In this blog post, we will delve into the trading signals generated by Acuity Trading in the month of August 2024. August was a month of mixed fortunes across various asset classes, with significant volatility shaping the overall market landscape. Forex markets struggled, leading to negative returns for our analysts as the U.S. dollar and euro faced pressure amid shifting interest rate expectations. Global indices, however, bucked the trend, posting positive returns and emerging as the only asset class to do so, driven by a strong rebound after a turbulent start. Commodities saw a mixed performance, with gold gaining on the back of anticipated rate cuts while oil prices fluctuated due to supply concerns and weakening demand. In the cryptocurrency market, Bitcoin and other digital assets faced a challenging environment, resulting in slight losses as investor sentiment turned cautious amid ongoing price declines and ETF outflows. This varied performance across asset classes highlights the complexities of navigating the markets in a volatile month like August.

Asset Class Summary

Forex
In August, key FX markets experienced significant volatility, contributing to negative returns for our analysts in this asset class. The U.S. dollar faced a challenging month, declining by approximately 2.5%, despite a late rebound that snapped a five-week losing streak. The dollar's performance was particularly weak against the Japanese yen, with the USD/JPY pair dropping over 3%. This decline was driven by expectations of narrowing interest rate differentials as Japan's inflation continued to accelerate, suggesting further rate hikes by the Bank of Japan.

The euro also struggled, remaining flat against the dollar at $1.108 by the end of the month. The euro's weakness was exacerbated by softer-than-expected German inflation data, which led to increased speculation of further rate cuts by the European Central Bank. These factors created a challenging environment for FX trading, contributing to the negative performance in this asset class for our analysts during August.

Indices
In August, global indices managed to produce positive returns, making them the only asset class to do so during the month. Despite a rocky start with heavy selling reminiscent of past market crashes, indices rebounded strongly. The MSCI World Share Index gained 1.8% for the month, supported by record highs in Europe’s Stoxx index and a three-month peak in the UK’s FTSE 100. U.S. indices also showed resilience, with futures for the Nasdaq and S&P 500 indicating continued growth.

Commodities
In August, commodities experienced mixed performance, leading to negative returns for our analysts. While gold prices saw a 3% increase for the month, other factors contributed to challenges in this asset class. The anticipation of U.S. Federal Reserve rate cuts provided support for gold, as lower interest rates reduce the opportunity cost of holding non-yielding assets. However, this positive trend in gold was not enough to offset the broader challenges in the commodities market. Crude oil prices fluctuated due to supply concerns, with Brent crude rising by 0.6% and West Texas Intermediate by 0.7%. Supply disruptions in Libya and Iraq caused temporary price spikes, but these gains were limited by signs of weakening demand, particularly from China, where July imports hit a low not seen since September 2022. The complex interplay of supply issues and demand concerns created a volatile environment that likely contributed to the negative returns.

Cryptocurrencies

August presented a myriad of obstacles and hurdles for our trading, as we navigated through a total of 302 trades with a win rate of 45.36%. Despite our efforts, we found ourselves in a challenging scenario that resulted in a disappointing negative return of 8.92% for the month. This setback marked the first time we experienced three consecutive monthly declines since January - March 2019.

The simulated performance statistics provided are based on the assumption of risking 1% of trading capital per trade. It is crucial to understand that past performance, whether actual or simulated, is not indicative of future results. 

12 month simulated performance statistics

Asset Class Performance

While indices shone brightly as the lone star in August, boasting a 7.01% rise, they were not without their challenges, facing a 4.59% drawdown. On the contrary, the landscape was less favourable for other asset classes, with FX majors taking a hit of -4.97%, FX Crosses experiencing a tough time with a -5.23% decline, and commodities seeing a dip of -5.56%.

At the start of the month, global indices faced a tumultuous sell-off amidst growing concerns of a looming US recession. Traders had eagerly anticipated a rate cut from the Federal Reserve, yet the lack of decisive action had left a cloud of uncertainty hanging over the markets. Despite these challenges, the month witnessed a remarkable rebound in market sentiments, with little regard for technical resistance levels as indices surged. Simultaneously, the US Dollar experienced a notable decline, plunging to its most oversold level since July 2023. The visual representation below offers insights into the market conditions of the US Dollar and the World Index fund, shedding light on the performance of key global indices we monitor daily.

 Best/Worst Performing Markets

USDJPY emerged as the standout star of August 2024, triggering 6 trades. With an impressive win rate of 66.7% and an average return per trade of 3.49%, our analysts skilfully navigated through turbulent market conditions as the previously dominant downtrend in USDJPY began to reverse. Additionally, our analysts achieved commendable results in the indices markets, particularly in CAC and DOW, which experienced a strong rebound post an intense sell-off in early August that reverberated across global indices.

In August, the FX markets presented a challenging landscape. The US Dollar saw a continued decline against major currencies, creating a turbulent environment amidst mixed economic data. GBPAUD and EURUSD struggled the most during this period. Despite our success in other areas, the DAX market faced difficulties with no wins in August. However, historically, this market has been a strong performer for us, and we remain hopeful for a potential comeback in September.

At the onset of August, both the US Dollar and major global indices faced significant challenges. While indices displayed a steady rebound, as depicted in the DAX chart below, the daily trading ranges remained subdued, possibly influenced by seasonal factors like Europeans taking holidays. In contrast, the US Dollar struggled to make a substantial comeback, as evidenced by the USDJPY chart below. Despite the range-bound conditions within a prolonged bearish trend, our analysts adeptly navigated these market dynamics, ultimately closing the month on a profitable note.
 

Major Macroeconomic Data

Here is a snapshot of how our trade ideas performed on the day of key macroeconomic data.

Non Farm Payrolls - 2nd August 2024

The Non-Farm Payrolls report took a surprising dip below expectations, triggering a sharp decline in the USD, which had already been showing signs of weakness in the preceding weeks. This unexpected turn of events further fuelled speculations of a potential interest rate cut by the Federal Reserve. Initial forecasts anticipated a 38.6 pip movement in EURUSD within an hour of the data release, closely aligning with our projections as the actual movement settled at 41.5 pips. However, it was the subsequent downward shift in the USD around 3 pm that led to significant fluctuations, resulting in EURUSD moving a total of 94.6 pips from 1 pm to 4 pm (UK time).

US CPI (MoM) - 14th August 2024

Following the release of CPI data in line with market expectations, our forecast anticipated a movement of 38.8 pips in EURUSD within the hour after the report. However, the actual movement amounted to 31.9 pips, indicating a slight deviation from our initial projection. Despite this, the USD displayed persistent weakness throughout the remainder of the session, culminating in a mildly positive outcome for the day. Noteworthy winning trades were observed in DOW, Platinum, and USDCAD, contributing to a mix of results across various markets. 

Trade of the Month

Our team of skilled analysts diligently sifts through the market to pinpoint high quality trading opportunities daily. Each analyst brings their own distinct approach, tapping into their wealth of expertise and experience to craft market predictions. August's standout trade was a strategic buy on NZDUSD executed on August 22, 2024.

Capitalizing on the robust underlying momentum in NZDUSD, this trade opportunity harnessed the recent USD weakness to propel NZDUSD to its highest levels since January 2024. By adeptly applying classic technical analysis techniques, the analyst strategically identified pullbacks within the trend, setting up a trade with a balanced risk profile and enticing reward potential. This astute analysis led to a highly profitable trade, underscoring the importance of comprehensive market scrutiny and timely decision-making.

NZDUSD - 22th August 2024

• Direction: Buy
• Entry Level: 0.6130
• Stop: 0.6110
• Target 1: 0.6180
• Target 2: 0.6185
• Risk/Reward: 1:2.5

The setup

• There is no clear indication that the upward move is coming to an end
• Although we remain bullish overall, a correction is possible with plenty of room to move lower without impacting the trend higher
• Risk/Reward would be poor to call a buy from current levels
• A move through 0.6150 will confirm the bullish momentum
• The measured move target is 0.6185

Here's a graphical depiction illustrating the trade setup and the analytical process behind the NZDUSD outlook formation.

The Outcome

NZDUSD reached our desired entry level at 15:22 (UK), with minimal drawdown of 2 pips at 15:23 (UK). The immediate move higher from the entry level was very welcome, and the price continued on its bullish path throughout the trading session.

By 3:00 PM (UK time), the price surged past our first target at 0.6180. Throughout the day, the price had been steadily climbing, but it received an extra boost when Fed Chair Powell's speech hit the news, confirming speculations of an impending cut in US interest rates and further weakening the US Dollar.

The price topped out on Friday 23rd August at 0.6236, which was well past our 2nd target at 0.6185, without hitting the stop loss.

Triggered at: 15:22 UK (22nd August 2024)

Exit at: 15:00 UK (23rd August 2024)

Duration: 23 Hours and 38 minutes

Outcome: 2.5R

August 2024 was a month marked by significant market volatility and mixed fortunes across various asset classes. While Forex markets struggled, resulting in negative returns due to pressures on the U.S. dollar and euro, and commodities presented a complex landscape with only gold showing strength, there were bright spots worth noting. Global indices stood out as the sole asset class to post positive returns, driven by a strong rebound after a challenging start. Despite the overall negative performance, particularly in FX and cryptocurrencies, our team demonstrated resilience and adaptability. The insights gained this month will be invaluable as we navigate future market conditions, and with September on the horizon, we remain optimistic about turning these challenges into opportunities.

Thank you for your continued trust in Acuity Trading. Stay tuned for more updates and insights in the coming months.