Weekly review
The week starting Monday 10 February began with a 'USD strength opening gap' and my initial thought was 'here we go again', more tariff chaos. But the 'gap' filled and the chaos didn't materialise. Although the market was tentatively waiting for news, first on Tuesday, then Wednesday but there was no news, in the meantime the risk environment remained mildly positive.
Higher USD CPI data did cause a bit of a stir on Wednesday. But a closer look at the numbers suggested that, although still high, the soft landing narrative in still in tact.
Despite the positive environment (low VIX, positive S&P) it was noticeable the currencies weren't quite reacting accordingly, which was perhaps a currency market quirk of being the only 'instruments' waiting for tariff news. But by Thursday, an announcement that any incoming tariffs wouldn't be implemented straight away, coinciding with positive news regarding the Ukraine war, suggest to me 'it would be a surprise' if there was any negativity in the near future (24 hours).
On Friday, US RETAIL SALES data came in much lower than expected. And the USD weakened accordingly.
Not long ago, it was widely touted the USD was going to have another strong year, EUR USD in particular was predicted to be heading to parity. Currently, those predictions are out of the window and the USD is at a fork in the road.
Will an underlying strong economy ensure 'higher for longer rates' and or tariff concerns to ensure the USD has another bout of strength?
Or will 'softening data', lower bond yields and a positive risk environment ensure the USD has peaked?
Ultimately it will likely come down to US CPI and JOBS data. But if pushed for an opinion, I'm leaning towards a weaker USD by year end. Although there will still be times economic data creates 'long' opportunities.
*Side note, this week's ' USD weekly candles' are particularly discouraging for USD bulls from a technical perspective.
In other news, it was a quiet week regarding BOJ news. And it was nice to see the JPY weaken in correlation with the positive risk environment. But there are still calls for JPY strength due to the data coming out of Japan.
As always, in a 'risk on' environment' I'll compare the momentum of USD, CHF and JPY against each other to determine which currency to short.
Is the JPY fundamentally longable if it's the strongest currency even in a 'risk on / neutral market environment? For now, I'll continue to reserve judgement but I'd find it hard to argue against you if you think it is.
I'll begin the new week with an eye for two types of trading opportunities...if I'm at the charts at the time of a data release I'll look for 'immediate aftermath' trades, an example this week would be Wednesday's CPI data (USD long) or Fridays RETAIL SALES data (USD short).
Or, much more relaxing, maintaining my underlying bias of each currency and placing trades behind 'nice 1hr support' following a pullback without a known cause. Accepting one or two trades per week.
On a personal note, I had a busy week (poorly niece) which meant I missed any 'immediate aftermath' trades. But once I heard the 'delayed tariff news I did feel confident in an AUD CHF long 'risk on' trade. Which did hit profit, although tariff chatter' / Ukraine war 'back and forth took it close to the stop loss at one point.
Results:
Trade 1: AUD CHF +1.5
Total= +1.5%
Total since start of blog= + 36.1% (risking 1% per trade)