IMMINENT TROUBLE AHEAD FOR THE EUROZONE

THE WEEKLY FX DRIVE THRU

INTRODUCTION:

Before starting this weeks blog and getting into overdrive, I have to say that I have been heeding my own advice over the past three / four weeks.

I have been: –

  • PATIENT
  • ADHERED TO MY TRADE PLAN
  • NOT OVER-TRADED only ADDED TRADES STRICTLY IN LINE WITH TRADE PLAN GUIDELINES
  • REDUCED RISK CALMLY as markets moved.

All my issues started on the overreaction to BREXIT (via Boris Johnson) exacerbated at the same time with ice-storm power outages and multiple ISP failures over 3 days, I took severe pip losses, in fact all my 2016 pip profits and some more were eradicated.

My goal is a minimum of 1,000 pips per month across my various trade styles: – RADAR, FLASH, FUNDAMENTAL and POSITION trades.

Allowing for only a part month in January, in my mind, I should be at about 3,700-4,000 pips profit for the year with the PREMIUM SERVICE.

At the end of February after the events listed my pip total for 2016 was: -132 pips.

Today it is at: – +3,719 pips.

Last week over 1,400 pips were added and the week before over 500 pips, almost two months objectives in pips in two weeks!! I hav clawed back over 3 months worth of pip gains (versus target) inside of 2 months.

Yes, there are trades still LIVE with RISK attached that could turn into a loss, but that is FX trading and as a trader you live with this every day as you trade.

What I am saying is that trading with a TRADE PLAN and DISCIPLINE does work. However, at the same time you require patience and it goes without saying nerves of steel at times.

However, none of this would be possible without the common sense to trade smaller positions sizes allowing greater stop loss flexibility. The markets are a chop fest and have been range bound giving false moves higher and lower for many weeks’ even months. I have been taking smaller position sizes with wider stops to manage my RISK accordingly. This has allowed me to move stops and flex with the market.

As I have written on many occasions. You have to be savvy when trading Forex it is not a get rich scheme as many spam emails would have you believe. Robots do not work, if they did everyone of them would have been bought up by a big bank and used by the bank making all their analysts redundant. Robots no matter how sophisticated they appear, have a basic fundamental flaw. They cannot react to major geopolitical news events, or extreme data, in fact to central bank monetary policy decisions.

Technical analysis in conjunction with macro level market fundamentals still work, but they have to flex with the overall market conditions.

Forex trading is like everything in life, it is how you manage the day-to-day issues that give you your end result. There is still a little way to go to be back in line with my personal pip objectives for subscribers’ year to date but we are getting there.

I had been quite serious of late over the markets and performance generally, as the markets really gave very little by way of moves and to a large extent like many traders I was trapped. If you are a 15-minute scalper trader, you will have absolutely no idea what I am talking about. However, if your trading time horizon is a little wider, I am sure that some of this resonates with you.

I thought now was the right time to state that core principles to Forex Trading still work.

 

THE FX MARKET PLACE:

LAST WEEK’S NEWS – MY THOUGHTS:

There were only two news items that stuck out in my mind last week from the Forex Market.

  1. Mario Draghi with the ECB Press Conference.
  2. Canadian Retail Sales numbers.

Poor Mario Draghi must have been rehearsing his choice of words very carefully in preparation of being asked the awkward questions. I would say without fear of contradiction, that he had a team of people practicing responses praying to the almighty that he didn’t f*ck up like he did the last time around.

In fairness to Draghi, he came to this press conference with bugger all to add above and beyond all the incentives he threw at the markets last time around. He did a sound job in my opinion and for most of the time the EUR/USD hardly moved. However after a spike to 114.00 that I missed after a comment about increasing loans hitting the market, he stated that QE (Quantitative Easing) would be around until after the fall / autumn 2017 and that interest rates would basically remain low for well beyond that date and the cherry on top of the pie “INFLATION COULD TURN NEGATIVE AGAIN”… HMOG. This sent the EUR/USD below sub 113.00.

So in addition to the BOJ getting a handle on inflation (from last week’s blog), last week Mario Draghi announced ZIRP for an extended period, so with regards to the ECB and BOJ, there are now two central banks whose date to revert to a normalization of interest rates is probably something I wont see in my lifetime!!

In Canada, I am very critical of Stephen Poloz the BOC governor. I believe that he is playing a dangerous game and has in my eyes been behind the curve. His head is so far up his ass he cannot hear some of the crap he talks about at times at his press conferences.

Friday saw blow out Canadian economic data: –

  • Core CPI 0.7% versus consensus 0.4%
  • Core Retail Sales 0.2% versus consensus -0.8%

Make no mistake these are incredible numbers, however, they do give Poloz a problem. Very recently, the BOC was talking in terms of QE and negative interest rates to tackle the sluggish economy. How will he balance this view with these numbers?

There are some fun times ahead for the BOC, wouldn’t it be great to be a fly on the wall in those meetings?

 

WHAT’S BIG ON MY MIND:

IMMINENT TROUBLE AHEAD FOR THE EUROZONE

I love EUROZONE bashing and I just can’t help it. My reasons are so straightforward, the politicians and elected officials operate on a mindset that is alien to actually fixing the issues.

I know, its easy to criticize, but give me a break, 8 years after the Financial Crash the EUROZONE has still NOT fixed some of the fundamental issues that it has faced for years and years. It’s so long ago now it almost warrants the story telling to begin with ….”Fadó Fadó”.

Lets look at the EUROZONE from a macro level with issues I believe it has never attempted to rectify, and bear in mind some of these can apply to many countries around the world. It is just that the EUROZONE is completely different in one sense in that is a 27 country collective…allegedly!

  • You have a collection of politicians more interested in popularity rather than results.
  • You have politicians who are only interested in blaming someone to gain political advantage rather than actually solving problems.
  • You have politicians taking swipes at elected officials from the bureaucratic centre showing the whole world that there is common desire / belief moving forward.
  • You have political influences being brought to the forefront in a central non-political function.
  • You have a collection of countries with diverse beliefs / methodologies and cultures.

Add all the above together and you get a picture of what the EUROZONE represents. Is it any wonder it’s a huge fu*k up; a disaster waiting to happen?

Leading on from the pleasantries….

Last week Draghi stated that the EUROZONE inflation could turn negative once again. Jesus, Mary and Joseph, for feck sake can no one grab this one issue hold a fecking meeting, expense a few more vats of wine, order in the cheese and pate and resolve this.

The EUROZONE leaders have sat back believing that Mario Draghi and the ECB can solve DEFLATION. For crying out loud, Japan has suffered with DEFLATION for years and the BOJ has no cure, in fact, no central bank can cure DEFLATION.

The EUROZONE leaders cannot agree on a Pouilly-Fume or a Cabernet Sauvignon with lunch, what chance is there of them solving DEFLATION?

They require a Mario Draghi presentation of the measures taken by the ECB and why they have failed. Central bank monetary policy cannot solve DEFLATION, the BOJ have proved this. It requires economic reforms, deep economic reforms that incentivize and reward, but they can only be done locally, not centrally.

This leads me into one of my favourite chestnuts…

  • Do the 27 member countries within the EUROZONE have the political will or the ability to tackle DEFLATION?
  • Does every country need to apply the same policies?

Probably not, but given that to solve DEFLATION is a medium to longer-term strategy could you see short time-lined politicians hooked on popularity entering into any policy that they may not be in power for when the benefits come through into the local economy?

I know that I can’t. In addition, the countries that require help are in the main the same ones that cannot afford to do anything and they have been hoping and praying the ECB might be able to magic a rabbit out of the hat on their behalf.

To solve DEFLATION in the EUROZONE requires leadership, commitment, desire and policy change as well as a united front to fight it.

So it will never happen. Not one of the words in blue above in my mind goes hand in glove with the EUROZONE.

Next…

The BREXIT is another issue that from my perspective has been “kicked down the road” by the EUROZONE. A UK exit from the EUROPEAN UNION affects the EUROZONE as much as it will affect the UK. The UK is a net contributor to the EU. The EU needs as much money as possible to fund its problems. If the UK leaves the EU there a gaping hole to fill…

If the UK does BREXIT, make no mistake there WILL BE A CONTAGION EFFECT.

Next…

GREECE is back in the news. Look this is so simple. Without going over old ground covered so many times in so many blogs over the past two/three years, we are still at the same place we were three/ four / five years ago.

GREECE has a loan; it cannot afford to pay it back no matter what reforms it makes. The EUROZONE and IMF are in cloud cuckoo land believing that it will be repaid. If the EUROZONE goal was to inflict as much pain as possible on GREECE and the Greek people because of fiscal irresponsibility they have been paid ten/twenty fold. The bottom line is that the core problem like everything in the EUROZONE is never tackled. GREECE cannot repay, no matter what it does to try to satisfy GERMANY in particular, and EUROZONE Finance Ministers under the leadership of Jeroen Dijsselbloem.

GREECE is now once again at another set of crossroads. These are the obstacles that I think that GREECE has to generate €€€€€ to meet debt repayments moving forward: –

  • GREECE has no hidden cash reserves from which to call upon to meet debt payments.
  • Who can they borrow from to meet debt repayments?
  • Is there room for further domestic austerity to bring in €€€€?
  • Does GREECE have capacity to drive growth in the economy?
  • GREECE could just default.

There is so much debt in GREECE to manage. There is only one obvious solution and there has only ever been one obvious solution and that is, debt forgiveness.

GERMANY is not keen on this route because other bailout countries like IRELAND may want a refund on costs that they had from the EUROZONE. Why should they pay when GREECE gets away with it?

At the end of the day the GREEK cash shortage to meet liabilities is real, and I think that it will be hard for the EUROZONE “can kickers” to “kick” again. For Tsipras it would be political suicide to bend over and pull his trousers down once again. The hard liners will be telling him in no uncertain terms to tell Merkel and Dijsselbloem to feck off if they ask for more reforms.

The Greek citizens, I think must be close to breaking point as well. They have suffered through a series of severe austerity programmes, with still no light at the end of the tunnel. Youth and long-term unemployment are still at record high levels and alarmingly after all the austerity the debt to GDP ratio is higher now than what it was when austerity started. GREECE is in recession. It needs fixing properly.

I know that I sound very negative but I just cannot see the EUROZONE fixing this and GREECE may have to default to control matters better themselves and I know that sentence sounds bloody ridiculous.

So as traders maybe the EUR/USD sub 1.0500 trade towards parity is back on. Only time will tell. 

COMING UP THIS WEEK:

THIS WEEK’S FOREX NEWS 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:

MONDAY:

TUESDAY: AUD – CPi.

WEDNESDAY: USD – FOMC Rate Statement.
WEDNESDAY: NZD – RBNZ Rate Statement.
WEDNESDAY: JPY – BOJ Rate Statement & Press Conference.

THURSDAY: USD – GDP.

FRIDAY: CAD – GDP.

 

THE USD MAJORS – MY THOUGHTS (A REVIEW):

(In this section I have as usual kept my charts as minimalist as possible. With regards to charting in my opinion less is more!! I hope that they are clear. 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 comments are contained on the charts. If you have difficulty getting them to expand please let me know. Sometimes word press is difficult.

EUR/USD – Weekly Closing Price: 1.1224

EURUSD D 23042016

GBP/USD – Weekly Closing Price: 1.4401

GBPUSD D 23042016

 

AUD/USD – Weekly Closing Price: 0.7710

AUDUSD D 23042016

NZD/USD – Weekly Closing Price: 0.6851

NZDUSD D 23042016

USD/CAD – Weekly Closing Price: 1.2663

USDCAD D 23042016

USD/CHF – Weekly Closing Price: 0.9783

USDCHF D 23042016

USD/JPY – Weekly Closing Price: 111.78

USDJPY D 23042016

 

MY CLOSING THOUGHTS:

Central banks dominate again this week. The FED, RBNZ and BOJ will all be biggies and the volatility surrounding these meetings will be high.

The USD has been showing signs of life of late, bouncing off critical support. Given the improving numbers out of the U.S. maybe Janet Yellen will not be as DOVISH as in the past. If so be prepared, I doubt that she can be anything other than DOVISH but lets give her a chance. If she is HAWKISH the DXY will rocket higher. However, bear in mind, no matter what, we are still in a tighter range bound market and a chop fest. So be careful trading.

As always, be savvy…

Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.

Take care,

Scott Pickering
The Pip Accumulator

http://weeklyfxdrivethru.com/disclaimer/

DATE: 23rd April 2016
BLOG REFERENCE: #26 FOREXTELL VERSION

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