Sep 11 – Market Analysis

General Overview

Huge rally for the DAX and CAC yesterday, reaching very high levels. Nikkei also rising a little.  US markets are also strong.  Gold and Oil are dropping back.

FX Market

GBP and AUD are continuing to show strength and everything is moving in their favour.  JPY continues to get weaker and weaker, and CHF is also losing some strength.  According to the matrix EUR and GBP are now the strongest with 8 and 7 points respectively.  Then we have USD, CHF and AUD all sitting on 5 points – however they are all getting there from different points.  AUD is climbing up the ranks, CHF is shifting down and USD is sitting there idly.  EUR is also somewhat idle where as GBP is also getting stronger and stronger (although that is not reflected by the rating system).

Thus according to the matrix, the only pairs that I should be looking to trade are either EURJPY or GBPJPY.  Both of these have been rallying strongly, without a retracement, thus there has not been any opportunity to go long as set out by the strategy parameters.  Therefore I do not have orders to enter into the market.

If I was trading on the basis of what I am seeing in the market then I would be looking to go long GBP and AUD and short JPY and CHF.  Thus long GBPJPY and GBPCHF and long AUDJPY and AUDCHF – however each of these pairs has already been rallying strongly.  However at the moment there is no sign of slow-down.

As discussed this week is light on news, so all these changes in the FX market – are they basically showing re-positioning of the market?

Personal Trader Reflections

I have continued with a lot of work on the momentum indicators (both weekly and daily).  I have been working with daily & weekly data on all 15 pairs dating back to late 2001 – thus 12 years’ worth of data.  Again, I have been massively surprised by the impact of the bid-ask spread on profitability.  This always amazes how much difference the transaction costs can make, and I am sure that on average these costs are really underestimated by retail traders.  Certainly in many cases – particularly for trades using targets and stops of less than 100 pips – the transaction costs make trading in the FX market much worse than any game found in a casino – if assuming randomness of results – thus one really needs a good strategy in order to beat the market (“the House”).


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