- THE OPENING SHOT:
What a week that was.
Holy Mother of God, trading this week for me was hard with my trading style. There was movement, mostly one way, call it reactionary, impulsive or fear of missing out trading (FOMO), call it whatever you want it was nonstop selling of the USD. I cannot recall too many times over the past 10 years that I have seen so much nonstop one-way traffic. I spent a great deal of the time sidelined watching what went on, there were no, what I call usual market pullbacks to meet my TRADE PLAN guidelines to enter.
Chart indicators meant little, similar could be said of many Fibonacci levels. During last week, we had several market squeezes, a Dovish hike with a Hawkish outcome and more “chop action” than a family butcher would get through in a month; we as FX traders had it all in just 5 days.
The week was light on economic data to consider. From my perspective all the market moving economic data events were last Wednesday, the BOC interest rate decision and Press Conference, AUD employment data and Chinese GDP. The rest of the week we were at the mercy of equities.
The swings in US equities, especially the Dow Jones index, which had around a 1,000 point move up and down in 48 hours were nothing more than just extreme, it was basically just mental price activity.
Cable squeezed like feck, it has 1.4000 in mind. The markets are gunning to take stops above this figure but on Friday last week following poor Retail Sales figures the pair fell back from achieving 1.3945.
Also, the JPY had its moments. I had several JPY trades which in a flash turned from strength to weakness as the USD/JPY squeezed higher above 111.00.
The EUR/USD leapt up as well, it obviously wants to take stops above 1.2300. Despite severe jawboning from the ECB and other EU figures, the single currencies move higher was relentless during the week.
The commodity currencies AUD and NZD slowly kept grinding higher with small pullbacks then off again taking new highs as they moved.
In a normal market, one would expect some sort of price test to verify the break out or break down levels. I placed three what I called “no brainer” limit orders to do just that. They all triggered and then swiftly reversed stopping me out of all three trades. Bugger that for a game of soldiers as one might say!
Moving on…
I had placed a huge amount of faith in the BOC news. It was a dovish hike but a sort of hawkish “at times” press conference all the USD/CAD gains, were given back and then a huge spike to end the day. We ended the day with a very long wicked “Doji” candle the highs at 1.2540 and lows at 1.2350. The price movements during the day were just mad. The CAD lived up to it’s nickname “Loonie”
If all this was not enough…
Enter TRUMP talking his usual bollocks over NAFTA, escalating the chatter with China and in so doing pushing a potential trade war closer and then the escalating chatter surrounding yet another US government shutdown. This just fueled the already crazy price action and volatility.
I just cannot wait to see TRUMP in Davos this week. He will no doubt overshadow the whole proceedings and bring increased security issues along with him. Never mind the headlines that will emanate from his reasons to visit.
Basically, to sum up last week, there was little point measuring moves, most of the time trading was tantamount to gambling. I am sure many traders will disagree with that statement but how anyone could plot a trade under those circumstances was using luck more than skill. Only the true 1 and 5-minute scalper traders with all that experience and nerve could have survived, it was at times a bloodbath. Even my “Pressure charts” which are great on directional behavior were all over the place on low minute charts. I was sidelined.
Last week and looking forward the USD was on the “Highway to Hell”. From time-to-time but for really short periods it demonstrated some signs of a recovery, but these were very short lived. Basically, sellers of the USD were lining up as soon as spikes were seen. Selling the “RIPS” was the order of the week. Even last Friday as the latest D.C. shutdown approached the USD strengthened a little but my overall thought process remains; it’s going down.
Now look, I do expect a pullback, as I have said in many of my blogs. Remember, the FX market likes to check / validate prices. However, I am viewing these validation levels as opportunities, but they are all so far away from current pricing at the moment, it will take some patience to sit out the wait.
Will the pullback happen this week?
One would like to think so, however, but to be honest with TRUMP let loose in Davos anything could happen.
Being patient is a trading skill. It’s sounds absolutely crazy and bizarre to say that staying sidelined is a trading skill, but it is. Knowing when to RISK your capital is precious.
The DXY chart below shows the declining USD from TRUMP’S inauguration day last January 2017 until now.
To be frank, I just cannot for the life of me understand at this point in time, why anyone would want to hold the USD. It really is one-way traffic. I never thought that I would ever write something like that for a currency where the Central bank is taking the lead to normalization. My brain is telling me USD strength. Central Bank divergence rules. Other Central banks are shifting policy, but the FED is well down the road of normalization, nearly all of the other G10 countries are talking about it and getting the markets ready but have done nada so far. It’s all quite bizarre.
Connect to iTunes and play AC/DC “Highway to Hell” and look at the above DXY chart one more time!
To complete this section, this week…
Ending soon…
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The details of the “BUY ONE GET ONE FREE” promotion can be found on my home page under the TAB “PROMOTIONS”.
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- THE PREMIUM SERVICE TRADING LAST WEEK:
PREMIUM SERVICE PERFORMANCE YEAR TO DATE:
- THIS WEEK’S OVERVIEW and OPPORTUNITIES:
3:1. THIS WEEK’S ECONOMIC DATA RELEASES:
3:2. FX NEWS ITEM – “PICK OF THE WEEK”:
The prime piece of data on the agenda this week that has caught my eye, from a MUST TRADE perspective:
EUR: ECB RATE DECISION and PRESS CONFERENCE:
God love Mario Draghi.
Personally, I can see that he has basically won, with one or two minor exceptions his long hard fight to get fellow governing council members of the ECB to tow the line and unite on the ECB policy decisions. Over the past few years council members, in particular, Jens Wiedmann (President of Deutsche Bank), Ewald Nowotny (President of the National Bank of Austria) and Wolfgang Schauble (Ex. Governing Council Member, ex. German Finance Minister and now President of the Bundestag), would say and do whatever they thought undermining Draghi and the alleged combined efforts of the ECB for the EUROZONE greater good.
Draghi attempted several ways to bring these people in line. Some outspoken speeches, such as “Whatever it takes….”. Eventually the lines were drawn and most of the time they are adhered to.
This past week or so rhetoric from all over the EU and ECB has been united in trying to keep a lid on EUR strength. Late last year much time was spent by the ECB talking down tapering and interest rate normalization. This worked but recently more to do with USD weakness the single currency has strengthened across the board.
The EUR/USD is fast approaching 1.2300 and the ECB are pissing conkers over this. They do NOT want an exchange rate at this level. They have been jawboning, but to little effect as the USD selling has been vicious. Therefore, this week’s press conference will be fascinating to follow.
3:3. MY THOUGHTS ON TRADING THIS WEEK:
If you did not know I am more of a Fundamental trader.
Timing is everything and the following may start to bear fruit this week, it may take a week or two.
Last week I talked about JPY strength. I am not going to go into great trade set up by set up ideas in this area of the blog, that is reserved for PREMIUM SERVICE subscribers, however, let me elaborate a little more based on the recent price action with what could happen in my opinion.
We have extremes, I have been using the word stretched a lot of late. Let me throw out a few observations:
- Equities are squeezing higher
- S. Treasury Yields are also moving higher
- S. 10-year Bonds are dumping
- Oil has been on a tear higher
- USD (DXY) has dumped.
Should the extreme moves stop, and reverse will the USD benefit?
U.S. Yields are going up but the relationship with the USD/JPY is broken. This pair is not rising.
Equities are at all-time highs. The USD/JPY is not following. The correlation is not there.
Look at the USD/JPY chart below. As mentioned recently there is a big move brewing and as I have said with the BOJ looking to move on its long term monetary policy of accommodation to maybe being a little more leaning towards normalization the path lower would be my thoughts on the matter.
The USD/JPY is in a triangle pattern. Long term, but in the apex. 110.00 as you can imagine is huge trend line support and the implications of a move lower beyond that level would be huge.
I see, as I have stated before the JPY as the bonus trade in 2018. This is as a direct result of the BOJ changing policy.
Obviously, with a BOJ move this affects not just USD/JPY but it also implications for most if not all of the JPY crosses.
I would also look at the NZD. New Prime Minister, Jacinda Ardern has announced that she is pregnant and will be taking maternity leave. The role of PM in New Zealand would therefore pass to Winston Peters. By all accounts populist and an unknown quantity. This should place the NZD negative moving forward.
We have seen so many stretched moves over the past 10 days, I am ready and waiting for the pullbacks to re-enter in the direction of the Weekly and Monthly trends. I expect lots of bull and bear flag patterns on the 240M, 480M, 720M and daily charts coming through.
In addition, the closing candles will be heavily scrutinized by the banks and large institutions this week as they set up their books for the week ahead.
There’s more…
NAFTA talks start up again in my old home town of Montreal. It will according to twitter (so it must be 100% accurate!) be a 9-day affair. Most of the clever people feel that if “LITTLE HANDS” rips up the agreement, whilst we have a six-month hiatus period, the currency that will suffer the most would be the MXN. Let’s see about that one!
Even more…
Cross rates of late are broadly speaking wound up very tight. There is an explosive move on the cards, be very, very careful. Make sure that your position sizes vis-à-vis cross rates are about 25% of your usual trading size or less!
Finally,
Therefore, here’s a tip. If you are trading, trade only the following times when liquidity will be at its highest: 8.00AM EST to NOON EST. This may not always be possible, but it is without doubt the best time to trade.
In addition, be extremely careful with cross rates as they will be the first to suffer from the lower liquidity periods in the market.
3:3. USD MAJORS – SUPPORT & RESISTANCE with MY BIAS:
3:4. USD – TRADING CHARTS:
More often than not I will use DAILY CHARTS for my analysis. My commentary and thoughts for each trading pair are above the charts.
EUR/USD:
Looks bullish to me with a nice bull flag pattern developing.
The issue I have is that I would prefer a re-test of the breakout price of 1.2092. I would like to see a break lower to that level or at least 1.2165 to validate the move higher.
I am firmly in the camp of this pair moving higher through 2018 and I have my H1 target of 1.2668 in my mind and on my trading charts. That level BTW would be a great shorting level. It is the 61.8% retracement level of the 2014 high to the 2017 low.
GBP/USD:
Poor Retail Sales data last Friday in my opinion scuppered any test of 1.4000. It is a huge psychological number that will be taken out and then what’s next, that is the question.
I like the idea of a nice pullback to 1.3612. Dream on, if that were to happen a choir of heavenly angels would be singing in close harmony over my desk! 1.3650 (61.8% Fibonacci retracement) would be good enough.
I have a feeling the 38% Fibonacci level may be “all we get” at 1.3760 and even that may be very difficult.
It is nevertheless a “BUY THE DIP” pair to take back to 1.4000 in my opinion.
AUD/USD:
We are in an upward sloping channel pattern. A few weeks ago, I was certain that this pair was going to break higher and test the 0.8120 level. Recent price action, when the AUD has basically crawled higher, retraced, albeit shallow, then spiked up again makes me wonder just a bit will it hit the lofty heights around 0,.8120.
Why?
Long wicks show no price confirmations and a basic lack of follow through. Therefore, I question the conviction of the move. There have been some long green candles as well, so I am somewhat caught between a rock and a hard place vis-à-vis this pair.
NZD/USD:
Last week I had this drawn more like an ascending wedge, having re-visited my charts, I see it similar to the AUD/USD in the sense that it is an upward sloping channel.
The overhead is playing its part however with this pair and with the political concerns in New Zealand about to become reality, the upward move could very soon be over. Pleases me no end. I am in a CORE SHORT position with this currency.
USD/CAD:
We have a BEAR FLAG pattern on the daily chart below. Ideally a move to just below 1.2600 to short would be just brilliant.
With NAFTA talks looming one cannot guarantee anything with this pair as it certainly lives up to its nickname of the “Loonie” if recent price action is anything to go by.
USD/CHF:
Last week, I mentioned this pair dropping to 0.9450. It could still happen and more if the ECB projects the EUR/USD higher this week during the ECB Monetary Policy statement and the following Press Conference.
As you can see from the chart it spiked below trend line support on Friday last week and quickly gathered itself. This is NOT over.
USD/JPY:
I need to get myself focused on this currency this coming week. It is in my action plan to do so.
I am now looking at a HEAD AND SHOULDERS pattern playing out a measured move to 107.40. We have had an almost perfect test of the neckline break.
Below 110.00 is an important level to cut through in my opinion.
- PREMIUM SERVICE SUBSCRIBERS ONLY:
(Only SUBSCRIBERS to the PREMIUM SERVICE can view this section of the BLOG)
4:1. TRADING REVIEW:
4:2. SENTIMENT CHART, FUNDAMENTAL & MACRO THOUGHTS:
4:3. TRADING PLANS and LONGER-TERM TRADE SUMMARIES:
4:3.1. MY TRADING PLAN OVERVIEW THIS WEEK:
4:3.2. LONG TERM CORE TRADES SUMMARIES:
4:4. CURRENT LIVE TRADES & LIMIT ORDERS:
4:5. FX BROKER NEWS and MARKET FEEDBACK:
- THE FINAL SHOTS:
5:1. WANT A FREE PREMIUM SERVICE SUBSCRIPTION:
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5:2. CLOSING THOUGHTS:
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
https://weeklyfxdrivethru.com/disclaimer/
BLOG VERSION: #266 FREE NEWSLETTER
DATE: 20th January 2018