Weekly review.

I found it difficult to form a conviction in the direction of the currencies during the week starting Monday 7 October.

Given the previous Friday's positive NFP number, I was 'expecting' a generally risk on environment. But Chinese markets returned from a week long holiday with negativity, as hopes of further action to stimulate the economy were tempered. The euphoria over an extra 0.75bp rate cuts from the FED this year has been unwound to 0.5bp. Combined with continued 'simmering tension' in the middle east. All ensured the 'risk on' currencies couldn't quite get off the floor throughout the week.

All the while, the S&P remained resilient, hitting new highs, despite the VIX staying above 20. A slight tick higher in inflation hasn't dented the soft landing narrative yet. And the disconnect between stocks, the VIX and the currencies. Whilst trying to desipher if US yields rising is good news or not, made it difficult to form an opinion throughout the week.

Trading is much more straightforward when there is clear synchronisation with a cause. For example, VIX dropping below 20, stocks positive and commodity currencies strong following 'good news'.

Regarding the currencies, 'USD long' was only trade I had a semblance of confidence in, considering NFP and the re-pricing of rate cut expectations. But even 'dollar long' had its difficulty as disappointing JOBLESS CLAIMS data overshadowed higher inflation.

The RBNZ cut rates by 0.5bp and the market thinks more cuts are coming. Which makes AUD NZD longs attractive whilst the RBA remains the most hawkish bank. The difficulty with that trade is negative risk sentiment could see the AUD weaken against everything regardless of its own fundamentals.

Contrastingly, the CHF 'should' in my view remain a good short as the SNB remains the most dovish central bank. And the CHF ending the week as the strongest currency highlights the 'strange week'.

Moving forward, I begin the new week without a clear bias. The good news is Friday saw a more standard 'risk on' day as the banks kicked off earnings season with positivity. And it may be up to earnings over the next couple of weeks to guide the market into the US election. But fresh reports over the weekend that extra stimulus from china isn't forthcoming could dent sentiment further. And I'll begin the week taking clues from the VIX in particular.

On a personal note, it was once again a week of two trades. Both USD CHF long. Essentially 'relative fundamental' trades based on the re-pricing of FED rates Vs the dovish SNB. Tuesdays trade hit profit, Fridays trade was much more 'speculative'. And is an example of making a decision to trade through a red flag event (US PPI). Ultimately the trade was manually closed for a small loss.

If, like me, you did find it difficult to explain the cause of the week's moves, don't despair, it's important to remember we have had a nice 'straight forward' period of 'risk on' over the last month or so. And we can't always have it our own way. We must accept the rough with the smooth. The key is staying patient to ensure you don't lose too much during the difficult periods. I've tried to summarise my thoughts as best as possible but please feel free to email any questions: johnelfedforexblog@gmail.com

Results:

Trade 1: USD CHF +1.5

Trade 2: USD CHF - 0.3

Total = +1.2%

Total since start of blog = +31.7% (risking 1% per trade).