THE WEEKLY FX DRIVE THRU
What a tiring week last week turned out to be. It was really a 3.5 day week for me with the U.S. and Canadian holiday on Monday. Following the JPY explosion and implosion, I suppose I should not have been surprised to see the market calm down and consolidate.
However, I sat at my desk, fingers ready at the keyboards to pounce and bugger all really happened. I spent most of the week telling subscribers I am sidelined, the markets are range bound, we are just moving sideways, the charts are a mess and I am neither chasing moves or manufacturing trades that do not meet the criteria of my TRADE PLAN. So, I was like a pork pie at a Jewish wedding…just sat there doing nothing.
So much for me telling new subscribers to Forex not worry there is a market everyday. Unless you are a prolific 10-pip scalper and day trader, this market has you sidelined, in my opinion. At least I have been practicing what I preach, patience… wait for the trades to come to you.
THE FX MARKET PLACE:
LAST WEEK’S NEWS – MY THOUGHTS:
As stated previously, it was a shortened trading week with the U.S. markets out for President’s Day last Monday. It felt like a short week, But however because of the lack of real trading activity it also felt like a long week!
Nevertheless, we had Draghi speak at length in the European Parliament about the single currency. His jawboning had a slow and steady dropping effect on the EUR/USD, but it was still contained within its range.
There was a lot of AUD and NZD top tier data releases last week, but not enough to springboard a move out of their trading ranges. Last week the commodity currencies acted independently of the EUR and GBP. They moved around within tight ranges and the daily charts, in particular the AUD/USD and NZD/USD are just a mess, just rage bound activity not even really touching the extremes, just awful for my trading style.
Even the FOMC meeting minute’s reaction was a non-event. It was wetter than the wettest fish swimming in the deepest part of the ocean…. and that’s wet!
Good CPi data indicating an inflation indication moved equities lower but the Forex reaction was basically more chop, chop, chop.
Last week I witnessed more chop, chop, chop than Gordon Ramsey would in one of his restaurants.
Are you getting a visual yet?
Boring, boring, boring is how I sum, up the past week. In fact I would go so far as to say it was one of the most boring weeks in Forex trading that I have experienced in some 8 years.
Yes, I can hear people say oil made a few headlines and, yes I agree, but nothing really happened. Dips were bought and rallies were sold into. CNBC were happy with the buy the dip calls, but frankly I was bored. I shoveled a lot of snow last week
WHAT’S ON MY MIND:
THE NEW WORLD (FX) ORDER
Before slashing my wrists, or for some of you, after reading the previous section, you may be thinking about looking for the closest bridge to jump off, let me place some more perspective on matters.
We have just seen a failed attempt by the BOJ to weaken the JPY through Negative Interest Rates, which were in addition to the existing QQE program. This was a token gesture, granted, but a failure. The JPY has strengthened since and Abe and Kuroda must be pulling their hair out. They have inflation targets, the timescales have been pushed out but even still they are miles, miles and miles away from achieving objective in my opinion.
The FED just raised rates and are standing behind that decision in spite of the crybaby’s on Wall Street treating every piece of data in isolation claiming, hoping and praying that there are no rate rises in 2016. They believe if they say it enough times it will happen…complete and utter boll**ks. There may not be 3 or 4 rate increases by the Fed this year, maybe just a couple but to say none this early is damn stupid in my opinion. One can argue if we have two blow out NFP months of data and improving CPI and PPi data then we could be back at 4 rises minimum and maybe not just 0.25% a time.
The UK is in a BREXIT showdown, with a vote due before the summer, probably late June. “JCB” Carney has already ruled out rate increases and if a BREXIT was unanimous in a referendum the cable would initially crater. In the interim we have great uncertainty. Right now, David Cameron, UK Prime Minister is trying to broker a fresh UK European agreement to use at the referendum as a means of staying inside Europe. The referendum could go either way.
Mario Draghi must pour out his cornflakes every morning shouting “What the F**k”, no matter what he does or says he cannot get the EUR/USD below 1.1000 again. He has bugger all support from the likes of Merkel, Weidmann or Schaeuble (aka Pit Bull), they are so wrapped up in middle-eastern refugees, German bank liquidity issues and opinion polls they just do not want Draghi and the ECB to rock the boat with more liquidity creating a greater financial burden for Germany.
On the fringes as I view them: –
The Bank of Canada (BOC): I am not a fan of Stephen Poloz, I think that he is so far behind the curve he can’t even see it anymore. Retail Sales last week were a bloody disaster. I have been saying for months that his head is buried in a bucket of sand. Canada is bordering on recession, once again. There is a lack of confidence. Yeah sure, we have a new government…..big whoopee. There are problems that cannot be solved through fiscal measures alone. Poloz will grasp at anything positive to prevent taking action. The Canadian way is to wait until matters are so bad and so poor, before action is taken. It is a pure reactionary environment. If I ever witnessed pro-activity in Canada I think I would have the nosebleed that would be in the Guinness book of records.
I see rate cuts, fiscal aid from Trudeau and probably some form of QE and negative interest rates in Canada before its all said and done.
The Reserve Bank of Australia (RBA): Basically Australia is split in two; the west with failing commodities and under real pressure and the east, including Sydney with a potential housing bubble.
I call this “Chalk and Cheese”, totally opposite ends of the spectrum. The balancing skills of a performer from Cirque Du Soleil are required here. Does Glenn Stevens the governor possess these?
Last week he sent out his lackey John Edwards to inform the markets that the AUD/USD target rate is more comfortable around the 0.6500 levels in the opinion of the RBA.
The Reserve Bank of New Zealand (RBNZ): If anyone can advise me what Graeme Wheeler, RBNZ governor’s objectives are please do so. Between himself and English (Finance Minister), the actions and words are in conflict most of the time. The last news I have was that rate increases were off the table.
In my opinion, I do not think that the China effect is fully worked into the NZD/USD. Additionally, if the RBA is looking to shoot lower at 0.6500, where does that comparison level leave the NZD, closer to 0.5500?
Last but not least, the Swiss National Bank (SNB): Thomas Jordan, man of the year 2015 with regards to Forex in 2015, speaks this week. I wonder what pearls of wisdom are going to emanate from his mouth. If he denies a target rate for the EUR/CHF… that’s code for there is one.
I think with the EUR/CHF back above 1.1000, he will keep his powder dry but he will re-iterate the usual now familiar all options open, everything is on the table, nothing is ruled out, if we need to act we will type of phrases. But do not be fooled he may slide in an increase in negative interest rates, just because the markets do not believe the BOJ, he would rather the markets run to Gold and the JPY for safe havens and leave the CHF alone.
That is it…THE NEW WORLD ORDER…it is CURRENCY WARS and we are moving into the next stage.
As far as I am concerned central bank divergence is still breathing but the difference now versus the autumn/fall last year is that the power of the central bank is being tested.
Let me say this in capitals/ uppercase…
IF YOU THINK THAT YOU CAN BEAT THE FED…. THINK AGAIN.
YOU CAN BEAT AN EGG BUT YOU CAN’T BEAT THE FED
As traders we really need to be really careful moving forward whilst the geopolitical macro level factors settle down and are absorbed. You should not just go out and get long the USD. It is not that simple.
We have just left the longest running one-sided market ever and we need to unwind and clarify the central bank positions.
I think if you entered trades today and closed your computer and never looked for 6 months you should be pleasantly surprised when you return, but its not that simple. Between now and then there will be chop and volatility to look after that could give huge swings in positions.
Last year I was hopeful, in fact very positive on the fact that we should have directional markets. With 6/7 weeks of the year gone I can’t see it happening any time soon. Painful as it is chop-chop appears the way forward for now at least.
The one fact I do know is, do not fight the central banks. Even if you think their policies were dreamed up on the back of a fag (cigarette) packet. They have more money than you and they can print even more.
There was an article written last week by Mehreen Khan about negative interest rates being a “dangerous experiment”, well worth a read. We are in transition and it will be choppy until boundaries and directions are finalized.
As I state at the end of my blog each week. Forex trading is about longevity, survival, also knowing when to be in the market but even better when NOT to be in the market.
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).
TUESDAY: CHF – Thomas Jordan (SNB) speaks.
THURSDAY: GBP – GDP.
FRIDAY: USD – GDP.
THE USD MAJORS SUPPORT & RESISTANCE LEVELS:
(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.
EUR/USD – Weekly Closing Price: 1.1229
GBP/USD – Weekly Closing Price: 1.44404
AUD/USD – Weekly Closing Price: 0.7147
NZD/USD – Weekly Closing Price: 0.6627
USD/CAD – Weekly Closing Price: 1.3766
USD/CHF – Weekly Closing Price: 0.9891
USD/JPY – Weekly Closing Price: 112.54
No real heavy news agenda items this week except for U.S. GDP on Friday, which will be eagerly awaited and scrutinized to death.
As Forex traders we are going to be hostages of equities and oil….. what’s new!
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.
The Pip Accumulator