WEEKLY REVIEW:
Two currencies were at the forefront of the narrative during the week starting Monday 5 may. The USD and GBP, thanks to interest rate decisions and a trade deal between the two countries.
During the early part of the week, the risk tone was tepid and we had what I deemed ‘strange movement all round’ as tariff uncertainty once again weighed on the markets mind. The CHF didn’t initially weaken after soft inflation data. The Franc did ultimately weaken, a scan through the weekly candles shows most charts ended the week not too far from where they began. And the CHF and NZD as the weeks poorest performers. Having a ‘risk on’ currency and a ‘risk off’ currency at the bottom of the pile is indicative of the current uncertainty.
The two currencies that did stand out were the USD and GBP, a hawkish hold from the FOMC gave the USD strength, backed up by higher ISM SERVICE data. Not long ago a hawkish Powell sent the market ‘risk off’ but this time, the reassuring tone seemed to appease the market. Despite murmurings it could even be September before the FED cuts rates again.
In the UK, a ‘hawkish cut’ with two BOE members voting to hold rates. Plus the announcement of a trade deal with the US gave the GBP a fundamental reason to be strong. And there is a solid case to say EUR GBP short is a good ‘relative fundamental’ trade.
The market greeted the US / UK trade announcement positively. How long the positivity lasts depends on if the market thinks a 10% tariff floor for most countries is good news. It’s still a lot higher than the status quo pre April 2. Perhaps that was the negotiation tactic all along, offer someone rotten eggs for dinner and they’ll eventually be happy with dry bread.
As I write, there are ongoing weekend trade discussions, currently the noises are positive, particularly regarding China. I’ll begin the new week by letting the market tell me what it thinks of the talks. As much as I’d rather understand why, I won’t make myself poorly trying to understand any breakdowns in ‘standard correlations’. But when instruments and the narrative do align, I’ll go with what the market thinks.
On a personal note, it was a disappointing week, two trades both stopped out. Post SWISS inflation I tried to be clever with a CHF short but I got my timing and choice of ‘long currency’ wrong.
I also didn’t take the opportunity to long the USD in the aftermath of the hawkish FOMC.
Finally entering a ‘risk on’ AUD JPY on Thursday with the big mistake of too ambitious a profit target. A bad week at the office all round. But we live and learn and move on.
Results:
Trade 1: USD CHF -1
Trade 2: AUD JPY -1
Total = -2%
Total since start of blog= +37.7% (risking 1% per trade).