Weekly review.
There was a lot of information to take in during week starting Monday 4 November. Beginning with the US election. Which was forecast to be a very tight race but ultimately ended up being a convincing republican victory. Markets don't like uncertainty and whatever your political persuasion, the good news for us as traders was the surprise 'red sweep' provided certainty and the VIX dropped substantially whilst stocks rallied.
As we awaited the outcome of the election, the RBA held an interest rate meeting. Once again remaining as hawkish as possible. All things being equal, I believe the AUD 'should' be the strongest currency over the coming weeks, it's just the small matter of 'overblown' china concerns holding it back.
Next, it was the FED and BOE interest rate meetings. Chair Powell did his very best to sound 'neutral'. My takeaway is that everything is where the FED wants it to be, the US economy is strong, the jobs market is strong (recent NFP hurricane skewed anomaly aside) disinflation is on a steady track and there is 'room to maneuver' interest rates. The market took the message as mildly dovish , which it perhaps was, the path for rates is lower, it's just that there is no rush for the FED to get where they are going.
The USD weakened post event, although I don't think I'm ready to short the dollar just yet. My preferred short trades will come from the central banks in more of a rush to cut rates, namely the SNB and BOC.
The BOE meeting was similar to the FED, the message was one of falling interest rates. But with no rush and I still expect the GBP to remain supported Vs the more dovish central banks .
Of course, there is rarely a week with some BOJ shenanigans. And we had the classic 'verbal warnings' during the 'post election' USD strength. These 'intervention fears' are something we've learned to live with and my bias is still to short the yen. Preferably in a positive market environment and following a period of JPY strength which looks like it's reversing.
As the new week begins, my bias is to continue looking for interest rate differential trades. With the long options being:
AUD GBP USD NZD
The short options:
CHF CAD JPY EUR.
The caveat being the risk environment needs to be neutral / positive. Ideally with the VIX comfortably below 20. The other caveat being if negativity surrounding china continues to weigh on the AUD.
There is also a case to say AUD NZD long is a potential trade. Plus EUR CHF long.
On a personal note, it was very nearly a week of no trades, there is a case to say I missed a USD long in the immediate aftermath of the election with the 'Trump trade' in full swing. I then wanted to wait until after the BOE and FOMC before feeling confident in a sustainable conviction. Ultimately, placing a USD CAD long 'interest rate differential' trade on Friday, which I ended up closing for a very small profit before the weekend. And I begin the new week with 'tentative hope' for a positive risk environment conducive of 'interest rate differential' or possibly 'risk on' soft landing trades.
Feel free to email any questions: johnelfedforexblog@gmail.com
Results for week:
Trade 1: USD CAD +0.2
Total = +0.2%
Total since start of blog = +35.4% (risking 1% per trade).