- THE FX MARKET PLACE:
LOOKING BACKWARDS, FORWARDS & SIDEWAYS (FOR GOOD MEASURE) AT THE FX MARKET:
1.1: LOOKING BACKWARDS:
From a trading perspective, all things seem to have come together and this month so far has been a record for all of my accounts. Looking solely at the PREMIUM SERVICE trades the total pips banked this month so far are: – 3,140.
There are several specific circumstances and factors that have come together to create this performance. The simple fact is “ALL of them” have been discussed at length over recent weeks/months in this blog.
Leaping forward, but actually backwards…
Finally the SNB let loose and has made its intentions clear ahead of the ECB press conference this week on the 3rd December. I am not sure exactly what Thomas Jordan’s (SNB governing body chairman) has in mind, I reached out to him but so far he has not responded to my email. The EUR/CHF exchange rate is pivotal to SNB policy (unwritten) and after the 1.2000 exchange rate peg was removed earlier this year, in the aftermath a 1.1000 minimum was rumoured to be the new floor (unwritten). The EUR/CHF flirted with this level but it has never held. In my opinion, over the past two months or so the SNB had been supporting the EUR/CHF around 1.0750.
My suspicions are that the SNB will act aggressively in the market to ensure the CHF weakens further. Whether there is more ahead of the ECB this week, at the same time as the ECB or just after, is up for debate. If Jordan responds to my enquiry, you will be the first to know.
Apart from the SNB the other big news is that the DIVERGENT TRADE PLAN is up and running, or rather that should be up and motoring! We may be in the early stages but central bank monetary policy divergence, which should be rubber stamped in the next two weeks is already having the desired effect.
Together with my subscribers we will exploit the crap out of this next year. We will be measured, calm and most of all not greedy. These moves should be directional but there will be sideways moves and consolidations along the way. There are thousands and thousands of pips potentially available; but as it will not be a straight-line waterfall drop we will be strategic and disciplined in the approach. I am looking forward to 2016. All we require is for Mario Draghi to carry on what he has started these past two weeks and for Janet Yellen to extract the digit, stop dithering and deliver the FED normalization plan. All things being equal we should have a great trading year in 2016.
(I am writing about Mario Draghi and the ECB later, if you were wondering why he is not mentioned in this section of the blog).
Here are the key dates next month: –
3rd December 2015: ECB meeting in Frankfurt with press conference.
16th December 2015: FOMC meeting with press conference.
The special FED announcement last Monday never happened. I was ready expecting the discount rate to be raised. I was even ready for my 10% bet that the FED may raise both rates and surprise the markets. Then I smacked my head against the wall calling myself a bloody idiot…. Janet Yellen is so damn Conservative and boring, what was I thinking. A risky day for her as far as she is concerned is a blue pen instead of a black one.
She completely redefines living on the edge! Had she raised both rates last Monday, the FED would have been calling 911 (999) to bring in boxes of tissues for all the FOMC members and probably half the press corps as well to cope with the ensuing nose-bleeds that would have occurred, not just from the announcement but also, the ensuing issues of them clattering into walls, doors and each other as they all would not be able to cope with simple directional movements.
Not much else really caught my eye on the news front. Currency wise, the commodity currencies firmed at the beginning of the week, but this faded towards the end as the USD (DXY) strengthened once again. The EUR/USD helped by Draghi was lower and under pressure all week.
If I heard it once last week, I heard it 100 times, traders who took profits too soon on the EUR/USD and USD/CHF pairs in particular, were trying to hype up the risks of a squeeze much higher in the EUR/USD. It was like the boy that cried wolf; maybe eventually they could claim a victory. Well, as we saw last week these pairs didn’t squeeze or pull back dramatically at all. Sentiment looks very bearish EUR/USD and very bullish USD/CHF.
I think, we have to be careful of a buy the rumour sell the news event around the ECB Press Conference this week. Having said that I would think you would be a little foolish to be short the USD entering into this announcement. Personally, I closed multiple positions that were open just after the SNB intervention last Friday. I am actively looking to re-enter this week but only with USD long trades and not a lot of them.
If there were risks of buy the rumour sell the news, I think the SNB action last Friday has certainly placed a spanner (wrench) in the works. This will make people think twice.
1.2: LOOKING FORWARD:
MAJOR FOREX NEWS THIS WEEK THAT INTERESTS ME:
(There are many more news items related to the Forex Market other than the ones listed below. These are the ones that interest me. You can go to www.forexfactory.com and www.tradingeconomics.com for a more comprehensive lists of all news events that are Forex related).
SUNDAY: NZD – ANZ Business Confidence.
MONDAY: AUD – RBA Rate Statement.
MONDAY: CNY – PMi Data.
TUESDAY: GBP – Manufacturing PMi.
TUESDAY: CAD – GDP.
TUESDAY: NZD – GDT Dairy Auction Prices.
TUESDAY: USD – ISM Manufacturing PMi.
TUESDAY: AUD – GDP.
WEDNESDAY: GBP – Construction PMi.
WEDNESDAY: USD – ADP Non-Farm Payrolls.
WEDNESDAY: CAD – BOC Rate Statement.
WEDNESDAY: USD – Words of wisdom from Janet Yellen (FED).
WEDNESDAY: AUD – Trade Balance.
THURSDAY: GBP – Services PMi
THURSDAY: EUR – ECB Rate Announcement and Press Conference.
THURSDAY: USD – More words of wisdom from Janet Yellen (FED).
THURSDAY: USD – ISM Non-Manufacturing PMi.
THURSDAY: AUD – Retail Sales.
FRIDAY: CAD – Employment Change/ Unemployment Rate/Trade Balance.
FRIDAY: USD – Non-Farm Employment Data and Unemployment Rate.
FRIDAY: USD – Trade balance.
MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:
This is a big week on economic data.
To state the obvious – we have a clatter of market movers coming up.
The highlights as far as I am concerned are the central bank announcements and U.S. employment data.
RBA – will they cut? Nothing at all is in the pipeline for a rate cut. The RBA has to do a balancing act between commodity prices being deep in the crapper and the fact that the Sydney housing prices are at bubble busting stage. The rest of the country’s housing is not that much of an issue. My thoughts are that Glenn Stevens (RBA Governor) will do nothing, and dither waiting to see what happens re the FED. That fact that GOLD and COPPER are at the precipice of a major dive lower must give Glenn Stevens sleepless nights but these central bankers are so cautious and despite their comments about being ahead of the curve, the majority are always playing catch up.
Let me put this another way, if I was catching a plane with a central banker they would be at the ferry terminal waiting for it to land.
BOC – Stephen Poloz (Governor of the BOC) in my opinion has to act. I think that I will be long the USD/CAD going into Wednesday morning. As you may know, I live in Quebec (at the moment); the home of “PastaGate” and the province of no investment, and no politician cares enough to speak his or her mind to tackle the deep-rooted issues of this province. The Toronto area economy is in great shape generally, but depressed commodity prices, especially Oil (which in my mind could go sub $30.00 before finding it’s bottom), are taking toll on the rest of the country. I gave Poloz the benefit of the doubt last time around as our new kid in a man’s job Justin Trudeau had just been elected. Remember the Canadian government has a history of posting incorrect data (as well as pre-releasing economic data to certain parts of the market); so do not believe everything you read. There is no confidence in the Canadian economy. In my opinion, Poloz needs to cut for the sake of retail and jobs moving forward.
ECB – Mario Draghi’s grand day out approaches. He has left us in no uncertain terms of late that he means business about fixing inflation in the Eurozone. As long as he delivers on QE and deposit rates this Thursday and jawbones until his jaw aches all will be well. Ignore yer woman Sabine Lautenschlager the German on the 6-person board of the European Central Bank (ECB), she is just making contradictory comments against Draghi for the home audience in Germany who love to provoke… it’s in their genes that is why they cannot understand or work with the Mediterranean mentality of Greece, Cyprus, Italy and Spain to name a few.
U.S. NON-FARM PAYROLLS – Unless this number is an absolute howler, the unemployment rate jumps up 2 or 3 decimal points and average hours earnings don’t dive lower, we are having a FED rate hike on December 13th 2015. All eyes will be looking at these statistics and without doubt it will be a market mover.
I will add this comment for those traders who are newer to Forex. If you really want to trade Forex for a long time and want to make a consistent income from Forex…. DO NOT TRADE THIS WEEK. This may sound strange, but it may be the best advice you ever receive. Be what I call a voyeur trader, just watch from sidelines. Whilst I predict the week will have a lot of market moving data, it will also be a chop fest as the big market players such as the banks and larger institutions manipulate matters, as they get ready for the FED on the 13th December. It may be best just to sit back. If you feel you must participate trade small.
Be on your guard.
Liquidity starts to decline now as we approach the year-end. God knows what it will be like when the FED meets on the 13th December?
MY KEY SUPPORT & RESISTANCE LEVELS THIS WEEK FOR USD MAJORS:
In this section I have as usual kept my charts as minimalist as possible. All readers regardless of level of experience should be able to follow my thoughts from my comments to the levels on the charts with ease.
My usual chart provider was off-line, so the comments for each currency pair are written in the blog this week.
EUR/USD – Weekly Closing Price: 1.0565
Which ever you look at the chart below. It’s bearish. The EUR/USD is bearish and all these “it will squeeze” analysts have got it wrong. It looks highly unlikely that entries short at 1.0750 and 1.0800 are going to happen. The pair is struggling with 1.0690… let us please face facts it looks nailed on that we are off to parity and beyond.
GBP/USD – Weekly Closing Price: 1.5040
We are close to testing 1.5000. This is a huge psychological number and if broken it opens up a major downside leg with this pair. 1.4850 would be the next target in my eyes. However, we are talking about the cable… notorious for false breakouts and false breakdowns. I want to be short the EUR/GBP, but decided against it as I think that the EUR/GBP will go nowhere. If both the EUR/USD and GBP/USD move lower the EUR/GBP will probably just stagnate at current levels. If the cable bounces then the EUR/GBP trade short is on. However, I think the cable will move in sympathy with the EUR/USD. Just be mindful of this pair.
SUPPORT: 1.5000 then 1.4850
RESISTANCE: 1.5140 then 1.5265
AUD/USD – Weekly Closing Price: 0.7193
It looks like the move higher to 0.7275 was it. Given the fundamental position with copper, gold, iron ore and China, how the AUD currency could rally beggars belief. We are now moving lower back towards 0.7000. The RBA meets this week and will probably keep rates on hold. They have as previously mentioned got a difficult balancing act to perform. Failing commodity prices versus a housing boom / bubble in Sydney.
NZD/USD – Weekly Closing Price: 0.6534
We are range bound between 0.6500 and 0.6600. We have been in this range for over two weeks. I cannot see this changing until the RBNZ meet and cut rates.
USD/CAD – Weekly Closing Price: 1.3371
I want to be long this pair moving into the BOC rate decision this week. I am expecting a cut. Whether or not I can get the price level I want to be long is a matter of debate. But I would like to be long into Poloz’s announcement.
USD/CHF – Weekly Closing Price: 1.0294
We are now breaking out. Thomas Jordan has moved ahead of the ECB. He had to given the plethora of options Mario Draghi (ECB) has and will use. I do not think that the SNB moves are over and the desire to weaken the CHF is as strong with Jordan as the desire to weaken the EUR is with Draghi.
The question is where next after breaking 1.0240. I think way above 1.1000 for sure. We now appear maybe to have an ascending channel to follow, see the chart below.
RESISTANCE: 1.0350 then 1.0450
USD/JPY – Weekly Closing Price: 122.89
We are in another trading range for this pair.
1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):
Last Friday, several of my subscribers expressed surprise and wrote to me just after I announced that I was pulling trades off the table after the SNB intervention. I said that I would revisit those thoughts for a wider audience in this blog.
Basically after intervention once the immediate impact hits home you see an initial spike higher than maybe a smaller spike then the pullback. Just look across the hourly charts.
Below is the USD/CHF 60 minute chart, which is the perfect example in my mind of an intervention move and how they normally play out.
I took profits pretty much across the board on USD/CHF, AUD/CHF and GBP/CHF trades on the basis that they will pull back, sometimes they test the breakout point, sometimes they pullback to previous horizontal support and then in both cases they normally turn back and head in the direction following the central bank intervention.
With my RADAR trades on this last move I banked 182 pips and with FUNDAMENTAL trades I banked 232 pips, across the three pairs listed above. Along the way from 0.9250 I have been banking profits on the USD/CHF off and on. It has been a spectacular overall trade and it is not finished yet.
As I mentioned to subscribers, yes, I could have just let the trades take the pullback if I am confident of the uptrend move returning. That is one way to look at the trade from a macro viewpoint. I decided several years ago that the best policy on intervention moves is to bank profits and then re-load once again. I am not looking for the glory of saying I had a trade with 800 pips profit in it. I trade to try and make $$$.
There is NEVER a bad time to bank profits. It is always better to bank profits than take losses. As an individual retail trader I cannot influence the market, with my PREMIUM SERVICE subscribers collectively still not big enough to influence.
My goals are simple with RADAR and FLASH trades bank profits that represent if possible a reasonable return for the risks involved. With FUNDAMENTAL trades I still want to bank profits but maybe not as often. Next year when this type of trade is in full flow it should be interesting.
So in summary after a large move in the CHF like we saw on Friday most CHF pairs were rather stretched and over-bought, you have to allow them a pullback to re-set. At that point think about re-entering again.
- WHAT’S ON MY MIND:
THE CURRENCY WARS ARE GATHERING PACE
I was going to write solely about Mario Draghi, the ECB and the Eurozone this week giving them a real good slagging given that this is my last WEEKLY FX DRIVE THRU in this format (I think), and the last one of 2015.
Then on Friday last week, in comes our good friend Thomas Jordan Chairman of the governing body of the SNB, introducing a stealth attack of currency intervention, I prefer manipulation (it sounds dirty) into the Forex markets.
This time it was “Happy Days”
The last time Jordan intervened so obviously was the EUR/CHF peg removal, I took a serious hit that day and given the behavior of FXCM to my subscribers and myself we parted company as a result and my group switched to alternative brokers.
2015 we will be remembered in my mind for several new key words and phrases relating to Forex, which were added to my daily vocabulary that originated from central bankers. Also, 2015 will be remembered as the year of central bank denial.
Let me elaborate, with just a couple of my thoughts…
In 2014 we had “Taper” introduced by Ben Bernanke. He was also responsible for “Transitory” I hardly ever used this word until late 2014 into and throughout 2015. What the hell does it mean? I thought it similar to temporary. For the whole of 2015 inflation targets, growth targets have all been “Transitory”, what a load of bollo**s. Transitory = permanent feature.
Janet Yellen is “Data dependent”. Jesus, you can imagine her at home with her family and friends serving potatoes at a meal to those sitting around the table. When she asks who wants more the distribution of the spuds will be on a supporting data dependent basis. Do these people use this language at home?
The gas bill is high… its only “Transitory” We need to reduce its size by “Tapering”.
Then there is central bank denial. We don’t have DEFLATION we have disinflation. Come on what a load of crap this is. The reason that central bankers wont say DEFLATION is because they know that the markets know that central bankers have no cure for DEFLATION. However, disinflation sounds different and given that half the media aren’t bright enough to see the difference they never challenge the central bank governors on the word change.
Finally we have the denial from the central banks and governments in the G7.
There are currency wars all over the G7. As soon as someone states currency wars to a central banker or government official they go into “bull / camel or cow sh*t” mode.
The U.S. started this by accusing China of manipulation, yet the FED is the largest manipulator on the planet.
Led by the FED we have Quantitative Easing (QE) of sorts in the UK (Asset Purchase Facility), the ECB and BOJ also have QE. The SNB intervene although they never tell you directly they are intervening and finally the RBNZ says that they have intervened and that they would be proud to do it again.
CURRENCY WARS are happening, all day everyday and for the longer-term they are here to stay and they are getting more intense.
Lets look at the last 10 days.
Mario Draghi took to the floor for a speech in Frankfurt on November 20th after an early speech he made had weakened the EUR/USD, however it did not sustain its fall and bounced back. Not put off and with severe inflation… sorry DEFLATION issues in the Eurozone he took to the floor and basically gave a speech, which made you, believe that if you owned the EUR you should be committed immediately. The floor fell through the EUR/USD and it has not sustained any bounce since. It is holding levels well within striking distance of new 52-week lows.
In no uncertain terms he made it abundantly clear that he was going to use all the tools available to him to further weaken the single currency.
Here were the key points he referred to: –
- Inflation in the Eurozone is slipping fast.
- There is too much slack in the Eurozone economy.
- The effect of lower oil process is keeping inflation low.
- He is looking to increase / expand the current €1.1 trillion QE program.
- The ECB is thinking of moving the overnight deposit rate paid by the ECB further below zero in an attempt to force central banks to place more money into the economy.
- Core inflation excluding energy and food is still too weak.
- No real wage growth.
In fairness you cannot get a simpler more direct speech about the intentions of a central banker. Had the EUR/USD bounced I would have seriously questioned trading currencies. Having read all of Draghi’s recent statements, I understand the need for Forex analysts to be contrarian to grasp attention all these traders calling contrarian moves, I get it, but sometimes FUNDAMENTALS are so powerful TECHNICALS can take second place. This only ever happens about 5% of the time; this has been one of the 5% occasions.
All the calls for a EUR/USD squeeze, I get it but sometimes you just have to give in. All the huffin’ and puffin’ ain’t gonna move the EUR/USD at the moment. It looks dead in the water waiting for Draghi and the press conference on December 3rd. Maybe then we may see a sell the rumour buy the news, who knows, but for now there is no Lazarus effect.
Draghi’s jawboning has had a knock-on effect.
The SNB had to act given what the ECB are about to undertake. I have no doubt that Thomas Jordan has a very good (maybe 100%) idea what is on the table for the ECB to debate about possible implementation and about 80% knowledge about what is a green for go.
It’s all about equilibrium and having the edge as a central bank. They need and desire to maintain the status quo because as one moves basically a domino effect takes hold and the rest assess and decide. Ultimately they move on interest rates or now that interest rates are almost at 0% around the G7, the next route is to ease through QE or an equivalent.
Countries who export goods need to be competitive and full employment desires mean that finished goods must be sold to keep people in jobs. Exchange rates are a vital component of pricing, hence the importance of manipulation in the Forex markets and why with a global recession hanging over the world like the sword of Damocles means pricing must be competitive to ensure full employment…. It is a constant circle of life.
The SNB have not finished, like every other country they want a weak currency to enable cheaper exports. Also due to their banking background of neutrality being a safe haven, they introduced a deposit tax for lodgements in Swiss banks to discourage leaving money in Swiss accounts, which created CHF strength. They will increase the costs to deposit funds in a further attempt to weaken the currency by making even less of an attractive proposition to hold.
This is not QE but it is currency manipulation and it is most definitely part of the on-going currency war.
What else will the SNB do? It all depends on what the ECB implement and for how long later this week.
The BOJ were not allegedly up for more QE. Rumours are circulating once again that after the FED and ECB action in December they will review once again to see if they need to extend their program.
Where does this leave the commodity currency countries like Australia, Canada and New Zealand? In my opinion, they will all cut rates. Housing bubbles or not, they will review lending criteria to try to manage the housing bubbles. They will cut rates to try and promote spending, full employment, growth and restore consumer confidence amongst other things.
In my opinion, the currency wars are intensifying and gathering pace.
- MY FINAL THOUGHTS:
OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:
This is it the final WEEKLY FX DRIVE THRU blog of 2015. Apart from a year-end teaser marketing campaign to add subscribers to my fee-paying service I should be under the radar until January 10th 2016 when the first blog of 2016 is scheduled to appear.
Over the next two weeks or so, in my opinion we have two central bank meetings that will determine many Forex trading plans for 2016. Should the ECB and / or the Fed dither on what is widely expected to now happen, all bets are off and I, like many other traders will have to once again re-assess the situation.
Now being positive… I think it’s as good as saying hell would freeze over if the FED didn’t raise rates, in my opinion only an absolute disastrous NFP this Friday could cause a non rate increase. The ECB are in good hands with Mario Draghi; finally, he couldn’t give a rats hairy a** about poor German policy ideas to fix the Eurozone. He has “seen the light” as Todd Rundgren would sing, and Merkel is “on the beaches sucking on the peaches” as the Stranglers once sang. The ECB will ease further Draghi has said so.
This week and next week is huge on news from central banks other than the ECB. I think that the RBA are 60/40 to keep rates on hold and the BOC should be 90/10 to cut rates in my opinion.
In addition to central bank news we have NFP, ADT, GDT, GDP data, PMI data and Business Confidence. The entire spectrum of economic data is represented this week.
Trade lean and remain keen – that means trade with smaller positions with wider stops and be alert to moves. Markets will now start to thin out and the larger institutions will be starting to close positions and reduce sizes in readiness to close books to be ready to start clean and fresh in 2016.
All I have to do is wish all readers, followers, and subscribers…
A Happy Christmas / Happy Holidays and lets look to bringing a bit of peace and sanity back into this planet next year.
Thanks everyone have a good one,
The Pip Accumulator