Chinese trade data better than expected but still showed a decline in imports, while in local currency exports actually grew by 2.3% . However, is this such a surprise? With commodity prices 50% of what they were one year ago, is it a large shock that the value of the overall value of the world’s largest commodity importer fell 4% in their local currency and 7.6% in USD values? Is this really a concern for their growth? I think the volume of exports rather than their value may be a better indicator of growth and that the GDP figure on the 19th of January will not disappoint the markets. Sorry for those predicting a global crash, but I think you are wrong. Do not let that discourage you though, if you say it every time the market tumbles, eventually you will be right (as in the past).
A benefit of this data is that risk aversion has eased somewhat, as expected and the JPY and CHF continue to give up some of their gains, this is good news for USDJPY and USDCHF longs. At this point I am more at ease that our fears of risk aversion persisting till the 19th of the Jan will not come to pass, but every time we seem to be in the clear, something kicks off. So lets just wait and see what happens.
The Sterling continues to suffer weakness and although it has staged a minor retracement earlier today, this was short lived. I guess really everyone will have to wait and see what the BOE says tomorrow to get a better idea of whether the currency will find support or whether it plunges even lower. The BOE has been anything but clear on this matter, spending the last 12 months effectively confusing the markets with MPC members contradicting each other and even themselves days later. One thing is for sure, out of all the central banks out there, the BOE has the least credibility in my opinion as a result of their behavior over the last year. I recall the GBPUSD sitting at 1.50 and Mark Carney, the govenor of the BOE saying “The time to and increase in rates is coming closer”. I remember the GBPUSD rising to 1.58 in the few days that followed and then crashing at the following BOE meeting, where he made Dovish comments completely contradicting what he said earlier. At the moment, I do not know how to read them properly as they have been letting everyone down with misleading comments for the last year. This combined with what appears to be constant data leaks has been most frustrating these last 6 weeks. But the more I think about it, I do not see much wrong with the British economy:
1.)Unemployment is brilliant. Pre-recession levels.
2.) Growth is among the best of developing nations.
The only problem is, that inflation is flat and this is what is delaying the BOE in my opinion. However, one of the most crucial factors of inflation is wage growth, and while this has been soft, I predict that as employment continues to remain firm, this will put upward pressure on wages. Historically, inflation has a habit of turning on like a light switch and I think that towards Q2, we will find it suddenly approaching desired levels.
The AUD has benefited from the better than expected Chinese data due to its trade relationship with China. However, these gains may be short lived and present an opportunity. Recently faith in the AUD has been boosted by unforeseen improvements in its employment data and reductions in unemployment. Analysts predict that this could be short lived and that Thursdays unemployment data is expected to show the employment conditions actually worsening. Therefore it may be a good time to go short on AUDUSD before the data, either as a PUT option or a direct sell on the pair with a tight SL (in case data disappoints) and a Target of 0.69.
We closed our USDCHF buy in the green at a 50% profit after 2 days. While I feel in Q1 it can reach 1.03, at this time, I prefer to have the funds to execute our second trade idea of the week, an AUDUSD sell.
Our USDJPY buy is in the green and we are holding it longer term, with a target of 123 in Q1. The plan is to wait till it is more green, then leave the SL in green strongly. Since this position pays ur rather than charging us to keep it open, once we are in that position, the trade is effectively risk free.
The GBPCHF and GBPJPY trades have recovered a little today as the CHF and JPY have weakened. They were doing much better earlier, but then the Cable tanked from 1.4470 to 1.4380, effectively reducing the recoveries by 80%. Not much to say here except, the SL’s are now very far away and since these positions pay us to hold them, we have to be patient at this time until the UK economy shows the world that it is doing far better than they give it credit for. I want to get some green out of these, but will not mind taking a loss. I just will not accept a loss this big, because I am very confident in their recovery and I do not really feel like having 500 people blame for for closing a buy at 170 only to see it go to 180 a week later. I intend to see this through. Not going to do what some others do and disappear hoping it will change what has happened or make new accounts to hide a screw up. That won’t solve anything. I messed up BIG TIME, I an honest about it, I learned from it and the blame is mine to share with everyone (as they were told the risks daily). Nothing we can do about the past, but we can make it right by facing our mistakes and becoming better people from them.
Unfortunately got SL’d on our USDCHF buy. Fortunately, it SL’d 190 pips in profit, increasing our account equity by 7% in the process, which is good. If the USDCHF drops down to 0.9950, I will enter again.
Our USDJPY BUY positions have recovered significantly and with risk aversion now less prevalent should give us some returns by the weekend.
Good luck to all of you with trades on,