Theory Into Practice: The Games Continue

Our task is to be aware of news both economic and political and assess how it affects our biases and be flexible in changing them accordingly. The RBNZ is a great example as we know that central bank rhetoric forecasting and intentions are extremely important to understanding the course of their monetary policy and therefore what is the direction of their currency. The immediate effect was an up-move.

Has the bias changed? The difference is small as yet but the new government has brought some optimism. However, it is a labour government which will also be creating more debt with the spending required to implement their policies.

Last night they threw a curve. The rates were held but the forecast improved…only slightly but they see the new government policy as improving the prospects for inflation to pick up and meet estimates ahead of time.

There is another area of particular uncertainty have arisen since Monday. The first relates to tax reforms in the US, complicated as they are, there are many interpretations…the bottom line is that the deficit limit seems to have been passed and that has to be sorted. So the word is that there will be a delay in the details and more discussions. Expect news today.

In the UK, a political nightmare for Mrs May continues as another member of the team resigns, more Brexit news tomorrow and some speculation as talks resume between the EZ and the UK. The EZ are also concerned with the political situation in the UK.

The US 10 yr yield looks like this and perhaps bullish to the end of the week, which will reflect positively in the USDX (but stay aware of news flow), chart courtesy of stockcharts.com:

image courtesy of www.stockcharts.com

There is resistance above in the USDX and anything can happen with regard to taxes.

Gold has tried to break out, on US tax complexities and possible delays. As the day went on, the news firmed on a bill being presented today and this supported the yield.

The bias is up but it is by no means strong.

The Watchlist

 

AUDNZD

The bias is up but will reassess this following the RBA statement tomorrow, interested in a long at a lower level:

 

NZDUSD

I am waiting for higher levels for the short:

 

EURGBP

Took profit on this and a lot at stake today, the bias is up in the short term as the UK founders on domestic politics. The break above the 200EMA could prove important. Brexit meetings resume…again news can go either way but it looks like the EZ will apply some pressure:

The GBP is economically still a wait for longs…at better levels and once the politicians have regained some composure. That applies to the EURGBP and to the GBPUSD so wait for next week.

USD weakness: always ready with the alternate scenario:

Gold.

A long possibility if the USD hits trouble or we see risk off : chart above. This has broken upwards.

USDJPYShort on fear conditions (there have been some signs of that today) and a long if the USD is strong.

Euro trades

EURNZD:

Waiting for the long opportunitiy on the right set-up:

EURJPY

Bias has been to the long side for a while, but support is threatened.

 

Which is why I am watching this:

 

The Japanese index is all about sentiment!

This is a politically driven market. I had hoped for a quick path to shorts in the NZD, but we did not get them. the RBA make a statement tomorrow when we can reassess the AUDNZD. For now, its guesswork and that is not a good trading foundation.

As always I take my cue from the yields and then shall choose short-term trading opportunities with risk-reward at least 1:2.

These are my own trading ideas and not recommendations. I shall be reviewing all the news and data and the statements we have now heard, at the weekend. As always please post any questions in the forum, as well as comments and ideas for discussion and I will happily respond to them.

Judith Waker