Weekly review

Writing a review for the week starting Monday 17 February is a bit like trying to put a 1000 piece jigsaw puzzle together... here is my attempt.

The week began in a mildly positive fashion, with the S&P hovering near all time highs, the VIX remaining below 16 and tariff news (initially) taking a back seat. Company earnings,(wallmart aside), remain positive, all in all, each economy of the currencies we trade is doing remarkably ok.

Over the last few years, the worldwide rise in inflation has (in my view) been caused by printing money during the COVID supply shock, combined with the Ukraine war. And has yet to have serious repercussions on developed economies. The soft landing narrative remains in tact. I wish the market was simple enough to be able to place 'soft landing narrative' trades.

But this week, negative UKRAINE war chatter caused a bit of concern, in the currency space at least. The currencies didn't quite behave in accordance with the overall positive tone. Plus I believe JPY strength skewed the picture somewhat, meaning, due to the high liquidity of the JPY, if it's particularly strong, the other currencies appear weaker than they otherwise would be.

Speaking of the JPY, data out of Japan continues to suggest the BOJ will hike again sooner than previously thought. And hold the interest rate 'higher for longer'. Even BOJ concerns about rising Japanese yields didn't weaken the yen. It's particularly noticeable how correlated the US 10year yield and the JPY are at the moment.

By Friday, any positivity was cleaned out of the market towards the end of the day, when US INFLATION EXPECTATIONS (higher) and CONSUMER CONFIDENCE (lower) dented market sentiment. Combined with a re-emergence of concerns TARIFFS and TAX CUTS could cause a rise in inflation. The VIX rose above 18, the S&P and US YIELDS fell in an 'old fashioned risk off' move.

In other news, the RBA (hawkish cut). And the RBNZ (neutral/dovish cut) held rate decisions. I do think the AUD will be relatively stronger than the NZD moving forward. But I suspect post cut comments taking a future 0.5bp RBNZ cut off the table limited NZD weakness.

I continue to be surprised by the strength of the UK economy, another round of generally positive data keeps the GBP high on the list of currencies to long in a 'risk on environment'. But the BOE does have a particularly fine needle to thread in terms of timing rate cuts (Getting the timings wrong could be detrimental to the economy).

I'll begin the new week without a clear bias but mildly hopeful Friday's negativity was a blip, enabling 'risk on' trades (CHF remains my preferred 'short' in a positive environment).

I'm also extremely curious about JPY 'price action' as I've finally come round to the possiblity of 'long JPY' if momentum suggests it. Even in a positive market environment. (Of course, the yen could also present short opportunities when the market is 'risk on')

I'll also be keeping an eye on the outcome of the German election. Plus weekend reports Microsoft will be cutting back on spending could induce fresh angst in the market.

On a personal note: I recently mentioned the idea of two trading options.... 'standard trades' with a stop loss behind 'a cluster' of 1hr support. Or' what I'm currently calling 'immediate aftermath' trades, placed very soon after an event, with no 'convincing swing' to place a stop loss behind. This week I had one trade of each.

A CAD CHF long 'standard risk on trade' took over two days to stop out (keep an eye out for my upcoming thoughts on 'holding a trade you don't want to be in'). There is a strong case I should have stuck with AUD or GBP long rather than the CAD. But at the time of the trade I felt I was being 'shrewd' trading the CAD long and it's a decision I stand by.

Friday's CAD JPY short trade saved the week. I took the trade based on US PMI SERVICE data likely sending US YIELDS lower (JPY positive). The trade did get an extra nudge lower by the afore mentioned negative end to Friday.

Interesting that I've longed the CAD one day but shorted it the next, fundamentally I'm still 'bearish CAD' but I do think it can be longable in a 'risk on' environment.

It's a complicated time, feel free to email any thoughts or questions: johnelfedforexblog@gmail.com

Results:

Trade 1: CAD CHF -1

Trade 2: CAD JPY +1.5

Total = +0.5%

Total since start of blog: +36.6% (risking 1% per trade)