Weekly review
The week starting Monday 3 March was another week where overall market sentiment was a little sour. 'Growing growth concerns', 'tariff uncertainty' and the incumbent administrations phrase 'short term pain contributed to, what I would say, 'mildly growing concerns' for the future path of the US economy.
Over the past six weeks or so, US data has 'slightly softened'. This is exactly what the FED wanted to see and indications of a 'soft landing' remain. Whilst I am still firmly in the soft landing camp, there is currently a narrative 'tariff concerns' will slow consumer spending, exasperating growth fears and ultimately causing a recession (are companies pre-empting tariffs with price hikes?). Whilst I'm very sceptical of a US recession, the narrative is something to be mindful of, particularly as it's making the USD difficult to trade at the moment, caught between 'growth fears' and what should be 'risk off strength'.
'Risk environment' aside, it's a very different story on the other side of the Atlantic, particularly for the EUR, which had a monster 4% gain Vs the USD this week. Thanks (partially) to US exceptionilasm coming into question. But largely due to a change in EUR deficit rules, combined with a neutral / hawkish ECB. The theory is that an influx of spending will filter through into the economy, ultimately meaning less ECB rate cuts. And (currently) any thoughts of EUR USD hitting parity are long gone.
The GBP also has a little tailwind behind it, thanks to 'hawkish' BOE comments and also 'geographical proximity' to the EUR positivity.
Another currency that could benefit from geographical proximity to Europe is the CHF. The CHF remains my preferred short option in a 'risk on' environment, for obvious reasons (if you're unsure of these reasons please send me an email). But potential CHF strength when the EUR is strong is something to be mindful of.
In amongst the current spiders web narrative, there is one currency I can hang my hat on as a 'short option'...the CAD. Tariff concerns, the Canadian economy and OPEC comments sending the price of oil lower are all CAD negative. Especially as (kick a man when he's down), China is now considering hitting Canada with tarrifs.
Currently, I'm putting a lot of faith in the VIX. There were a few occasions this week when the currencies behaved in a 'risk on manner' (relief bounce?) but whilst the VIX remained close to 25 I didn't have any confidence in the continuation of the 'risk on move'.
I'll approach the new week waiting for the VIX to fall below 20 to place my preferred 'risk on' trades.
In the meantime, potential options are: 'support and resistance trades', based on the underlying risk off environment. Namely JPY or EUR (possibly GBP?) long Vs whichever currency is deemed appropriate at the time (I suspect it could be the CAD) but not ruling out any of the other currencies.
On a personal note, it was a frustrating week. I identified a clear and obvious CAD short trade late on Monday. But missed the original 'catalyst' opportunity due to chosing sleep over waiting for a 15min swing. I then missed the 1hr 'standard trade' opportunity. Ultimately placing a trade based on a continuation of negative sentiment, despite the chart being 'stretched'. I now class the trade as a mistake, the mistake was 'chasing a falling knife' rather than waiting for a pullback. (Probably out of the frustration of the previous missed opportunities) As I've longed discussed, the thing about mistakes is to acknowledge them but not dwell on them. The only thing that matters is how you move forward. And you move forward by maintaining an underlying fundamental bias and focusing on making decisions you would stand by tomorrow.
Arguably, I should have been more reactive and focused on longing the EUR. But my inherent thoughts of a struggling EUR economy ensured it took me a while to get behind the thought of EUR long trades.
There is a case to say (for the time being) focus on 15min or 30 min charts. But I'll continue to have the most confidence in a trade with a 'cluster of 1hr support' aligning with my fundamental bias.
In my opinion it's been a very difficult week for 'fundamental traders'. I suspect Purley 'technical momentum traders' would have done quite well. But I will always maintain it's better to trade in accordance with the underlying fundamental narrative, over the long term there is no doubt in my mind it will yield better results.
Please email any thoughts or questions, you may have a different opinion than me: johnelfedforexblog@gmail.com
Result:
Trade 1: CAD JPY -1
Total= -1%
Total since start of blog = +36.1% (risking 1% per trade).