THE VIEW FROM MY TRADE DESK:
LOOKING BACKWARDS, FORWARDS & SIDEWAYS (FOR GOOD MEASURE) AT THE FX MARKET:
1.1: LOOKING BACKWARDS:
Following the FOMC hold on September 17th, last week was the time that I felt it important to concentrate on the speeches given by central bank presidents / governors. We had Poloz (BOC), Draghi (ECB) and further comments from Janet Yellen.
Poloz, I feel is totally detached from reality at times. In Canada we are a month away from a general election and I feel he is just a pawn right now trying to keep things together. The Canadian economy is in the sh*t. There is low confidence and great uncertainty about what party will be triumphant at the election in under a month. There will be a rate cut happening very soon in an attempt to kick start matters, and I would say sooner rather than later. Canada is NOT the USA. It borders the USA but that is about it. The USA is not yet a commodity currency but the Canadian is. There is a wealth of commodities over and above oil in Canada. Oil may be dominant and trendy in the headlines right now and having a great effect on the “loonie”, which, we should not lose sight of.
The fact is oil has a massive supply and demand issue, which is not going away and as a result of this the price of oil will be under constant scrutiny and downward pressures. This creates doom and gloom on the TV news and lowers consumer confidence in the economy.
If there was no election, I feel that Poloz would have cut last time around. The cut is coming in my opinion at either the next meeting due on the 21st October, two days after the election on the 19th October, or the one following just in time to boost Christmas spending in the malls / stores and shops.
Back to his speech…. If you could imagine touching the wettest fish, from the darkest deepest parts of the ocean, you are coming close. It was a non-committal boring non-event. Looking at the BOC web site he has a few opportunities prior to the BOC rate announcement to inspire and motivate us…. lets see.
Draghi spoke to the European Parliament; the word on the street was that he would be very dovish about extensions to quantitative easing (QE); the reality was completely different. He was very matter of fact and basically kept matters low key, nothing new.
Then we had an eventful Janet Yellen speech in Boston, from which, she had dehydration issues and it looked like she stopped her speech early. Thankfully, from a health perspective she was able to keep to her business schedule. From a market perspective this time she was hawkish.
I am getting a little confused with the FED at the moment. Yellen appears to use dialogue that has the markets confused. I think that she is relatively consistent but the markets require everything on a platter. I think she has to imagine that she was talking to a four-year old child so that it is easy for the likes of Wall Street to understand.
Her dialogue is not being understood. Maybe, if the key sentences were tattooed on a stripper’s chest or bottom, the key words and phrases would be read, because right now I feel Wall Street does not listen or maybe quite possibly just doesn’t understand.
I am still confused why 12 out of the 14 voting members are in favour of an interest rate increase before the end of 2015, could be treated as dovish. I know it’s all about the headlines in her speeches and how the media strikes the balance. Maybe as I said, if the key messages were delivered via a stripper’s bottom or chest, people might take more notice and these messages might be read more closely and perhaps even understood.
I know the key deliverables in the speeches are the headlines but all the clues are there. I do think that Janet Yellen has a part to play here. It is a game with the media because all the media wants is news and if they cannot get news on facts who cares, they will create news based upon a loosely collated bundle of snippets and off the story goes factual or not.
I am not advocating that Janet Yellen walks chair to chair lap dancing with the key deliverable’s tattooed to parts of her body…Holy Mother of God there’s a picture to ruin your Sunday Lunch, in fact, any meal time…my God it could sour milk. What I am saying is maybe she should do a Monty Python style arm gesture when something important is about to be said that the media should take note of. From my perspective it will certainly get more interest and its better than counting how many fecking times she says the word transitory.
Getting back on track….
She was hawkish in Boston but I think all the hawkish stuff has been there for months, the media has just not found it sexy enough to focus on. They have rather glibly clung to the question of when are rates increasing, rather than concentrating on what the effects are going to be when they go up. I know, my focus on debating the effects may not sell many commercials on TV (unless my stripper idea caught on of course) but the FED is giving away all the clues via all the economic papers it releases. We are being fed headlines, which the media believes to be sexy news. We as traders need to look behind these.
Apart from the “bank heads” talk, nothing else really took my attention in the past week.
Biggest non-news event of the week: –
THE GREEK ELECTION – Tsipras and his party have about 60 days to pass 80% of the conditions of the latest bailout through parliament. The creditors front ran all the deadline dates because they do not trust GREECE.
Watch this space the “Greek Bailout Act IV” coming soon….
1.2: LOOKING FORWARDS:
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).
TUESDAY: USD – Consumer Confidence.
TUESDAY: NZD – ANZ Business Confidence.
WEDNESDAY: USD – ADP Non-Farm Employment Change.
WEDNESDAY: CAD – GDP.
WEDNESDAY: USD – Janet Yellen (FED) speaks… make sure she has water!
WEDNESDAY: CNY – PMi data.
THURSDAY: AUD – Retail Sales.
FRIDAY: USD – Non-Farm Payrolls.
MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:
Obviously, the biggie is Friday’s US jobs report and I believe that this will dominate all the media during the week. It will in all probability be based around the topic of “Will the FED hike? or won’t the FED hike?”, based on the job numbers. I am really poor at guessing what the numbers will be and what the immediate market reaction will be and frankly that is what it is, just a guess and I am not playing anymore. I hate NFP days, I have more failures than successes on NFP days and I hate them. I think this Friday will be the day to start the next blog early!!
Apart from NFP, consumer and business confidence numbers on Tuesday from the US and New Zealand is always worth noting and on Wednesday we have Chinese PMI data.
Thursday evening (for me) Australian retail sales will be a mover in spite of NFP following within 12 hours.
I am writing about my FUNDAMENTAL views later in this blog and these are basically the key news events for me based upon my trading plan through to the year-end.
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.
EUR/USD – Weekly Closing Price: 1.1191
We are basically in a trading range from the lows of 1.1085 to 1.1460. If you enjoy range trading, happy days! If you are waiting for a breakout and a momentum trade, we will require a big moving news event to enable this to happen in my opinion. This Friday we have Non-Farm payrolls from the U.S., this may be the catalyst required.
GBP/USD – Weekly Closing Price: 1.5170
Under pressure from all sides, the cable looked to be at the edge of a cliff last Friday. There is good support ahead at the 61.8% retracement Fibonacci level of 1.5085. After this 1.5000 will obviously provide something as a nice round psychological number, however I fear that the cable could be heading a great deal lower. I hate trading the GBP/USD as it is the master of false moves, and, as soon as you feel that you finally have a trade under control it can quickly reverse on you.
Given all the recent talk about the UK possibly raising rates, this now appears to be on the horizon for 2017 (How this can be predicted this far out, amazes me). However, never rule out the best bullsh**ing bank governor out there, “Mark Carney” who can mislead the markets and then jump into his JCB to get himself out of his self produced hole.
AUD/USD – Weekly Closing Price: 0.7003
A nice bounce back from a near death experience is the best way to describe the Aussie at the end of last week. Lets face facts all the cards are stacked against this pair not falling towards 0.6500. Commodity prices, China, future (probable) FED monetary policy and the RBA are all doing their bit to weaken this currency. What happens should equities fall as well; in my opinion, a drop to at least 0.6500.
Key support now lies at 0.6940 and a break below this level exposes a greater downside move.
NZD/USD – Weekly Closing Price: 0.6376
Cross-rate do affect the USD majors. The AUD/NZD, GBP/NZD and EUR/NZD came under tremendous pressure on Friday last week, and this kept the NZD/USD elevated.
The currency will be used as toilet paper soon as it is still grossly overvalued and RBNZ still feel it is at levels that are too high.
We are presently in a trading range from the lows of 0.6240 to 0.6500 as seen on the chart below. Just above 0.6400 should act as resistance, which should see the downside move return.
My longer-term target for this pair is close to 0.5700.
USD/CAD – Weekly Closing Price: 1.3334
We saw a false breakout move last Thursday, which saw this pair stretch the upside to 1.3418. Support is good at 1.3300 and I see this as the base now. Moving forward a break lower than 1.3300 makes me feel that the upside breakout could be delayed somewhat. This pair is still very bullish and ultimately I see a 1.4000 level being achieved, but we have to crack 1.3418 first obviously.
USD/CHF – Weekly Closing Price: 0.9774
This pair is on the cusp of a major move higher, which may go with or without the EUR/USD breaking down. The SNB are in my opinion getting ready to flex those muscles once again. We have a great base now at 0.9650, the 61.8% Fibonacci level. Once this pair breaks through 0.9850 I believe it will be off to parity shortly thereafter and beyond. If the SNB is required to help move the EUR/CHF through 1.1000 this move will benefit all CHF pairs. Premium Service subscribers should note the CHF cross-rate charts later.
USD/JPY – Weekly Closing Price: 120.55
We are in a wide trading range of 118.75 to 122.00. I think that this pair will be best to trade after the FED rate announcement and when we know the reaction from the equity markets following the announcement. Up until then, I think it will be much a do about nothing with daily chop moves in one direction and then the other.
1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):
I had several communications this week based upon my reference to the KEY INDICATORS that I look at and wrote about last week. So for those readers I am going to elaborate this time around.
My lead indicators are: –
- DXY index
- S&P index
- FX PRESSURE CHARTS
Lead indicators for me are all about trading with an EDGE.
I will try to answer as best I can the questions raised.
Why do I have lead indicators?
This is because all the markets, precious metals, equities, commodity, bonds and Forex are all inter-linked one way or another. GOLD and OIL are priced in USD and therefore movements in GOLD and OIL will affect the USD.
If I see a bullish or bearish move in GOLD, this will have an effect on the USD. Movements in Oil will affect the oil-based economies like Canada, Mexico and Norway and therefore when WTi moves so will the CAD, MXN and NOK.
Movement in Copper affects so many industries and the AUD currency moves in relation to copper movements amongst general commodity price moves. Copper imports/exports are essential to follow to see if a country is cutting back or expanding. These trends in Copper contribute to PMi and construction data.
These factors give me an EDGE.
Do these indicators matter as much if you are a longer-term trader?
Yes, I believe they matter all the time as all market components have trends, and, trends / momentums / Fibonacci levels matter across all markets whether it’s a day or potential swing trade set up or even a longer term position that you are looking at.
What role does the AUD/JPY play?
When there is zero economic data, the equity markets mainly drive the Forex market moves. Correlations do matter and they do count (PREMIUM SERVICE GOLD subscribers can find several articles under the EDUCATIUON tab on this subject), the AUD/JPY moves are more or less correlated to moves with the S&P index. Therefore if the S&P is under pressure it is more than likely that the AUD/JPY will also be under similar pressure. If they are NOT moving in sync this is a warning to further investigate. This gives me an EDGE.
What role does the USD/SEK have to play?
This Forex pair is very closely correlated to flagging USD movement whether weakness or strength. It is like the USD/CAD it tends to lead the USD, if that makes sense. More often or not if the USD has been weak, if there is USD strength trying to get back into the market the USD/SEK and USD/CAD tend to show the change in sentiment first. They are ahead of the DXY because these currencies are lightly weighted in the index, which is so heavily dominated by the EUR (over 50%). This gives me an EDGE.
What are pressure charts?
These are basically charts that instead of being based on prices, are charts based upon buying and selling. They can help with direction.
When looking at candlesticks say for a 60-minute chart, at the end of the 60 minutes you have a candle created that is either part of a bullish or bearish formation of candles or on its own sets a tone or an indication of what the following candle should look like.
For example a “ Hammer” would indicate that for the next period the currency pair should be moving upwards.
If I am looking at pressure charts for the same 60-minute period I am seeing the relationship between buyers and sellers develop in the same way during the hour but if there are more buyers than sellers this will highlighted by the pressure charts based upon strength of the buying signals and the commitment to a particular direction. It can make me enter a trade at a better price point without waiting for the candle confirmation. This gives me an EDGE.
Do I have these lead indicators across all my screens when trading?
No, due to limits on space and the numbers of eyes I have, I cannot afford this. I am a trader. I trade almost every day. The lead indicators are my EDGE to my trading. I look at them all as I gather my thoughts for the day and I have the DXY, S&P, Oil and Gold split into four on one screen, with the ability to check Copper and USD/SEK very quickly.
My other three screens are used for my currency pairs / brokers and pressure charts focused on Forex.
What is my start-off routine each day?
First things first, let Ozzy and Aoife (my dogs) out into the back yard and get some coffee going.
Check existing OPEN trades if I have not already done so via my iPad prior to getting up. Adjust / advise PREMIUM SERVICE subscribers if required.
Look at the “Holy Trinity” first… that is GOLD, OIL and COPPER. Note the highs and lows…post-it note on screen or place horizontal lines on screens as well…. depends on my mood.
Check the DXY… make a note of highs and lows, and put a Fibonacci level on a 240 or 480-minute chart on the screen.
Check the U.S. markets futures, DOW, S&P and Nasdaq and look at the DAX and FTSE.
Then look around all the currency pairs for high probability trades and advise PREMIUM SERVICE subscribers of set-ups and place trades with my brokers.
If required send out a few tweets to PREMIUM SERVICE subscribers on what my thoughts are and if they differ from that last communication.
Read and answer communications from subscribers.
Settle in for the next 12 hours or so behind the desk.
Do I look at the Relative Strength Indicator (RSi)?
Yes I do, but I do not consider it the be all and end all of making a trade. There are many instances when the RSi it behind the move. I look at it and sometimes I will pass comment on it to my subscribers when suggesting a trade. However, it is not really an indicator that I use all the time. I will use it more times to prevent me from taking a trade that is borderline with my TRADING PLAN.
In summary, my lead indicators may not be your lead indicators and like most things in trading it is “Whatever floats yer boat”.
If whatever you do works for you do not change. This works for me and it helps me. Having subscribers helps me focus because I do not want to suggest poor or weak trades. I have to have a good reason why I take any trade, it may not just be based upon a Fibonacci level, which can be enough on many occasions, but maybe a confirmation of an inter-market relationship or correlation as well being there to also support the trade set-up.
WHAT’S ON MY MIND:
THE DIVERGENCE TRADE IS STILL ON
MY FUNDAMENTAL TRADING PLAN THRU TO THE
YEAR END IS STILL IN PLAY
Just prior to my break from trading over the summer I wrote about my FUNDAMENTAL TRADING PLAN and how I envisaged this moving forward given that at that time the FOMC still hadn’t raised rates. In fact, at that stage in July I was very much of the opinion that that the FOMC would hike in September.
As we know the FOMC remained on hold…buggers.
I have been asked by a number of subscribers, after the FOMC hold and another batch of “FED SPEAK”; if my plan is still intact?
I believe that it is pretty much still there and I have been delaying and delaying getting my trades set up and in position, so that my subscribers and myself are ready to take advantage of the FED move.
The core factors to my TRADING PLAN are still intact as far as I am concerned: –
- The FED is tightening monetary policy.
- Other central banks with the possible exception of the BOE are on a loosening monetary policy.
- China is slowing down.
- Australian and New Zealand economies are under pressure.
- Oil is moving lower. Price expectations being talked about now are even lower than those back in July.
- Commodity prices are still under pressure.
- The SNB is still a loose cannon and could intervene at any time to weaken the CHF back to prior “PEG REMOVAL DAY” levels.
My FUNDAMENTAL TRADING PLAN is based around divergence. It is based around trading this divergence.
I have stated many times before in my blogs that divergence is a strong reason to trade if it stems from central bank monetary policy. My plan until at least the end of the year is based upon such a plan with FED taking the lead.
It is based around a strong USD.
This will give me trading confidence based on the divergences between central banks FED v ECB, FED v RBA, FED v RBNZ, FED v BOC, FED v BOJ etc.
It is not just trading the USD major pairs; the cross-rate pairs are also of great interest once the divergent policy is established.
All I want now is for the FED to stop dithering and raise rates so my plan can commence in full swing.
I have my target levels, for my target pairs already identified. It is now just a matter of time and being patient.
Even though it is expected that the FOMC will raise rates, the timing is still not in place and to start with the plan now would involve some risk ahead of the announcement of US interest rates increasing. At the same time, there are trades that jump out that will be in line with FED policy that can be established prior to a rate announcement and should not be too badly affected if a further delay is advised.
Over the coming days I will decide and place my interim strategy on these trades and have them in position knowing in advance when and where I will add to the initial position sizes.
MY FINAL THOUGHTS:
OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:
Last week was a difficult week. I still cannot explain to myself why some of the FX moves happened and why. I suppose at the end of the day, it’s nice to know, but it’s not essential as all we have to do is react and remain calm and in control to the best of our abilities.
In times when the markets are difficult, I sometimes have the best performances and last week was one of those, my subscriber trading business, the premium service, doubled its September income last week.
How did this happen in such a difficult week?
Quite simple, it was increased flexibility, not trading to full risk tolerance at the outset of the trade. That means not trading a full-size position. Keeping a little in reserve meant that risk management principles remained intact and trade plan objectives were not broken.
I believe that until the FOMC stops all this nonsense on dithering and makes a decision to raise the FED minimum rate, we will continue to be news driven and those are the worst markets to trade inside. Many times we trade on a lie, complete fiction.
If we remain flexible as traders, we stand a good chance of reaching a point when we can achieve longevity in trading and provide an income.
We still have thin trading conditions too many times in my opinion and until this changes we need to trade with this in mind.
The Pip Accumulator
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