THE WEEKLY FX DRIVE THRU
- THE VIEW FROM MY TRADE DESK:
LOOKING BACKWARDS, FORWARDS & SIDEWAYS (FOR GOOD MEASURE) AT THE FX MARKET
1.1: LOOKING BACKWARDS:
The title of my blog last week was: –oo
“HAVE WE SEEN THE TOP IN THE EUR/USD?”
And, the prior week was: –
“IS NOW THE TIME TO SELL THE
COMMODITY CURRENCIES?”
The answer to both questions was YES…
These calls were made from a technical viewpoint and not because I am some sort of superman…. my wife will verify that last comment.
I am a FUNDAMENTAL trader. FUNDAMENTAL first then as the technical aspect of trading lines up in harmony (I have referred to this as Ducks lining up, in the past) I will enter with either LIVE trades or a trade via a LIMIT ORDER.
My trading accounts have reversed dramatically on both pips and $$$ from a few weeks ago, when I was struggling to get traction with my trading when frankly the FX market was pretty much a gambling chop fest at times.
What does this tell me?
I am going to cover this in section 1.3 Looking sideways, later in this blog.
Moving on…
So along comes Mario Draghi to the ECB press conference last Thursday about a week after Ewald Nowotny’s (Austrian Central Bank Governor and ECB council member), comments about ECB inflation targets basically being tantamount to a pipe dream.
I wrote just prior to the press conference to my premium service subscribers stating whilst Nowotny was correct, it was too late for Draghi to act and that I felt he would say that he would do all in his mandate to act moving forward. I was expecting some jawboning, but fair play to Mario Draghi he really laid it on thick, so that the dumbest of reporters that usually prefer to comment on the colour of his tie had to take note: –
- Lower deposit rate at ECB beyond -0.2%
- Extend the end date for QE purchases
- Increase the size of the QE program
- Increase and broaden the types of bonds that can be purchased
The above were the four key takeaways I noted from his very carefully prepared and delivered speech.
I keep banging on about DEFLATION.
The Eurozone is in DEFLATION territory, and, as I have said many, many, many times before, there is not a Central Bank Governor or President who has any clue on how to solve DEFLATION. Frankly, there is more chance of “Hell freezing over” first, if there is such a place.
The nearest place to hell I can think of is probably Janet Yellen’s office in the FED. I still stand over my opinion, which was the title of my blog a few weeks ago, on October 3rd 2015, which was: –
“I BET YELLEN WISHED SHE’D HIKED RATES LAST MONTH NOW”
You can just imagine what is going through her mind right now, apart from sh*t, bollks, bastd, F**k, feckers etc…
She dithered…
Now she has a real problem. FED credibility is on the line regarding increasing rates and frankly the whole world is talking about 0.25%. Are you telling me in all seriousness that the biggest consumer driven economy on the planet could not even raise rates by 0.10% in September ahead of all these shenanigans?
The shenanigans by the way were created by the FOMC themselves.
7 years of ZIRP, and they could not even raise by 0.10%.
Yes, I would say the nearest place to hell right now is Yellen’s office.
These arguments about the world economic position weighing on the FOMC decision are a smokescreen to hide dithering.
Back to the ECB and Mario Draghi…
So the EUR/USD was crushed like a grape on Thursday and it continued Friday last week as well. The move lower was from 1.1320 to 1.1030, about 300 pips.
I would say that Mario would be out on the town with Mrs. Draghi this weekend; steak dinner, champagne, roses and a blue pill for dessert…now there a picture for you pouring out your cornflakes.
Then, just to drive a nail in the coffin of the FED rate hike, out comes the PBOC at about 0715 EST on Friday morning, cutting any rate they could cut. We have reached desperation point with the Chinese economy. I take their economic data with a pinch of salt. We have to note them, and for sure whether the Chinese GDP is at 5% and not 7% it is still in dreamland as far as the rest of the world is concerned.
Initially, all my open trades were screwed on the announcement from the PBOC then after about 30 minutes the commodity currencies dropped like a hot knife through butter.
AUD and NZD in particular, one would have thought a massive rally. We had a nice squeeze but very contained and then its like the PBOC cuts never happened.
What a weird market we trade inside.
FUNDAMENTALS and even the TECHNICALS do not count at times.
I can’t wait for this week.
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: N/A.
MONDAY: N/A.
TUESDAY: N/A.
WEDNESDAY: USD – FOMC Statement.
WEDNESDAY: NZD – RBNZ Rate Statement.
THURSDAY: N/A.
FRIDAY: JPY – BOJ Press Conference.
MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:
I am not interested in anything this week apart from: –
THE FED
THE RBNZ
and
The BOJ
I am focused on these three events and nothing else. I will NOT be adding fresh trades (90% certain of this) and I will NOT be adding any new limit orders either.
Essentially, we had the ECB and PBOC make it clear what their thoughts are moving forward last week. This week, the three central banks (FED, BOJ & RBNZ) plus the SNB, (never rule out the SNB intervening, I was half expecting Thomas Jordan to press the button last Friday morning 15 minutes after the PBOC), will have their say and given what happened last week. These are all “LIVE” meetings the perspective and commentary will be of huge interest to all traders irrespective of trading style.
This coming week, the views of these central banks are of paramount importance for your forward trade planning if you are a Forex Trader, in my opinion, this week is that important.
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: 1.1016
What can I say here that hasn’t already been said? We saw a 350-pip drop in the closing price this week compared with last week and the EUR/USD looks very bearish.
Looking at the chart below, we have probed at 1.1000. Once clear from this level the 61.8% Fibonacci level of 1.0940 is next up.
Not wanting to get carried away but a break below 1.0800 horizontal support and I think it’s a case of “fill yer boots” for the parity party!!
From a move higher perspective all the way back at 1.1240 is where I think the EUR bulls regain control once again.
GBP/USD – Weekly Closing Price: 1.5309
I was wussied out of short trade last Friday with the cable. It was a limit order entry, which failed to trigger by 2 pips but 10 pips from my entry level I cancelled the order. In the end it didn’t trigger. Had it triggered, it was a 100-pip move. I think that because I have had so many bad experiences of trading the GBP/USD I shy away now through fear of it ripping up in my face.
It is dangerously close to 1.5300. I have read so many pieces about the GBP/USD this week calling for levels ranging from 1.5000 to 1.7000, no wonder my heart skips a beat when I see this pair in action.
Moving forward support is at 1.5250/1.5300 and then resistance back at 1.5420.
AUD/USD – Weekly Closing Price: 0.7214
In my opinion, the next few weeks will be pivotal for this pair. I think we have seen the short to medium-term top with 0.7380. I now think that we are on the cusp of a break lower back towards to lower end of the trading range closer to 0.7000, or, just below maybe having a swipe at 0.6940 once again.
Support is at 0.7160 and resistance at 0.7260.
NZD/USD – Weekly Closing Price: 0.6749
I am viewing this pair very similar to the AUD/USD. I believe that 0.6910 was a top that will be in place for the medium term.
I also believe that our focus should be to the short side. We have a very important RBNZ meeting statement this Wednesday after the FED announces. I am thinking that there could be a rate cut on offer as the RBNZ attempts to maintain the status quo differential over other central banks. The PBOC action must have scared the crap out of Graeme Wheeler (RBNZ Governor). I think that he will act.
From the chart below support is at 0.6645 and resistance at 0.6820.
USD/CAD – Weekly Closing Price: 1.3165
Moving nicely back towards the 1.3455 near term highs.
After the shock Trudeau election victory the pair has steadily moved upwards. As I have said there will be a rate cut on the cards in Canada before the year-end. Falling oil prices have handed Justin Trudeau a headache and stimulus is required. Enter Poloz with his head in a bucket of sand….head pops out and lo and behold we have a 0.25% cut before the end of the year.
This pair has the chance to really move higher. There is an inverted head and shoulders pattern on the weekly chart with a measured move of 1.4000. On the monthly chart there is a cup and handle formation targeting 1.6000. These measured moves are extreme and personally, I am not getting excited until 1.3455 is broken.
This week support is at 1.3140 and resistance 1.3217.
USD/CHF – Weekly Closing Price: 0.9784
This pair is poised for a breakout. I exited my final long just below current prices as the 0.9800 level offers good resistance.
I will chase this pair higher on a break as I believe in conjunction with the EUR/USD to parity this has the chance to get to 1.1000 and beyond.
Support this week is 0.9750 and resistance after 0.9800 is 0.9850.
USD/JPY – Weekly Closing Price: 121.45
This pair is getting well supported not just because of the jawboning from Mario Draghi (ECB) but also on the rumours of BOJ QE this week.
121.70 will be a key area to hold as any break through here and then 122.00 could see this pair motor on up towards 124.00 / 125.00 quite easily and should the BOJ ease further we could be back at 130.00.
Support is back at 121.00
1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):
From earlier in this blog…
The title of my blog last week was: –
“HAVE WE SEEN THE TOP IN THE EUR/USD?”
And, the prior week was: –
“IS NOW THE TIME TO SELL THE
COMMODITY CURRENCIES?”
The answer to both questions was YES…
These calls were made from a technical viewpoint and not because I am some sort of superman…. my wife will verify that last comment.
I am a FUNDAMENTAL trader. FUNDAMENTAL first then as the technical aspect of trading lines up in harmony (I have referred to this as ducks lining up, in the past) I will enter with either a LIVE trade or a trade via a LIMIT ORDER.
My trading accounts have reversed dramatically on both pips and $$$ from a few weeks ago, when I was struggling to get traction with my trading when frankly the FX market was pretty much a gambling chop fest at times.
What does this tell me?
It tells me that at times I have been trying to engineer trades earlier in the month when there were not trades that fitted my TRADE PLAN profile.
Having checked my TRADING PLAN; I have been a little generous with entry levels, correlations and technical patterns that I usually use to “green light” my trades. I think this has been brought about by the fact I am holding a couple of open positions with quite large (for me) potential pip losses. They are both within the ranges I had set at the outset but I think that because I took these on board I let other aspects of my trading run a little out of sync.
The bottom line is…
“Wait for the trades to come to you”.
I am usually very good at this but there were one or two trades that I took on board that frankly I should have left alone, or at least cut losses on sooner. By the same token I am human. There are only so many times I can smash my head against the wall.
Forcing trades never works over time, the chickens will come home to roost and bite you on your ar**.
Eight years in you would think that I should know better. This is basic stuff.
WAIT FOR THE TRADES TO COME TO YOU
PLAN YOUR TRADES AND TRADE YOUR PLAN
This is a gentle reminder. There is little point looking for high probability trades, finding none and then looking for “almost fits” and running with them. This market takes no prisoners, you are just killed, and there is no forgiving. You have be trading with your eyes wide open and know your risk before you start, knowing that if you need to move a stop your entry position and trade size allows this.
- WHAT’S ON MY MIND:
THIS WEEK IS THE MOST IMPORTANT FOR TRADING
FOREX IN 2015
Heavy title.
The history…
Since June this year, I have been writing to my fee-paying subscribers and adding bits and pieces in the general open areas of this blog with my thoughts on my FUNDAMENTAL TRADE PLAN that is in play through to the end of this year and beyond.
For one reason or another, the FOMC dithering has stopped me from loading up my longer-term FUNDAMENTAL trades. Every time I try to do this, I read conflicting longer-term central bank chatter that puts me off and raises the odd red flag and I cut the trade. This is both frustrating for my subscribers, and me if we are both looking for “place them and forget about them trades”. On a positive note we are making money so that is the compensation.
I have been waiting on the FED to raise rates and start the process. I have been dithering along with the FED!
My main reason for dithering was supportive action by central banks to boost commodity prices and in so doing this it supports the AUD, NZD and CAD, three of my core currencies would be moving in the wrong direction and a knock on effect would be seen with the commodity cross rates. It has been a stop and start 3/4 months as far as I am concerned and totally frustrating.
It looked so easy. The FED raises rates. We have divergent central bank policies in play. Never underestimate the FED and you cannot lose.
Now…
I am still waiting.
The moves last week by the ECB and PBOC were timely. It makes it so hard for the FED to raise rates this year. Yellen dithered and missed the opportunity now she has nothing put by for a rainy day.
Let me revisit each major central bank.
FED: Hawkish, but pseudo hawkish. Janet Yellen is dovish and dithered about even a 0.10% rise prior to the summer and in my opinion missed the opportunity in September. The fact that the FOMC would not even agree a minimal rate rise is very concerning and worrying. I think that it will be hard to raise and it would be a total surprise if a rate hike occurred this year.
ECB: Now a full-on dovish, 100% totally supportive central bank. Mario Draghi is back at “Whatever it takes” once again.
PBOC: Whatever your thoughts and opinions are vis-à-vis the released China data, there is no doubt that the PBOC are dovish. What concerns me is that China is not an open economy and the PBOC want reserve currency status and the IMF supports this? How the IMF can promote this beggars belief given the current cloak and dagger, stealth conditions that China continues to operate under?
BOJ: Dovish – and there are huge rumours that more QE will be announced this week.
BOE: Allegedly hawkish. Data is mixed from the UK but Carney (believe him at your own risk) is upbeat on raising rates. He was even quoted as saying they would move higher before the FED. Yeah right my ar**. I just cannot see the UK having the balls to go higher before the FED. However, I could see a coordinated move together, both raising rates at the same time.
SNB: The stealth movers…. The SNB are concerned about the EUR/CHF exchange rate and the pressure that the ECB has placed on this pair to the downside must be concerning. There were papers flying around last Thursday/Friday stating that a revised EUR/CHF floor would be placed at a minimum of 1.0700. After the 1.2000 peg was removed earlier this year 1.1000 was muted as “fair value”. It would NOT surprise me to see the SNB intervene sooner rather than later.
RBA: Glenn Stevens who is continually worried about house prices in Sydney, now claims that the RBA is neutral. Well, they were neutral before last week, is where I see things. In my opinion, they will be cutting rates sooner rather than later irrespective of property prices in Sydney. They have to move just to stand still and maintain the status quo.
RBNZ: Meeting this week and, I expect a rate cut to keep ahead of the curve. Deputy Finance Minister English was in the news last week saying that the existing levels in the FX markets were about right. In my opinion, that is now old news. They have to move to maintain the status quo.
BOC: Following the general election last Monday, and at the BOC meeting last Tuesday Poloz stated that the full effects of the rate cut earlier this year had still to be realized. What utter nonsense. He has his head in the sand and was under orders not to cut. Oil is dropping lower and he has a series of poor economic data to deal with. He will cut next time to give the Canadian population a Christmas surprise. There is only so much sand he can stick his head into.
So in summary, it’s the FED and the BOE that are hawkish and the PBOC, ECB, BOJ, SNB, RBNZ openly dovish in commentary. The RBA and BOC are neutral, however in my mind, they are as dovish as the other central banks they are just in denial for whatever reasons known only to themselves.
This week, the commentary from the FED, RBNZ and BOJ will give us not just additional commentary but it will give us direction. Coming so close to the ECB and PBOC timing could not be better.
I can guarantee you volatility in abundance this Wednesday. I am just hoping that by the end of the week I will be in a position to strategize moving forward. This week is critical and it will direct us in our trading through to the year-end and the first quarter 2016.
The FED announcement is the big news item. It all depends on the FOMC view of why the ECB acted the way it did. If the FED views Draghi as supporting the EUR and the Eurozone economies, this takes away a concern from that the last FOMC decision about weaker world economies requiring help. This could be the trigger to raise interest rates in the FED’s eyes. Stranger things have happened, although with Yellen being such a dove I suspect any decision on a rate hike will be delayed.
Do not forget; how could we in this transitory period… that we are of course governed by the phrase “Data dependent” and the U.S. data is definitely in the weak column rather than the strong, so the odds given the data are against a rate increase, that is of course in my opinion. My God, I am turning into a ditherer, or maybe a dove on all matters?
Nevertheless, with all of the above factored in, it does make this week a pivotal week for Forex traders, be prepared.
- MY FINAL THOUGHTS:
OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:
I am going to be very, very light on trades going into Wednesday this week.
Currently I have three open trades, EUR/CHF, EUR/NZD and GBP/NZD. All three of these trades form part of my longer-term trading plan. Both NZD related pairs have swung from positive to negative and the EUR/CHF was only positive twice since the trade was first entered into in early September.
I have no plans to load up any more trades until after the FED has delivered its statement.
As I have stated already this in my eyes is the most important week for FX trading this year so far. It trumps the September FED meeting because it is so close after the ECB and PBOC having made their announcements.
If you decide to trade ahead of the FED be nimble, I suspect that the markets will be slow Monday and Tuesday this week.
Take care.
Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
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