THE EU TROJAN HORSE: By Scott Pickering


Last week was a light week for economic data but wow the news events were crazy. From a trading viewpoint, I had to split the week into two halves.

Monday thru Wednesday was boring, boring, boring. Where has the volatility gone? I tweeted out several times phrases such as “chop fest”, “lots of flashing lights”. We can put lipstick on this market but the bottom line is “it is a PIG” the volatility that used to there has to a large extent dried up. If I wanted to look at flashing lights all day, I’ll put up the Christmas Tree early, this is a bit boring.

Then on Thursday and Friday, Holy Mother of God, it was wild. BREXIT spiced it up, Draghi followed and the US inflation data was a small miss but OMG the market reaction was huge, probably due to the implications it could have on FED rate hikes in 2018.

I added net pips but I also took losses on Friday. Annoying as it was, my CONTINGENT LIABILITY of all trades and limit orders added to together, was not at my limits but it was higher than usual due to quantity of trades I have at the moment.

Looking towards the weekend with the geopolitical concerns still out there and the fact that these moves could motor into this week’s early trading, I decided to cut them out. I banked losses of just over 200 pips. The net pip increase for the week was therefore only 160 pips.




Only three pieces of news last week resonated with me for this section and regular readers will not be surprised by my choices.


Well, “Glaze my nipples and call me Rita”, in the name of sanity what the bloody hell did the markets expect… a result?

For crying out loud, the clues have been stronger and stronger. The UK has been mentioning preparation for a “No deal” a lot recently.

Last Thursday, after round 4 or 5 of the DIVORCE negotiations, the EU chief negotiator Michel Barnier and the UK equivalent MP and Tory Government Cabinet member David Davis announced the negotiations were deadlocked.

Quelle bloody surprise!

The EU presented a running order of protocol to be ticked off in a strict A to B to C to D order, all nice and easy to follow. The Brits like the idea of D to B to A and then C. The obvious result is deadlock. So with the anticipation of deadlock, the decision to release more and more “sound bytes” about a “No deal” was probably a tactic to try to change the viewpoint of the EU.

Cable sold off, then later the same day out it comes from Barnier, what appears like a concession. Cable spikes back to remove all prior losses.

Michel Barnier offers a two year “transition extension”. An olive branch, my arse it was not, it was pure genius.  This offer, ties the UK to meeting all EU financial obligations for an additional two years beyond the Article 50 deadline. Basically, in a nutshell… sure we’ll extend everything, but you have to meet all of our rules and regulations in the transition process.

Step back for a moment….

The UK head negotiator (David Davis) is a politician who cannot appear weak as he would be slaughtered in both the Cabinet (behind closed doors) and (publicly ridiculed) in the UK House of Commons. The pressure not to give way on anything is massive, personally and politically as this will be in record books of his public service career.  All the pressure is on his head to achieve the best deal possible, which for the UK, is basically appearing to remain inside the EU but with border controls.

The EU chief negotiator is Michel Barnier. He is a French Republican Politician. He is representing 27 countries. His job is to follow the negotiation road map given to him by the “jotter blotters” in Brussels. This will at conclusion be presented to the 27 leaders of the EU for them to ratify.

Barnier, although I am sure wants to do a great job, couldn’t give a rat’s ass about any fallout because all the pressure is on the UK. He can hold his hands aloft and claim to eternity that he has his road map that must be followed in order. Whether the UK are at fault or not, the blame for any negotiating breakdown can be switched very easily and all the pressure put back across the English Channel. Put yourself in Barnier’s position; it’s a high-profile role and it’s a win, win no lose job. He just has to follow the guidelines. The transition deal if accepted was a gem in my opinion.

Offering the two-year transition that Prime Minister May requested is a master stroke from Barnier. He gets the guarantee of badly needed money from the UK into the coffers of the EU in Brussels. It is the equivalent of a modern day “TROJAN HORSE”. However, this is NOT a done deal it needs to be ratified by at least Germany for it to be a runner.

I still giggle at the HARD BREXIT versus SOFT BREXIT calls made by the media.

A two-year transition does NOT automatically = SOFT BREXIT

SOFT BREXIT = CONTAGION…. not going to happen
SOFT BREXIT = CHERRY PICKING… not going to happen

If the transition deal is agreed it is nothing more than “Can kicking the issue down the road”.

At the back of my cynical mind; Theresa May requests the transition extension, this means that the Article 50 deadline date would now shift to March 2021, what could happen in the interim?

New parliamentary elections would have taken place.
Maybe a new referendum on BREXIT?
Maybe another Scottish Independence vote?
A new Prime Minister of a new Government.
A new (God help them) Minister in charge of negotiating the “divorce”.

Theresa May effectively engineers her own BREXIT deal. She passes the poisoned chalice on.

The transition is not yet a done deal. This whole process is still covered in masses of uncertainties. I have no doubt some progress has been made but for the medias sake it’s all put forward as deadlock so far.

There simply was never enough time. I wrote months ago that it took Greenland with no way near the same complications of agreements as the UK to leave the full two-year limit. The UK was always going to be longer, it much more integrated and complicated.

This is still a huge unknown.

If the EU says no to the two-year transition, what then?

Cable drops like a brick because a “NO DEAL” walkaway looks to be the most obvious outcome?

I know that the BOE have been relatively quiet of late, but I still find the news that the BOE are still considering a rate hike in amongst all this uncertainty plus a series of recent poor economic data more than outweighing any good data, incredible to consider, and frankly, its worthy of a comparison with a Las Vegas high stakes poker room gamble.

The latest BCC (British Chamber of Commerce) Quarterly Economic survey of businesses (what a great read), whilst it would send most people to sleep, its overall summation on the current UK economic position from its members was “uninspiring”. Now that’s what I call a real vote of confidence…. NOT!

To raise rates with so much up in the air is a; huge / massive / almighty gamble in my opinion. Not befitting a responsible Central Bank.



You couldn’t make this stuff up.

The Catalonian declaration of independence was placed on hold, whist the Catalan president Carles Puidegemont stated that it would be suspended whilst he held talks with Spanish Prime Minister Mariano Rahoy, who has already basically told him to feck off…. In the nicest possible terms.

Catalonia accounts for about 40% of Spain’s GDP, so for this reason alone Madrid WILL NOT want to let it go anywhere, hence all the shenanigans. In my opinion, Catalonia is the biggest risk to the EUROZONE since GREECE. It is a massive risk to the Spanish economic recovery.

I write this, but this is NOT reflected in the price action of the EURO at all. It is in a very tight range and has been for some time.

What has now been created in the Catalan/Madrid crisis is nothing more than polarization.

What is the way forward?

Businesses are looking to leave Catalonia. Catalonia would NOT be an instant member of the EU. How could it raise capital to operate? Maybe against future tax income? I see this as a credit event, enormous high risk and this whole matter appears to have not been thought out properly.

Puidgemont tried to use the referendum vote to pressure Madrid for change, but that seems a tall order to say the least given the financial implications to Spain.

This will NOT end well. There will be more unrest to come, but unless a well-drawn out plan is visible, from the outside looking in, this is a mess. It simply cannot be good for the single currency the longer it drags on. Lines in the sand have been drawn and the political and economic risks are obvious on both sides.

Moving on…

Mario Draghi and the ECB governing council as I have mentioned before are taking massive doses of Prozac to try and keep themselves steady as decision day looms on ECB future monetary policy.

Draghi has said “Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We expect them to remain at their present levels for an extended period of time, and WELL PAST the horizon of our net asset purchases”

That’s pretty clear to me. The German’s however are not happy with this statement and want change.

The current rate of ECB QE (Quantitative Easing) bond buying is at €60 Billion per month. The rumours about this moving forward is that in two weeks’ time at the next ECB Press Conference, Draghi will announce a cut in the monthly purchases to €30 Billion per month from early 2018 and run this reduced volume for about 9 months before the “tapering” will end completely.

So… there you have it; forward guidance from the ECB in a nutshell and its very clear so that we can all understand and follow. Will the markets get it?

How do I intend to trade the single currency moving forward? For that you will need to subscribe to the PREMIUM SERVICE.




The minutes reflected the statement.

However, the USD was sold off as I think that the reality of no inflation was starting to hit board members. These minutes were before the bombshell of “THE FED HAS NO CLUE ABOUT INFLATION” and Yellen’s “SIGNS OF INFLATION & TRANSITORY” were used at the last press conference. The minutes were also written before Yellen’s comments regarding the Fed models on inflation calculations are basically crap and inept… those latter descriptive words were mine!!

The market sold off after the minutes, the fear of less tightening because of no inflation in 2018 may have rung a few alarm bells… finally. This market is fickle, it over reacts to old news repeatedly and can be painful to follow at times.

I have found trading this year a challenge, to put it mildly.

Moving on…

FED or not, the DXY is at a crossroads and we are either going sub 91.00 or higher through 94.00 in the coming sessions.

At times over these past weeks I am trading on the basis that the FED are raising rates period, and its pure Technicals on the DXY that will determine its direction. FED policy appears secondary.

I still find it hard to be long the USD. It has, like I said last week sold off since the TRUMP inauguration. I am looking for reasons to be long the USD both FUNDAMENTALLY and TECHNICALLY. A week ago, I had oversold conditions as a reason that may influence the markets, those have now gone.

Moving forward, THE DONALD wants low rates and a weak USD. The US will manipulate the USD lower if it has to, it has done so before.

This is my most watched chart of late and it will be over the coming sessions as I believe that this chart will be at the basis of most FX strategies being formulated for the short and medium terms moving forward.









The charts below contain commentary (my thoughts and views), these are the USD major charts that are reflected in the spreadsheet above.

















Thankfully more economic data than last week to choose from. The following all UK based tickle my fancy…


It’s a very awesome set up this week for UK news.

Inflation data, Average Earnings and Carney, you could not plan a diary better except for the fact I would have Carney speak after the Retails Sales numbers on Thursday, rather than have him fronting the news events.

This data will seal the fate of UK interest rates in November in my opinion. The BOE is ready to push up interest rates and stronger inflation data will probably seal that deal. If there is to be a spanner in the works, it will either come from the increased BREXIT uncertainty that is hanging over the markets at the moment or from the Average Earning Index if it still shows lagging too far behind inflation. However, I think the accountants at the BOE have Carney by the short and curly’s and the one and done hike I think he hopes will keep the wolves from the door.

I wrote earlier in the blog about my concerns and the gamble I believe that this move would be, so I am not going to repeat myself.

By the time, Carney speaks we should know if the BREXIT transition deal is a runner or not or whether the government has rejected it, in which case it will be very interesting to hear what Carney has to say on this subject and if it will affect the BOE thought process on interest rate increases.



As we ended last week with the USD getting whacked, one must expect this treat to carry forward into the start of trading this coming week.

My focus will be on the USD index (DXY). The level of 90.93 is crucial in my opinion. Should this level break, we could be heading to the mid 80’s. The possible effect of a move sub 90.93 should not be underestimated.

From a macro level the FED are probably still going to hike in December but unless inflation picks up one should question whether the December 2017 rate increase will be the only one until the same time in 2018 (I am assuming that the new FED chairperson in February will play the usual game of stringing the markets along for the year on possible hikes, and make one at the year end to maintain credibility).

Here are my thoughts: –

  • Should the DXY break lower what happens to EUR/USD?
  • The ECB does NOT want EUR/USD exchange rates above 1.2000. A mid 80’s print in the DXY would have EUR/USD closer to 1.2500 possibly above that level.
  • The effects of a FED rate rise on the DXY should it already be towards the mid 80’s would be minimal.
  • Other G8 Central Banks could not rely on the FED to counter balance any rate increases that they may have planned, as in my opinion the USD would be one weak “sister!”. Therefore, I believe the moves by other Central Banks to normalization or to raise their interest rates could be held back.

Those points are really for the future but they are with me at the moment. My focus would be on cross rate pairs until the situation with the USD has settled down. Trading the USD has an increased risk element attached to it at the moment given the geopolitical risks that would have a direct effect, therefore keeping way from the USD for a while in any event is perhaps not the worst trading idea.

Up until the end of last week the EUR/AUD & EUR/NZD were great options and they should be again once they have finished their corrective moves lower.

You DO NOT need to trade every day. Days when maybe you do not trade can be your best days as CASH is a position.

There is a lot for the market to digest at the present time on the heels of NFP. Let the market correct first and wait for it to give a trading signal.




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Nothing more to add here, I have said enough except,

As usual…

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.

Scott Pickering

The Pip Accumulator
Twitter: @pipaccumulator
15th October 2017

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