FX & North Korea

What do we expect in the upcoming week in the FX market. Well alot depends on tensions in the Korean peninsular. Last week was dominated by rhetoric from our favourite POTUS, which was around brute force and intimidation - ""Fire and Fury like the world has never seen before".

If the issues with Nth Korea escalate further then we should see more safe haven buying - yen, gold, suissy. US yields also told a story. On the other hand if things settle then USD may have a reprieve against the yen. Gold broke a significant trendline last week and it should continue north even if deescalation in Nth Korea given the benign inflation outlook in the US which still persists.

Euro is still showing resilience with dip buying occuring down around 117 but the key here was the CPI data released on Friday which saw the euro spike around 70-80 pips and closed the week at 11823 (50pips up on the previous weeks close). Look out for FOMC minutes being released to give a better picture on what members are thinking on importance of 2% inflation target and also there should be a clearer picture on what EZ are also thinking in terms of QE tapering.

Its August so trading could be thin this week so not expecting huge moves (Nth Korea excluded) so becareful of any whippy action. Out on alimb here but see euro trading between 119 and 11776 this week. Good luck to all.

JPY225 + usdjpy

Just thought I would write a little note about one of the aspects we talked about in the Members area this week - correlation.

We all here how difficult it is for new traders to let profits run and cut losses. Unfortunately its normally the other way round. I know it sort of sounds obvious but it does have a lot to do with the way we are hard wired from the beginning, however all it requires is acknowledgement and practice. Once we are in a trade there are ways of keeping us in control - one of those is monitoring market conditions. Ok so far just dribble.

One of these condition is the correlation between variables. One of the most followed and positive cross correlations is between the Japanese equity market and the USD/JPY pair.

JP225 Vs USD/JPY

JP225 Vs USD/JPY

When Japanese equity market is rising then normally the Yen is depreciating and visa versa as can be seen from the image above. But have a look how close the correlation has been since the Trump rally begun. Back to our our original point though of how can this help us stay in a trade longer.

Well if we know the correlation is strongly positive then why would you not let the JPY trade run when you have a equity markets supporting - our fear of markets abruptly reversing is diminished (never disappears of course)until otherwise noted. On top of this we have talk on a US rate hike becoming more certain, and Japanese govt still discussing stimulus programs etc. With all this in mind we should be comfortable with holding a position for longer and managing through a trailing stop. This week we had a Yen trade where we earned over 400 pips by piecing the puzzle together. Thats why we learn the whole process not just fundamentals or technicals. The more we add skill to the equation over luck the better.