD 0
Trade 4: AUD USD +1.2
Total = +2.9%
Total since start of blog = +75.2% (risking 1% per trade).