Weekly Review
A hawkish FED re-pricing was the dominant theme throughout the week starting Monday 9 November, ensuring the USD ended the week at the top of the pile. Although the USD did begin the week on the back foot, thanks to hope of a diplomatic resolution between the US and IRAN. But FED board member Waller got the ball rolling, stoking the inflation fire by suggesting a 0.5bp rate hike is required (rather than 0.25bp). Above forecast US CPI data fanned the flames and it was pretty much one way USD strength from there. I suspect the US / IRAN diplomacy hopes stopped the Market going into a ‘higher for longer’panic. And it was the non-yielding CHF which ended at the bottom of the pile. What could derail USD strength moving forward? A bout of softer data would soften rate hike expectations, or if the price of oil continues to fall on peace hopes (or actual peace), inflation concerns will likely soften. Also, with USD JPY back at 160, intervention would send USD JPY dramatically lower, and USD liquidity would (at least temporarily) see the dollar weaken against all currencies. But, currently the market is starting to price in a further 4 hikes before a pause (instead of 2 hikes). And for the time being, the USD is on my ,’to long list’. In other news, a love scandal ousted the NVIDEA C.E.O, when there is a company specific scandal, there is always a risk it could dent overall market sentiment. But I think NVIDIA chips are too integral to everyday life for the news to have a long lasting effect. Although NVIDEA earnings this coming week will be interesting. More positive data from the UK keeps the GBP on the to long list (at least in a neutral / positive overall risk environment). The AUD continues to have lost a bit of mojo, extreme rate hike expectations taking some wind out of the sails. I think I will take some positive data from Australia for the AUD to pick up a fresh head of steam. The CAD continues to be highly correlated to oil (more so than the USD), coming under pressure when we get positve war news, and strengthening when headlines squash the positivity. Finally, some dovish comments from the BOJ’s ASADA helped USD JPY to 160. But ‘intervention watch’ quelled JPY weakness. On a personal note, it was a week of three trades. On Monday I traded the ‘war diplomacy hopes’ placing GBP USD long, which hit profit.
It's not often that a currency immediately flips from a short to a long, but following Mr Waller and US CPI, I felt USD strength was too strong to ignore, placing EUR USD short, which hit profit.
By Thursday, with the mood still generally positive and the USD 10YEAR yield at 5%, I felt interest rate differential trades were viable, namely CHF short. I placed GBP CHF long, which was closed in profit.
On Friday, as the headlines turned negative, the price of oil rose and the CAD went with it, arguably creating a CAD long trade. But I was unfortunately busy.
So that 3 trades, all in profit, as I always say, it's important remain balanced, one thing's for sure, a losing trade is never too far away. During good runs, just like during bad runs, it's important to remain focused on making (and acting on) what you think is the best decision in the moment.
As the new week begins, we'll see if Friday's below forecast PPI data has dented appetite for the USD (I suspect not) and I'll have a mind for ‘interest rate expectations’ trades, whilst keeping an eye on war headlines.
Results:
Trade 1: GBP USD +1.5
Trade 2: EUR USD +1.2
Trade 3: GBP CHF +0.8
Total = +3.3%
Total since start of blog = +81.2% (risking 1% per trade).