Weekly review.

The week starting Monday 13 January began with 'the market speculating' there would be no US rate cuts this year due to the strong US economy. From a trading point of view, another week of strong US data would have (likely) made the week a lot more straightforward, meaning we probably could have continued to long the USD all week.

But of course, trading is rarely straightforward. And US data throughout the week, (PPI, CPI and RETAIL SALES), all came in on the soft side. Remember all those months ago? (maybe even years ago), we were told the FED needs to see a softening of data to be comfortable cutting rates, this week it happened. And all of a sudden, 3 cuts are back on the table.

Whilst this is good news in terms of a return of the 'soft landing risk on trades' which have served us so well. It does leave us in a bit of limbo currently as we await confirmation, ideally, US data will continue to remain slightly soft, and we'll see a continuation of this week's stocks up / yields down, 'risk on correlation', (a correlation we've not seen for a while). We can then confidently resume 'risk on' short JPY or CHF trades...possibly even short USD.

Alternatively, if we see a resumption of strong US data, it won't be long before zero rate cuts are talked of again. And the USD will once again be the 'only long in town'.

Throughout the week, the BOJ was bubbling under the surface, 'the market' currently thinks the BOJ will hike this coming week, hence the JPY strengthening despite to underlying positive market sentiment, which I believe skewed the currencies strength this week due to JPY liquidity.

Regarding the BOJ meeting, I can envision two scenarios at the upcoming meeting, a 'dovish hike', or a 'hawkish hold'. My preference would be for a 'dovish hike' which, ultimately 'should hopefully' ignite a return of the 'short JPY' carry trade. Especially if the mild risk on environment continues and earnings season doesn't throw up any concerns.

Sentiment for the GBP remains subdued, not helped by soft data, although every time it appeared the pound would seriously sell off, it found some resilience and rebounded, perhaps due to the 'mildy risk on' environment.

On a personal note, it was a disappointing week, with two trades both stopping out. Although I stand by the logic of both trades, the GBP 'in the moment news trade' was perhaps a little rash as it was taken pre European open. The AUD CHF 'risk on' trade, whilst again, logically reasonable, it was perhaps a trade that could have been taken 24 hours earlier. It's also worth noting the trade stopped out at a 'gap' during market close, which is something I'm monitoring, particularly on CHF pairs.

I begin the new week without a clear 'risk bias', although 'hopeful' risk on trades will soon be back en vouge. But I'm interested in the reaction to the 'Trump inauguration', the BOJ and S&P earnings season.

Finally, following 4 days of no water at home, the supply is back on. Which is good news because I've discovered my beard has a lot more white in it than I ever would have cared to imagine.

Feel free to email any questions: johnelfedforexblog@gmail.com

Results:

Trade 1: GBP USD -1

Trade 2: AUD CHF -1

Total = -2%

Total since start of blog = +32.4% (risking 1% per trade).