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Trading Challenge Week 3 – USD/???

Trading Challenge Week 3 – USD/???

Guest blog from Brandon Turner of Intex Learn


Last Week

Last week’s trade challenge was to trade the NZDJPY pair.  We continued with the theme of positive sentiment on the New Zealand currency and introduced some negative fundamentals on the Japanese Yen.

One distinction I want to make for the listeners is between fundamentals and sentiment.

Fundamentals are the long term macro picture of the health of a nation.  For example, we are fundamentally bullish long term on the US Dollar because they are in a rate hiking cycle and have a robust economy compared to most other countries.  On the flip side, we are fundamentally bearish long term on the Japanese Yen because they have negative interest rates, they are doing a massive quantitative easing program, and they have had almost no inflation in over two decades.

Sentiment is still a form of fundamentals but rather than being a long term outlook sentiment is what is happening right here and now.  Sentiment can last for an hour, a trading session, or a week.  It can be in direct contrast to the fundamentals at times and this is exactly why staying in tune with what is happening in the markets is so important in understanding why prices are moving the way they currently are.

It’s great to know the long term fundamental outlook but it’s the sentiment that creates us our day trading opportunities and it’s the times when strong sentiment is in line with the fundamentals that create the best trading opportunities for us as traders.

How did you fellas make out last week?

“Unfortunately we both had a loss, more marginal than last week for Owen! But a swing into the red for Tom. Owen only traded once after assessing that both pairs had strong sentiment and it was hard to call a direction. Tom thought the same thing but ignored that thought and paid the pip-price!” TBT

Week Ahead

The problem with giving you one currency pair at the beginning of the week is that you are at the mercy of the sentiment changing on you because the information I give you now might not be relevant tomorrow which can make your job trading profitably much more difficult.

What I am going to do this week is give you guys a little more freedom while at the same time forcing you to think on your own two feet about how the current sentiment is pushing prices around in the here and now.

The trade challenge for this week is a little more in line with how I trade sentiment.  I am going to give you one specific currency to focus on and the reasons for it and your job is to find another currency to trade against it which gives you a compelling reason to trade that specific currency pair.

The currency you will focus on this week is the US Dollar.  Your mission, should you choose to accept it, will be to find another currency to trade against the US Dollar.  The best trades will be with a currency which has the opposite sentiment of the US Dollar at the time.

Why the US Dollar?

Last week we finished off with some positive sentiment that gave a boost to the USD.  Fed commentary dominated the trading theme, with Boston Fed Eric Rosengren kicking off the action as he stated that gradual policy tightening is likely to be appropriate while forecasting better than 2% GDP growth over the next two quarters.  This came off as slightly more hawkish than his typical rhetoric.  Later on, Federal Reserve’s Daniel Tarullo countered by saying that he requires additional evidence of inflation moving back towards its 2% inflation target, yet he did not take the possibility of a rate hike this year off the table.

This is the most recent information that the market has focussed on as positive for rate hikes in the coming months.

A few tips to help you guys trade this week:

  • Look at the economic calendar for any potential market moving events for the US Dollar and the currency you choose.  The outcomes of these risk events can have a huge impact on how you trade.

  • Watch out for speeches from Federal Reserve members because what they say almost certainly will have an impact on the pricing of the USD.

  • Stay in tune with the news flow and make sure you have sound reasons for entering a trade at the time you choose.

  • Understand that, even though the US is in a rate hiking cycle with expectations of further rate increases in the near future, sentiment can fluctuate from positive to negative at any time and can just as easily return back to positive.

  • The Forex market is not random noise.  At least 95% of the time the market is reacting to news and information and trying to price that information into the price of whatever currencies you are trading.  Your job will be to uncover what that information is.

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