Overall, not much has changed today and our drawdown (unrealised loss) remains much the same as yesterday. Despite the PBOC injecting funds into equity markets (helping asian equities recover some of yesterdays losses), European equities continued to tumble and once again the JPY remained supported. This was compounded further when Eurozone inflation proved to we very weak and virtually flat. Even core inflation (which negates the effect of hydrocarbon prices) was a soft 0.9% and the markets sold of EUR in the expectation of further action from the ECB.
With that said, I believe there were some positives today:
The NZDUSD position of ours has recovered significantly, and we are hopeful to close it in profit at the end of the week. A large part of this will depend on the results of the milk auction, which should be released at 6pm (GMT +4) this evening.
The GBPCHF position of ours continues to recover, despite the Sterling being very weak today, compounded by parties possibly taking advantage of leaked PMI data and by the lack of any other vital data to lend the sterling support. All recovery was due to the CHF showing weakness, as we suspected it would do once liquidity returned to the market.
The problem position we currently have, which concerns me (I am not nervous about any of the others), is the GBPJPY buy. This is due to geopolitical incidents and surprises in market data consistently working in the Yens favour for the last 5 weeks. However as I said, I still believe the JPY is fundamentally weak, and once we actually have a week or 10 days without chaos or renewed global tensions, the currency will retreat and give back all of its losses. The fact remains despite all of Kuroda and the BOJ’s bravado, all economic data has fallen far short of their expectations and assertions and they will even have to revise down their inflation projections later this month (I am certain of this!). In short, I will not cut a position that I believe has suffered from independent circumstances and which I believe can still give us back much of its unrealised losses as well as some gain. We are not fighting the trend, we are weathering a storm on the back of fundamentals that we believe in.
With that said, I wish to comment quickly on some of the highlights I think we will end the week on and that is USD strength. According to my primitive modelling (yes I do admit its basic!), based on regression of US data (jobless claims, production etc), there is a 80% likelihood that NFP’s on Friday will be in excess of 205K and that the unemployment rate will fall 10bps to 4.9%. This will result in heavy USD bid as markets will start to consider that the FED may be hawkish at the January meeting and reveal some intentions to act in March and raise another 25bps. Please bear this in mind if you are carrying dollar exposure.
For now, let us aim to recover from a disastrous December and then rebuild to new highs. Best of luck to all of you and good luck with your trades,