Weekly review
The week starting Monday 15 December was dominated by three central bank decisions. And they all entertained in their own way. But before the 'main events", there was the small matter of PMI data, with the data (particularly in the US and UK) indicating 'still high' service sector inflation.
On Wednesday, the FOMC meeting delivered the anticipated 'hawkish cut'. The dot plot 2025 rate cut projection was downgraded, the USD strengthened accordingly. And as long as US data continues to remain robust, USD strength 'should' continue over the medium term.
The one surprise from the press conference was the usually very measured Mr Powell using the excitable words 'falling apart' which appeared to create a bit of panic. But I believe the words were taken out of context and it's not something I read too much into. Ultimately, the lasting takeaway from the FOMC is long USD.
next up, a few hours later the BOJ held it's meeting. And the up, down, left, right...make yourself dizzy circus continues. Only two weeks ago the market was convinced the BOJ would hike. But thoughts of a hike were recently tempered and this week the BOJ held interest rates, the BOJ are renowned for delivering the unexpected. And the fact the hold was accompanied with a dovish narrative was a surprise. The yen weakened, which is a pleasing sight.
The problem is, we still don't have a conclusion. It's apparent the BOJ don't really want to hike further, but sticky inflation might force another hike. In the meantime, if the JPY gets too weak (circa 160 USD JPY) we'll get the inevitable intervention / jawboning. Ultimately, I believe JPY short is currently very viable. It's just a case of accepting the trade could be stopped out due to choppy JPY movement. The sooner the BOJ announce peak rates, the better.
Finally, it was the UK's turn to hold a rate meeting. A 'hawkish hold' was expected, but the fact three 'dissenters' voted to cut was a surprise and weakened the GBP. There is a case to say the initial GBP weakness was tradable as an 'in the moment' news trade immediately after the decision, But I expect the GBP to remain relatively strong over the medium term as the BOE still remain on the hawkish side of neutral.
When trading, there is always an upcoming event to potentially derail any trades. And it's a decision of whether to trade through the event or wait. As with every decision you make, it often looks like the wrong choice. An example of this is the BOJ following the FOMC. Pre events, I decided to wait but USD strength was so strong post FOMC that an 'in the moment' news trade was very viable and would have likely completed before the BOJ meeting. It's important not to get hung up on situations like that and simply continue to make decisions you would stand by tomorrow.
On a personal note, it was a week of two trades. A GBP NZD long post UK service PMI / negative china news. The trade was closed for a profit of +1 pre FOMC (another one of those decisions where 'it looks like' I should have left the trade running).
And a USD CAD which stopped out on Friday post US PCE data, combined with a mildly positive market when it appears a government shutdown was averted (yes, it's government shutdown time of year again).
I'll begin the new week keeping an eye on 'shutdown news' for a possible trade opportunity, or if the USD PCE blip reverses, long USD could be on the cards. But I'll only attempt to trade on Monday. And close any trades by early afternoon 'UK' time on Tuesday.
I'll then 'close shop' for a week. Starting to pay attention again on 1 January, open to the possibility of a trade by 2 January. But aware that real liquidity probably won't get going until the following week.
Results:
Trade 1: GBP NZD +1
Trade 2: USD CAD -1
Total= 0%
Total since start of blog= + 32.9% (risking 1% per trade).