20/07/26

Current situation in the markets

As much as I don’t want to admit, the markets are still controlled by the Middle East and the price of oil. No matter what you are trading, you are trading oil.

1st scenario goes like this:

Escalation in Middle East → Strait of Hormuz becomes closed → Oil price goes up to 100 → inflation goes up → central banks around the world need to hike rates → risk off.

Risk off means USD up and everything else down. Not the best outcome.

2nd scenario is:

De-escalation in Middle East → Strait of Hormuz opens → Oil price goes down to 70 → inflation goes down → central banks around the world flip dovish → risk on.

This is my preferred scenario. USD down and everything else goes up. Stocks, Gold, Bitcoin,… Everything that the retail loves makes money.

Unfortunately it seems that the 1st scenario is playing out again. US put the blockade back and Strait of Hormuz is closed again. Oil is already going higher. You can see that the Hormuz crossings are back near zero: (credit to Brent Donnelly for the chart)

So I am expecting inflation to go back above 4% soon. Last print came in lower than expected but that was before the Strait got closed again:

Okay so this clearly tells us to buy USD and go into risk off. But which currency to sell against USD? Let’s discuss.

Forex

The only two currencies that I am trading right now are the USD and JPY. Both are bullish in my opinion.

JPY