So here we are at the end of the week and unfortunately, for the first time in a while, I have to post that the week has not been profitable. Overall this week total account equity has fallen by -0.5% (including unrealized losses). Note that the month shows a larger loss of 4% so far, but that is because it started on Tuesday and does not include the significant profits made on Monday. However, even though i classify this as a loss (because I always consider the value of an account not the balance but how much can be withdrawn at the present if needed), I am very confident in the value of our current trades and I strongly suspect this month will see us realize a very decent profit.
So what went wrong this week?
In fairness for our trades none of the fundamental data seemed wrong. As expected all the underlying US data was firm and reinforced the strength in the US economy. None of this leads us to believe that an increase in rates will be delayed any further and that in the next 11 days, the US will hike. However it seems the market reaction to the US employment data was the opposite of what was suspected and after reading further into it, looking at the range of put and call options in the market and anecdotal discussions with others, I have concluded that this was the result of re-positioning by the institutional traders as a whole due to the fact that this last piece of data shows beyond a doubt that the FED will raise before the end of 2015. In short, this movement is nothing to be concerned about and next week, we should see the markets behave normally as the USD will regain strength towards the end of next week.
N.B. The rise in AUD and NZD vs the USD was also a result of the commodity rallies brought on as people exited positions. I.e. profit took from their sells on commodities. Do not expect these gains to continue next week.
Our current trades:
We have a NZDUSD sell open that is currently in the red. This should turn around early next week aided by the rate cut by the RBNZ and the market’s focus that the US is rising shortly afterwards. Diverging monetary policy between the two central banks will send this trade into profit.
I opened a longer-term lower leverage (25X) GBPCHF Buy. Unless something fundamentally changes, I expect to hold this trade with the pair expecting to approach 1.55 in the very near future.
I did this for a few reasons:
1.) I expect the GBP to gain in December due to repatriation of funds.
2.) I believe that the CHF’s recovery is only temporary due to its close links to the Euro.
3.) To make better use of the capital. Instead of having it idly sitting there, to have it invested in a long term trade in which i have high confidence.
Anyway getting back to my weekend. Hope you are all having a good one as well,