When Bad is Bad

Interview March 2015

BOOK LOOKING GOOD - So more chop on Wednesday as was expected and the market is still trying to figure it all out. I was able to book a nice little profit on half the EURCHF long from 1.0430 at 1.0534, and am now holding on to the remaining half to see if this thing can run some more. No pressure here now and will keep a close eye. Elsewhere, AUDNZD has been slowly edging higher but hasn't made a real move just yet, despite showing some early promise. The interesting thing about this trade is that I am starting to see signs of broad Kiwi underperformance in the days and weeks ahead.

KIWI WEAKNESS - EURNZD has jumped a bit over the past few days and could also be on the verge of putting in a new historic low. I think the catalyst for Kiwi underperformance going forward will come from weakness in global equities. Global equities are tied to sentiment and risk appetite and the higher yielding New Zealand Dollar benefits from the elevated equity market. So if we start to see equities reverse, it will take away from the lure of the positive carry in Kiwi and will open some relative underperformance.

TAKEAWAY - The big takeaway with respect to all of this is the fact that US equities traded lower on Wednesday, even after the much weaker than expected durable goods orders. Investors have been pumping into stocks without thought each and every time US data comes out on the softer side as it ensures the Fed will keep money super cheap. So to see an awful durable goods print and stocks drop could be a scary development and one that shakes up global risk appetite.

#NZD could be the most vulnerable of major currencies going forward. Via @joelkruger

VULNERABLE - As far as FX impact is concerned, as per what I highlighted above, this could hit the commodity bloc and emerging market currencies the most. So with the New Zealand Dollar offering the best yield of the developed economies, Kiwi could be the most exposed, while emerging market currencies with higher interest rates could get hit even harder. So if you are wanting to trade the US Dollar, it might be best to trade it against the commodity bloc or emerging markets. I will be looking to sell NZDUSD in the sessions ahead, but don't see a trade just yet. I think if the Euro wants to rally up towards 1.1100, it could still carry Kiwi higher in sympathy. So I will wait for the market to come to me.

Friday Position Review

Looking at the current exposure as we head into the weekend.


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