Weekly review
I am getting a little tired of saying: ' it was a other week where I found it difficult to form a conviction in the direction of the currencies'. But, I can only tell you what I'm thinking and the week starting Monday 2 December was another week I....Found it difficult to form a conviction in the direction of the currencies.
The 'soft landing' narrative is well and truly in play, interest rates (in the main), barring any upside surprise inflation data, have peaked. Company earnings remain robust. The S&P continues to break all time highs and the VIX is at an extreme low, without wishing to sound blase, the economic future looks bright.
Yet, the 'risk on soft landing' trades which have served us well, are at the moment not viable. As the risk environment and central bank rate forecasts are currently overpowered by other factors.
Namely, the continued weakness of the AUD, which I can only put down to china. And the biggest cloud still remains the BOJ. As mentioned earlier in the week, I can't envision a continued return of the 'short yen carry trade' until the BOJ announces peak rates. Which at a best guess could be sometime in the first quarter next year. Over the medium / long term, the JPY 'should' revert to type and become extremely shortable. But with multiple analysts suggesting the yen will remain strong in the near term. It is seemingly becoming increasingly viable to 'long' the yen on pullbacks. At least in the lead up to the 19 December BOJ meeting. And that's something didn't think I'd be saying.
The USD remains a tricky currency to trade. The 'post trump / higher for longer momentum has faded with the recent slightly soft US data. A December cut is priced near 80%, up from nearly 50% a couple of weeks ago. And whilst it's widely touted the USD will maintain it's strength throughout 2025 (the current dot plot looks ambitious). The near term movement of the USD is uncertain.
The CAD had a tough week, hindered by the falling oil price and its own economic woes. At some point (similar to CHF) rate cuts will become inflationary, but for now, I consider both the CHF and CAD to be potential short trades. The EUR should also be on the 'to short list'. But it was propped up by German BUNDS this week, which is a situation I'll be monitoring.
The GBP remains relatively strong, boosted by the 'relatively hawkish' BOE plus the prime ministers pledge for change. And the GBP remains a potential long.
I'll approach the new week with an open mind. I think the CAD, EUR and CHF 'should' be shortable, maybe Vs GBP, USD or dare I say JPY.
But I'd much rather see a 'return to the norm' and be looking for 'risk on' trades such as AUD JPY long.
Time will tell.
On a personal note, it was my first ever 'no trade week' so I don't have much to say except I've been listening to Bloomberg a lot more rather than CNBC, in an attempt to hone in on the currencies narrative. I've also visited the EFX data website mote than usual ( just the 'free' insights section, I don't have a subscription).
Stay patient, don't place trades out of frustration if you've not traded for a while. Keep trying to understand why the currencies are moving as they are and the right thing to do will be in front of you, it's just a little harder to find at the moment.
You may have a different view to me, feel free to offer any thoughts or questions: johnelfedforexblog@gmail.com