Trading Challenge Week 4 – USD/???
Guest blog from Brandon Turner of Intex Learn
Last week we chose to change things up a bit for the trade challenge. Rather than giving you a currency pair and the current sentiment then sending you out to the wild hoping that the sentiment doesn’t change on you, we instead gave you one currency which you would go out and find another currency to trade against it.
I gave you the US Dollar and highlighted the current positive sentiment we were experiencing on the back of some positive Fed central bankers comments. The Dollar finished positive against all other G8 currencies with the exception of the Yen. Having said that hindsight is 20-20 and the sentiment did fip flop a couple times last week.
I’m curious to see which currency you guys picked to trade against the US Dollar, how you did, and the reasons for it. How did you guys make out?
TBT “Our trades earlier in the week were a bit ropey but once the dollar picked up, particularly on Friday we made some profitable trades, notably Owen’s Cable short. Tom made a cheeky 20 pips when closing the trade whilst we were actually recording the podcast… not sure if that counts!?”
In the week ahead we are going to continue our focus on the US Dollar for the trade challenge. On Friday last week we saw a strong bid and heavy buying on the US Dollar on the back of better than expected CPI figures. This has gone against the trend of data missing expectations as of late and gave a renewed confidence to the market that the Fed might still have a rate hike this year, possibly in December.
The big day to watch out for is Wednesday when we get the FOMC statement, economic projections and the all anticipated Federal Funds Rate. The market largely does not expect an interest rate hike so the focus will be on the wording of the statement. If the interest rate is left unchanged the market will probably sell the dollar initially then turn their attention to the statement and see if Yellen has added any more hawkish comments to confirm a December rate hike is still on the table. She will need to give the market confidence that interest rate hikes are coming or we could see a sustained negative sentiment.
However, if the Fed chooses to hike rates on Wednesday then this will be a surprise to the market and we will likely see heavy buying of the dollar indiscriminately across all major pairs. The key thing to point out here is that the more the markets know about an event the less of an impact it will have because that information is priced in already. But if you catch the market out and surprise it then this is the times that we tend to see the largest and most sustained moves. A hike would be a big surprise and create some easy money trading opportunities.
Other key things to watch out for this week will be the Bank of Japan monetary policy statement on Tuesday and the Reserve bank of New Zealand statement on Wednesday.