Daily Alert – Friday 21st August 2020: Summer doldrums descend on the markets
It is often said that the markets are quiet in August but my experience over the last 10 years of trading is that that is not really true. Well, it was this week. We have had five straight days of indecisive risk sentiment.
The Fed’s FOMC Meeting Minutes on Wednesday disappointed in that the Fed was less dovish than the markets expected. The USD rose on the news. Sadly, some people seemed to have the news before others. In fact the USD began to rise 5 hours before the official release at 7pm UK-time, and only slightly thereafter. GOLD fell in much the same way as the USD rose, respecting the old inverse correlation between the USD and GOLD prices.
On Monday I traded GOLD long and EURUSD long (strong EUR theme) and both were taken out at breakeven on Wednesday after being in the money, due to the adverse moves created by the FOMC Meeting Minutes. Ho hum.
Like I said, the markets were quiet. On the weekly charts, the S&P500 and the Dow barely moved. The Nasdaq did make a move up to achieve a new all-time high, driven by the big tech stocks. Oil and GOLD have finished the week at the same level they started the week. On currencies, the inverse correlation between the JPY and the commodity currencies was not really apparent (it doesn’t have to be of course, it’s not a perfect correlation and if it was it wouldn’t be tradable). My theme of EUR strength was crushed by the USD’s reaction to the FOMC Meeting Minutes and some bad PMI data in the Eurozone today.
Using 20/20 hindsight to look for trade of the week, with an entry on the Monday night as we tend to do, I see the Nasdaq as the only candidate and even then it would have barely yielded our target reward-to-risk ratio of 2.0.
So, it was quiet. I traded twice and got out alive with no damage to my capital. A fair result really given the weak price action.
Have a great weekend and I’ll be back on Monday.
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