Recap for Week Ending 6/8

This week was quite interesting. I started out with a sizable paper loss on USD/CAD. On Monday, the pair lost 50 more PIPs from the close last weekend. For fear that it might decline further, I manually closed out 1/3 of my long USD/CAD position @ 1.0560 and simultaneously went long CAD/JPY @ 115.45 with tight stop. When CAD/JPY had advanced past my average price, I adjusted my stop upward. Stop got hit @ 115.58 and a 15-PIP profit was booked.

Meanwhile, USD/CAD bearish momentum stalled. The pair went into a trading range between 1.0547 and 1.0640. It wasn't until yesterday morning, Thursday morning, that it broke resistance at 1.0650. When news that the Canadian economy only added 9.3k jobs in May (as opposed to the ex ante market consensus of 15k) came out, I took advantage of it and closed out my position @ 1.0684, with a modest profit. Not wanting to miss out on a possible bullish formation, I placed in "incremental" limit buy orders and went to sleep.

While I was snoozin', Canadian-positive news that came out later today (and/or profit-taking) drove it back to sub-1.0650 levels. My average price now stands at 1.0624, as opposed to 1.0669 last weekend. Hourly ADX is looking neutral right now. "USD/CAD will eventually need to close above 1.0712 to confirm a broader correction of the long-term downtrend," pundits are saying. Whatever. My USD/CAD orders are placed in such a way that I stand to profit regardless of the outcome.

XAU/USD also retreated this week. I had managed to sell more gold @ 669.19 on Wednesday, before the big drop. However, because I had adjusted my stops downward as an insurance policy against an immediate reversal, a bounce to 660.95 took out all of my position, automatically booking a small profit, relatively speaking.

Based on 30-min ADX, I rebuilt a smaller short position @ 660.20. This turned out to be a correct signal. Again, because I did not want to give back all of my profit, I adjusted my stop downward and it got hit @ 657.20. Gold trended down, however, (due to a broad depression in metals and oil's prices), forcing me to miss out on over 1000 PIPs.

Now I'm sitting on the sidelines, wondering if I should be selling XAU/USD again next week. The daily chart clearly indicates a successful bearish trend formation. ADX is in the low 20's. -DI has freshly crossed +DI. Last year, at this time, gold was also in decline. The 52-week low
@ 541.50 USD an oz. was reached on June 13th, as the chart indicates. So yeah, there's room for a 11,000-PIP profit.

Fundamentally, though, global economies are still growing at an alarming rate. While the U.S. and other large economies have slowed down quite a bit in the past few quarters, inflation is still a forced to be reckoned with. The high demand for oil is not going away, with China and India growing @ 10+% annually. If policy makers insist on keeping liquidity high, or do not have the balls to raise interest rates to tame inflation, wealth managers will once again turn to gold for storage, keeping gold prices above 500, or even pushing it past 700. With a 50:1 leverage ratio, a 1% rise in the price of gold translates into a 50% loss on a short trade; 2% rise, 100% loss. I do not want to lose 20% on any trade, let alone 50% or 100%.

Thus, the question is: do I trust policy makers to make the right decision? The Bank of England voted to keep its central bank at 5.5% yesterday. Will the Fed do the same on June 28? I am torn.

Well, if XAU/USD bounces past 655, I'll think about it.