Weekly review
The week starting Monday 18 November began quietly with no news or data releases. And my thought was USD strength 'should' continue post Friday's positive US retail sales. But dollar strength didn't materialise in flat Monday trading.
Things livened up on Tuesday, with an escalation in a not often talked about 'underlying risk', the Ukraine war. The threat of nuclear weapons being used is a sobering thought. But still the USD didn't strengthen despite the negative environment, which I've ultimately put down to dollar profit taking during the first half of the week. The CHF was the main beneficiary of the Ukraine led 'risk off' environment.
Tuesday also saw another 'hawkish' RBA minutes. The AUD spent the week on the front foot, which was a refreshing sight. And barring any fresh negative china sentiment, 'should' remain supported on the basis of interest rate differential and rising commodity prices in general. In fact, AUD NZD longs could be back on the table as this week, suggestions the RBNZ could turn more dovish dented sentiment for the NZD.
The CAD was the other strong currency. Data from Canada came in better than expected, which brings into question if pricing for BOC rate cuts has gone too far. Plus the rising price of oil supported the CAD.
The JPY was a curious currency this week, firstly, similar to the USD, it didn't particularly strengthen during the negative Ukraine narrative, likely due to a lack of urgency from the BOJ to hike rates. But of course, nothing is ever straightforward with the BOJ and positive data towards the end of the week continues the will they won't they (hike) narrative. But all in all, the JPY continues to be on my 'to short list'.
The EUR struggled this week, as you would expect given the Ukraine escalation. But as the week went on and the fears didn't escalate further, the EUR (and GBP) were hit with a hammer blow on Friday, poor PMI data across the board. It appears the UK and Europe may need to cut rates quicker than previously thought. Compounded by Friday's US service PMI, which came in much higher than expected. And the possibility of a FED cut in December is down to 54% from nearly 80% not long ago.
In the stock market, just when it looked like 'risk off' could grip the market, Walmart reported positive earning and guidance. Followed by NVIDIA once again reporting good earnings.... In conclusion.... Whilst there is a risk of a stock market decline due to higher rates for longer. For now, the 'soft landing' narrative remains intact and I'll begin the new week keeping an eye on the VIX and looking for a combination of either 'risk on soft landing' trades (JPY, CHF or EUR short)....or 'interest rate differential' trades (AUD or USD long Vs whichever currency feels right in the moment).
On a personal note, firstly, my partner (Michelle) is a teacher, she actually teaches English to speakers of other languages, a lot of her students are from the Ukraine. And coincidentally, this week, we went to a 'concert' in aid of Ukraine refugees. Which had performances by people who have had to uproot their lives. The level of talent on show was quite breathtaking and hearing the stories they've had to endure was very heartbreaking. A stark reminder that although as traders we consider the Ukraine war a 'dormant risk', nearly three years later, it continues to affect lives in a way I can't even imagine.
Trading wise, it was a week of two trades. There is a case to say I could have been more nimble and should have focused on EUR short rather than CHF (EUR AUD short in particular would have been a good trade this week.
There is also a case to say I should have waited for more 'fresh oomph' behind the USD before I traded it long and not just relied on support to place a stop loss behind. But I still stand my thoughts that at the time of my USD CHF long trades, I couldn't envision the stop loss behind hit.
And I take solace in the fact that at least my overall analysis was correct and USD CHF did end the week higher than it began.
All I can do now is focus on gathering information and making choices I believe to be the best decision in the moment.
Feel free to email any questions: johnelfedforexblog@gmail.com.
Results:
Trade 1: USD CHF -1
Trade 2: USD CHF -1
Total = -2%
Total since start of blog = +33.9% (risking 1% per trade)