Fundamental analysis

Trading Discussion Trade Journals
102

Tuesday 27 May:

So far, I haven’t had enough conviction to place a trade this week.

Weekend news of a delay to Europe tariffs (market positive), plus reports the MOF in Japan are considering curbing the rise in Japanese yields (JPY bearish), has put my recent switch to a ‘underlying risk off bias’ to the test.

Due to Mondays low liquidity (memorial day, UK bank holiday) I opted not trade.

There was certainly a JPY short opportunity during Tuesday’s Asian session or European session. But I wasn’t at the charts, and now, JPY weakness is perhaps a little stretched.

As things stand, the USD and commodity currencies are reacting in positive correlation with tariff news. And an inverse correlation with the US 10 year (yields down, USD JPY up is very odd see).

All the while, the S&P is a slow moving beacon of positivity.

Whilst my preference for ‘risk on’ trades has returned, I’m waiting for a stop loss I feel comfortable with, all the while, aware that any positivity is walking a tightrope and a wave of ‘risk off sentiment’ could return at any moment.

Although the overall risk environment remains in control, AUD CPI data and RBNZ rate decision could have a bearing on the short term direction of AUD and NZD.

It’s times like these where not losing money is more important than making money. And staying patient and waiting until you feel extra confident in a trade is never a bad idea.

Please feel free to offer thoughts or ask questions, your experiences may differ from mine.

103

LIVE TRADE:

NZD JPY long
86.04

A hawkish RBNZ cut, combined with continued talk of JPY YIELD tapering, plus the tentatively positive risk environment, gives me cause to believe NZJ JPY will continue upwards.

I’ve been waiting for a little bit of support to form and feel content with a 30min swing to place a stop loss behind.

The risk to the trade is negative sentiment, or if the JPY strengthens against the USD, then ‘liquidity’ could strengthen the yen Vs everything and the USD would have been the best short option.

104

Thursday 29 May:

The initial burst of optimism following the supreme court’s involvement in the tariff situation has waned. The market is assessing the potential implications, the mood hasn’t been helped by soft JOBLESS CLAIMS and GDP data.

I still have a preference for ‘underlying risk on’ trades, particularly as AUD JPY and AUD CHF are sitting at 4hr support. But at the moment, it does like like the negative mood could continue. So, for the time being, it’s a case of wait and see.

Maybe CORE PCE data or a fresh tariff comment will cement an opportunity in either direction?

105

WEEKLY REVIEW:

The week starting Monday 26 May was another week of changeable headlines, highlighting how fragile overall market sentiment remains.

The week began with positivity following the president’s announcement that fresh tariffs on Europe would be delayed. The ‘risk on’ mood was given an extra boost by reports from Japan that measures could be taken to curb the rise of bond yields.

Sentiment got a final boost on Wednesday, when NVIDEA reported another round of ‘good earnings’ and at the same time, the US supreme court moved to block the ‘liberation day’ tariffs, deeming the president to have overstepped. But that’s where sentiment peaked, as focus turned to the presidents likely reaction of appeals and work arounds. Bringing the dreaded ‘uncertainty’ word back to the fore. The uncertainty was added to by suggestions US and China talks have stalled.

Friday’s slightly soft CORE PCE data is good news, although the market is looking through recent data, with a mind that the next round of data could start show the effect of tariffs.

I begin the new week as uncertain as everyone else, all in all, economic fundamentals remain solid. And I still have a very mild preference for ‘tentative risk on trades’. But as the initial 90 day tariff reprieve draws closer, I imagine June will continue to bring (almost daily) shifts in sentiment. And I’ll remain nimble, prepared to trade in either direction when momentum aligns with a fresh cause, be it a headline, data release or whatever the market gets it’s teeth into at the time.

In other news, a ‘hawkish cut’ from the RBNZ boosted the NZD. Plus ‘hot’ inflation data from Australia keeps the AUD on the ‘to long list’ in times of ‘risk on’.

Likewise, ‘hot’ inflation data from Japan keeps an extra BOJ hike on the table, which is a little counter intuitive given the talk of yield curve control.

Ultimately, as has been the case for a while, the risk environment continues to dominate and I’ll be keeping an eye on the VIX, the S&P and yields in an attempt to desipher the days narrative. I’m particularly fond of halftime report and closing bell at the moment, especially when it comes to trying to understand the US bond market.

On a personal note, it was a week of two trades. Both NZD CHF long. The first in the early part of the week when the positive mood aligned with the ‘hawkish’ RBNZ. The second trade was post the supreme court ruling, I felt the news could boost sentiment for a while and was a little surprised it didn’t. Although, if there’s one thing we quickly learn about trading, it’s to never be surprised by anything.

I continue to be happy with ‘only’ two trades per week.

Results:

Trade 1: NZD CHF +1.5

Trade 2: NZD CHF -1

Total = +0.5%

Total since start of blog = +40.5% (risking 1% per trade).

106

LIVE TRADE:

GBP CHF long
1.114
20 pip stop loss, 30 pip profit target.

I wouldn’t say overall sentiment is very positive, it’s on a knife edge. But stocks are up, the VIX is down and bond yields are not currently causing a stir.

Given the drop in Swiss inflation into negative territory, increasing the likelihood of more SNB rate cuts, I’ve entered GBP CHF long.

I’ve chosen GBP to long due to the collection of positive GBP fundamentals that have been building the past weeks. But there is a case to say any currency is longable, bar the JPY. There is also a case to say the JPY is the better short option. But I like the freshness of the swiss data.

The risk to the trade is negative sentiment, or the fact the CHF has weakened already today and there is not discernable swing to place a stop loss behind.

107

WEDNESDAY 4 JUNE:

It’s been an eventful day in the markets.
Soft US data (ADP and SERVICE ISM) has sent the USD lower.

A BOC rate hold with a non committal, data dependent, wait and see approach could be deemed as a ‘hawkish hold’ especially given how ‘bearish’ the BOC was a few months ago. But recent data has started to shine a positive light on the Canadian economy.

I feel like a USD short ‘in the moment news trade’ was very viable today. But unfortunately, I’m a little late to the party.

And although overall sentiment was initially dented due to the soft data. The market has been in a positive mood recently as it comes to terms with the president’s ‘escalate to de-escalate strategy’. And I suspect today’s data will ultimately be viewed as ‘bad news is good news’ as rate cuts will come into a fairly strong economy.

Therefore, I’m currently more inclined to wait for a reversal of CHF or JPY strength, with a mind for another ‘risk on’ trade.

It is mildly frustrating to feel like I’ve missed an opportunity today. But it’s very important to make decisions you would stand by regardless of emotion.

108

Thursday 5 June:

The mood has recovered following yesterday’s soft US data. Helped by news of a positive Trump / Xi phone call.

Unfortunately, my trading windows haven’t been aligned with the timings to enter a trade. And once again, as much as I feel it would be remiss not to take advantage of the positive sentiment. I unfortunately find myself waiting for a pullback, even though I suspect 4hr resistance on JPY charts could break, the fact it’s approaching the low liquidity time of the day, plus it’s NFP tomorrow. My hesitant self thinks the opportunity has happened earlier today and the best thing to do in this moment is to wait and see.

There is still a possibility of a ‘risk on’ pullback creating support, for a 1:1 risk reward before NFP. But for now, I’m content to sit on what I already have this week.

I include the USD as a ‘long option’ given the dollar’s positive correlation to ‘tariff news’.

Please feel free to let me know how your trading week is going:

109

WEEKLY REVIEW:
.
The week starting Monday 2 June was actually a fairly calm week for overall sentiment. But it was a very: down, up, down, up, week for the USD.

The dollar started on the back foot as it was the currency hit most by fresh tariff uncertainty. But by Tuesday, poise was regained and it appears the market is starting to look through the president’s escalate to de-escalate strategy. The overall mood was perhaps helped by falling inflation in Europe, particularly Switzerland, where disinflation is starting to take hold. A ‘hawkish cut’ from the ECB saw one board member declare a ‘soft landing’ has been achieved.

Another central bank with a rate decision was the BOC, a ‘hawkish hold’ was delivered. Currently the SNB is the only central bank with imminent rate cuts looming, which bodes well for potential CHF short trades.

Alongside the BOC rate decision, we got some ‘soft’ US data (ADP and SERVICE PMI). Which did dent sentiment, particularly for the USD. It was refreshing to see a currency move caused by actual data.

By Thursday, the ‘soft’ US data didn’t matter anymore. Helped by news of a positive Trump / Xi phonecall. Although we did get a little wobble when two big egos (Trump and Musk) had a very public falling out.

Friday’s fairly solid NFP data squashed any negativity and boosted the USD. Comments from WALMART suggesting the US consumer is continuing to spend freely adds to the positive mood.

It is worth noting that LULULEMON and TARGET both offered opposing views to WALMART. But when it comes to gauging consumer health, I would put more credence on WALMART’S thoughts. Maybe that’s my confirmation bias kicking in? But, nonetheless, I’ll begin the new week with a preference for 'risk on ’ trades . I am still prepared to trade ‘risk off’ but it would have to be a strong headline with a bone fide concern. Even negative tariff headlines (currently) don’t have a lasting affect.

On a personal note, it was a week of only one trade. More through bad timings then a lack of opportunities. I missed all the ‘potentially’ tradable USD news opportunities (ADP, NFP). But it’s ok when that happens, the important thing is to stay patient and only make decisions you would stand by, if that’s thinking a chart has ‘gone too far’, the right thing to do is to wait.

I did manage a CHF short opportunity, post SWISS inflation data in a period of market ‘risk on’.

And I continue to be content with (ideally) two trades a week, waiting for a place to put a stop loss I feel very comfortable with.

Results:

Trade 1: NZD CHF +1.5

Total = +1.5%

Total since start of blog = + 42% (risking 1% per trade

110

Live trade:

NZD JPY long
87.55

20 pip stop, 30 pip profit.

Following the soft CPI, the initial thought is for a ‘short USD’ trade. But I’m reluctant to short the dollar whilst the tariff mood is positive.
This is a speculative ‘risk on’ trade. Helped my comments earlier in the week that real inflation in Japan is below 2%.

I’ve chosen NZD to long because I like the support on the chart and I think it’s more likely to break higher rather than lower. There is a case to say another currency could be a better long, particularly the EUR which currently has the momentum.

The risk to the trade is negative sentiment, or ‘liquidity’ if the JPY continues to strengthen Vs the USD.

111

Thursday 12 June:

I was a little surprised at the ‘risk off’ sentiment following yesterday’s (essentially) ‘soft landing’ data.

Until I read that heightened tensions between ISRAEL and IRAN has caused concern. And we now find ourselves stuck in the middle, awaiting either escalation or de-escalation. Plus awaiting CHINA’S thoughts on ‘tariff talks’ (which have gone well according to the US).
My preference would be for a calming of tensions and positive CHINA rhetoric, for a continuation of ‘risk on’ sentiment.

But middle east escalation would certainly be a bone fide ‘risk off’ opportunity.

In other news, the strong EUR momentum continues post ‘hawkish cut’, also perhaps helped by the ‘risk off’ mood. And ‘soft’ UK GDP data (following the soft job data earlier in the week), has weakened the GBP and would have made a GBP short ‘news catalyst’ for anyone at the charts at the time.

Arguably, the ‘middle east tension’ is tradable now, particularly looking at the momentum of EUR AUD. (EUR AUD long can be classed as a ‘risk off’ trade).

I’m actually heading to the ‘lake district’ for a couple of nights camping. I will have a window to trade during the US session and currently, my inclination is to wait and see how the land lies in a few hours.

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112

Me too. The D30 dropped over 500 pips from yesterday’s peak, even though the CPI data was actually good. I was scratching my head wondering why — checked the news yesterday but couldn’t find anything obvious until this morning, when I saw the BBC report about rising tensions between Israel and Iran. The U.S. has advised non-essential staff to evacuate embassies in the region.

That probably explains the sudden risk-off sentiment. Sometimes it’s not the economic data driving the moves, but the geopolitical surprises we don’t see coming.

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113

Weekly Review:

The week starting Monday 9 June was packed with market moving events. Ultimately, the dominant theme was a re-emergence of Middle East concerns.

But before events in the Middle East took hold, all appeared well. Tariff talks between the US and China are at least moving in the right direction. Soft US CPI data, although not a game changer (the market still an eye on future inflation tariffs may cause). The combination of benign inflation and softening US data in general does however keep the ‘soft landing’ narrative alive. It could be a tricky path ahead if inflation does rise and growth slows too much. But, for now, despite the recent flux of ‘tariff uncertainty’, ‘credit downgrade’ and ‘fiscal uncertainty’, I still remain in the ‘soft landing camp’. But I expect the beginning of the new week to hinge on Middle East news.

I’m other news, EUR strength was particularly noticeable this week. Which I put down to a spill-over from last week’s ‘hawkish cut’ plus EUR USD ‘liquidity’, particularly once the chart rose above 1.15 for first time in a long while.
The CAD beniffited from the rising oil price due to Middle East concerns.
And a bout of soft data from the UK makes the upcoming BOE meeting interesting.

On a personal note, it was a disappointing week. I elected not to trade the USD ‘short’ post CPI, plumping instead for a ‘risk on’ short JPY trade. Which stopped out as the Middle East news hit. I then placed a bold ‘risk off’ trade pre US open on Friday. which stopped out before the market did eventually end on a negative note. Perhaps I was trying to be a little too clever by anticipating a negative US session rather than waiting for the AUD CHF chart to roll over.

Results:

Trade 1: NZD JPY -1

Trade 2: AUD CHF -1

Total = -2%

Total since start of blog = +40% (risking 1% per trade).

114

Monday 16 June: The week ahead…with a splash of psychology.

The market has been on high eltert since last Wednesday’s US marines activity news. Tensions were heightened further following Thursday’s escalation. But the new week has begun with the US stating it won’t get involved, which has calmed the mood.

I would suggest a ‘risk on’ trade has been viable today, the risk to any trade being ‘re-escalation’. But I haven’t found myself at the charts at a time I felt comfortable enough to place a trade. The balancing act of your actual availability to trade and the amount of time you’re prepared to devote to trading will always be ever present. Ultimately, all you can do is make a decision in the moment you have. Then move on to the next moment.

We have have an interesting week ahead. Starting with the BOJ during Tuesday’s Asian session. My preference is for a ‘dovish hold’ to create a potential JPY 'short’opportunity. But I am prepared to ‘long’ the yen on ‘hawkish rhetoric’.

US retail sales on Tuesday could create a USD trade in either direction.

UK CPI data on Wednesday will be interesting, especially considering last week’s bout of ‘soft’ data, a low number could force the BOE to turn dovish. A high number puts the BOE in a bit of a pickle.

We also have the FED meeting on Wednesday, the market will be looking for signs of dovish rhetoric (risk on), but I imagine Mr Powell will continue his cautious, wait and see approach.

I’m particularly interested in Thursday’s SNB rate decision, I’m tempted by an ‘anticipation short CHF’ trade pre decision. Particularly after recent comments suggesting swiss growth is stagnant.

For now, its a case of waiting for the elusive moment I can combine enough of a cause with a stop loss and profit target whereby I can happily say, if this trade stops out, I’ll still think I should have taken it.

Please feel to offer thoughts or ask questions: