How Do We Make Money Today?
We’ve got tricky market conditions at the moment with USD direction coming from a few ‘left of centre’ variables.
The media is clearly focused on the potential US – China trade wars (they can see the advertising dollars rolling in already) and the impact that will have on global growth and equity markets.
Now I’m guilty of getting sucked into this yesterday after China announced plans to increase tariffs on US products & the consequent US retaliation that was to follow. To me that scenario is a one way ticket for a lower USDYEN.
BUT as it turns out the media were mostly responsible for the “US retaliation” story and the whole market got a little caught up in it & was all long JPY.
What happened? The US retaliation is up in the air. It may happen but not just yet.
That was enough to see a squeeze in USDJPY that came from rallying US equity markets. Risk On saw USDJPY higher, AUD, NZD & CAD all higher.
So how should you play the market?
There is cash in the market but this is where timing and waiting for the bigger levels comes into play.
We’re only just starting to get into the major economic data releases for the week & this is where ‘real tangible momentum’ comes into play.
So I am still confident with trading momentum from the economic data as long as it’s with the current market bias, stemming from either the equity markets or the news.
So we need to be watching the equity markets (US equities & Nikkei in particular) for direction with regards ‘Risk-On’ & ‘Risk-Off’. We’re basically pseudo equity traders at the moment.
If there is fresh news from either China or the US it will be reflected immediately in the equity indices & then the currencies.
But it doesn’t take a rocket scientist to work it out.
An increase in tariffs from either side will see ‘Risk-Off’ sentiment kick in and the JPY will rally. If the tariffs are reduced, then expect the opposite to happen.
Outside of that trade with the current market bias and momentum from the economic data…. it’s as simple as that. And that’s what i was missing yesterday on my NZDJPY & USDJPY trades…..fresh momentum. Instead I got onto ‘stale momentum’ generated by beat up media hype.
Check our Next Best Trades Watchlist for full details as to which specific pairs we are focusing on.
There are a few key Aussie releases to monitor: retail sales & building approvals. The RBA didn’t leave much on the table so the AUD should move with general market sentiment at the moment and that’s where the data comes into play.
Keep an eye on the Nikkei also. It’s due to open +170 so any variance from that number may see USDJPY move. I’m still bearish USDJPY though, just not at these levels right now.
Also if China is going to say anything about the trade wars you would expect it during their day.
We’ve got the first of a bunch of UK PMI data releases – Construction PMI. Sterling continues to drift in the breeze so there is definitely potential there.
We also have Eurozone CPI flash estimate & Unemployment rate. The impact of this data varies but I have seen it move the market substantially, so in my eyes it’s worth at the very least monitoring it.
North American Session
This is Donald Trump’s turf so if there are to be any major ‘trade war’ updates you can be sure this is when they will be released, to make sure Donald gets maximum air time.
We also have a bunch of solid numbers coming out: ADP Employment (some think a pre-cursor to NFP on Friday), Factory Orders & ISM Non-Manufacturing PMI.
If there is no ‘trade war’ updates then keep an eye on the US data and then watch the impact on the US equity indices. That’s where the move will come from.
Most of Trumps ‘news flashes’ are in the afternoons so just be wary of potential weird movements later in the day.
Today’s Fundamental Drivers
Plan the Trade, Trade the Plan!
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Make sure you don’t waste unnecessary time in front of the screens.
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Don’t worry about things that you can’t make…..chasing them will only cause problems (tiredness & irrational behaviour will take over).
Tune up your charts & get ready to trade…..see you in the 247 Trade Zone!