WILL THE ECB PULL IT OFF? By Scott Pickering

  1. INTRODUCTION:

I began last week, carrying forward from the prior week some large negative cross rates losses. The charts prior to some poor US data were relatively constructive and I made the decision based upon my longer-term views to HEDGE four cross-rate trades. The decision to HEDGE was made primarily due to rising geopolitical tensions and headline news events that could just rip up in my face… NORTH KOREA, IRAN, CATALONIA and BREXIT.

At the beginning of the week, Monday and Tuesday, I was playing a waiting and watching game. Now HEDGED my losses were fixed and I set up what I call the “OUT” trade based on revised chart analysis. The market was slow and just trying to extract a few pips a day was difficult as we were range bound. I was Tweeting and writing to my subscribers that for me at the current time it was all about patience. I had to let the markets consolidate.

Wednesday I was really pist off as I let a few pips drift by.

Then overnight Wednesday/Thursday early morning it all kicked off. My PREMIUM SERVICE subscribers were already positioned SHORT the NZD as this was one of my CORE POSITIONS for some time.

The coalition announcement was just what the doctor ordered. At one stage I had almost 30 LIVE trades to deal with and fresh trades triggered what felt like every two or three minutes as the Kiwi got crushed. At 2:30AM last Thursday I was up and at my screens. The following 4-5 hours reminded me why I enjoy trading so much. I took profits off the table, banked pips, moved stops to protect $$$, increased limits and removed some other trades that were just part of the forest stopping me from seeing the wood on the trees I wanted to follow. It was hectic, and, at times frantic whilst I gathered my thoughts and put my TRADING PLAN which was thought through from the night before into action.

Two of the HEDGES have been exited in profit by 132 additional pips. Of the remaining HEDGES, one is on the way to its exit and the other has yet to move considerably in my chosen “OUT” direction, but as my trading position is fixed; I can wait and focus elsewhere first.

The great news is that from my trading perspective the New Zealand government coalition is NZD negative and the trade has only just begun.

So, what I thought was going to be one of the most boring weeks of trading since I started was exciting and quite profitable.

To put the week in perspective. The prior week 160 net pips were added. Last week the PREMIUM SERVICE added an additional net pip total of +1,112 pips, making the total for 2017 +9,159 pips.

On June 25th, 2017, just after Breda and I had completed our trip to Australia and New Zealand, which followed our cross-country house move into Nova Scotia, the pip total stood at 2,113 pips.

The pip gathering since the start of July this year has been relentless, but at the same time there have been days of inactivity waiting for trades and being patient.

I was going to place this next paragraph about trading with THE PREMIUM SERVICE at the end of the blog but it makes sense to include it here: –

My annual target of 10,000 pips is in sight, however, nothing can be taken for granted and given that my position sizing this year has been smaller due to the markets have greater RISK attached my income from trading will be lower this year… but, there should be an income barring any disasters in the run up to the year end.

My point here as I mention every year is that those of you who trade with smaller account sizes can still make some money from trading Forex.

Single MINI LOT trades                                 = USD$1.00 each
PREMIUM SERVICE Annual target               = 10,000 pips
Anticipated Gross Income                            = USD$10,000 (10,000 pips x USD$1)

Less PREMIUM SERVICE
Annual subscription                                       = USD$1,000 (equivalent)

NET TRADING INCOME                               = USD$9,000

Working on the 50% rule
Should you can only capture:
50% of my suggested trades
50% of my entries on time
50% of my exits on time
You could still generate a NET INCOME
after subscription                                            of USD$4,0000

Obviously, you would need in the first year to open and adequately fund a broker account to meet the trading criteria you have set yourself. I would say to trade MINI LOT trades you would require a minimum of a USD$6,000 account for you first year after one year you should be able to trade and operate your account on trading income and then as the year’s progress increase your trading size to say 2 or 3 MINI LOTS but at the same time you must remember increased POSITION SIZES = INCREASED RISK.

RISK MANAGEMENT is crucial to FX trading. Without it you fail.

 

2. THE FX MARKET PLACE:

2.1: LOOKING BACK AT LAST WEEK’S NEWS.

Here is what tickled my fancy in the news last week as a currency trader.

NZD: GOVERNMENT COALITION ANNOUNCEMENT.

26 days following the New Zealand elections, Jacinda Ardern leader of the Labour Party became the country’s latest Prime Minister.

There was a split vote almost a month ago and the New Zealand First Party leader, Winston Peters in dramatic form announced that his populist party would throw its support in a coalition with Labour. Along with the “greens” the NZ First and Labour will be the coalition government.

It was pure theatre as, neither incumbent Prime Minister Bill English, nor Jacinda Adern knew which way Winston Peters was going move.

This result and the coalition is a total unknown and the markets would have preferred a Bill English National Party led coalition.

This move should NOT be underestimated, as it is mammoth. It was a decision for change involving Housing, Immigration, reducing NZ poverty and Foreign Investment in property. These are structural economic changes.

On the news, the NZD/USD was crushed lower by 160 pips, the EUR/NZD and GBP/USD moved up by over 400 pips each and the antipodean cross AUD/NZD moved up by over 270 pips.

These moves were stellar and over the coming sessions I see these moves consolidating. There should be plenty of pips available into the end of the year.

 

GBP: CPi, CARNEY, AVERAGE EARNINGS, RETAIL SALES & BREXIT.

It was an action-packed week for sterling.

The week started well with CPI which was in line with expectations at 3% this is basically what is fueling the BOE accountants to raise rates as it is a full 1% above the BOE target.

Carney presented in front of a House of Commons committee on inflation and was dovish but saying that interest rates would probably rise, but it would be more than likely reading between the “yada yada” a one and done scenario. He saw inflation stopping around 3% and cable sold off as a result. There was nothing new in what Carney said so the market reaction was as usual weird.

Average earnings came in a 2.2%. The difference between earnings and inflation at 0.8% is hardly the climate in which to raise rates in my opinion. Nevertheless, it looks a done deal with an 80% market expectation that UK interest rates will move higher in November.

Just to spice things up Retail Sales were a miss. In fact, it was a bloody awful number -0.8% versus an expectation of -0.1%. Cable sold off and then in usual cable style during the day recovered most of its losses.

In the middle of all the economic data the BREXIT roadshow stumbled along. Theresa May and David Davis met with Michel Barnier and although a cover up the cracks press release from both parties said that it was a beneficial meeting, the two-year Article 50 transition period extension that Prime Minister May requested did not appear as a resolution from the meeting, so for now at least the March 2019 deadline remains, unreal as it is!

So, the $64,000 question is how do you trade cable?

A few months ago, I think it was HSBC who had a call that matched my own thoughts which was, GBP/USD 1.2000 and EUR/GBP to parity. They have since changed their minds on this call on the basis that originally, they believed that the economy would drive cable and not the BOE. Of late, the BOE is the driver of cable.

However, I am still not so sure that the 1.2000 and parity calls are still the correct ones.

To raise rates as I have repeatedly stated during so much uncertainty hanging over the UK never mind the 3% inflation rate is just crazy in my opinion. The fact that earnings are still lagging by 0.8% must weigh in somewhere one would think.

It is now widely reported that the BREXIT deal cannot be struck by March 2019 and a “NO DEAL” scenario is becoming more and more likely. I have said from the get go 2 years to exit was an unreal time-scale and I am now vindicated with my prediction and thought process from months ago.

Back to FX…

I still do NOT know what way to trade cable. The crosses are now mixed following the New Zealand news. GBP/NZD is pressing higher and the AUD/NZD is also pressing higher which, places pressure on the GBP/AUD to move lower.

The EUR/GBP is moving higher back towards 0.9000 once again, however, it appears that it is cool and trendy to short this pair. I do NOT agree with the sheep mentality here and think that this may be the pair to focus on rather than GBP/USD.

 

EUR: CATALONIA.

You couldn’t make this stuff up.

Thursday last week was the deadline for Catalonia to declare independence. The Catalan president Carles Puidegemont said he wanted to talk dirty with Rahoy, but the Prime minister basically said bollocks and triggered the Spanish government’s Article 155, which takes power away from Catalonia.

What next?

Here’s a taster for what’s ahead. The Catalan government allegedly instructed supporters of independence to go to SABADELL and LA CAIXA banks and take as much cash as they could out of the ATM machines. Trying to create a “RUN” on the banks as these two have announced moving their headquarters out of Catalonia because of the uncertainty.

On all the Catalonian shenanigans the EUR/USD fell a few pips and then regained almost all of them back again. This pair is Teflon coated.

How the hell do you trade this pair?

The ECB eagerly awaited press conference is due this coming Thursday maybe all will be revealed then from the words of wisdom from Mario Draghi. Although, as I wrote last week the ECB has given out detailed forward guidance already on their intentions, there are only a few blanks left to fill. Am I going crazy?

The threat of nuclear war from the little rocket man does bugger all to move markets, so the potential of the Spanish economy going down the tubes is like a pimple on the back of an elephant.

The Spanish / Catalonia crisis will rumble on for weeks….

 

CAD: RETAIL SALES & CPi.

Shocking numbers. Retail Sales came through at -0.3%, the market was expecting 0.5%. CPi missed 0.2% monthly versus 0.3% and year to date 1.6% versus 1.7%.

This week on Wednesday, the BOC meets. I am still thinking that the BOC will raise before the year end but it looks very doubtful that a rate increase will be announced this week.

Expect the word “TRANSITORY” to be used a few times!

 

USD: JANET YELLEN’S REPLACEMENT.

Who is it going to be?

Take your pick.

JANET YELLEN

GARY COHN

JEROME POWELL

KEVIN WARSH

JOHN TAYLOR

 

DONALD TRUMP’S opinions in my opinion, are usually based on the “Last Man Standing” approach. The last person he speaks with is usually just wonderful, much better than the person a day earlier who was at that time the best one so far.

This has taken up a lot of TV time and newspaper column inches and social media chatter. I can speculate here until the cows come home and even with a deadline in place which is just around the corner, I could still be speculating as my wife and I sit down to our Christmas dinner.

I take the view that the FED chairperson can influence the markets but he or she does rule over the institution single handedly. There are civil servant types in place to stop change. The FED chair only has limited scope in my opinion. The institution is very long standing and formats and structures are in place to stop people getting carried away with power going to their head.

TRUMP’s interview will be along the lines of keep interest rates low and say that you want to make America great again and you have the job. That is how simplistic I think TRUMP believes the job to be…. frightening, very scary stuff.

We are being told that JEROME POWELL and JOHN TAYLOR are the two front-runners and that a decision will be announced within the next 10 days prior to TRUMP jetting with Melania to Asia on a goodwill visit to calm tensions in the area…yeah right tensions reduced my arse!

What I can tell you in this blog is that the name of Janet Yellen’s replacement appears to have a greater impact on the USD (DXY) than the threat of a nuclear warhead from North Korea…. go figure that one out!

 

2.2: LOOKING AHEAD TO THIS COMING WEEK:


2.2.1: THIS WEEK’S ECONOMIC DATA RELEASES:

 

2.2.2: USD MAJORS – MY SUPPORT & RESISTANCE LEVELS:

 

 

2.2.3: USD – TRADING CHARTS and COMMENTARIES:

 

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


EUR/USD:

 

GBP/USD:

 

AUD/USD:

 

NZD/USD:

 

USD/CAD:

 

USD/CHF:

 

USD/JPY:

 

 

2.2.4: MY THOUGHTS ON THIS WEEK’S ECONOMIC DATA:

Only two pieces of upcoming economic data interests me this week.

CAD: BOC RATE STATEMENT & PRESS CONFERENCE.

Wednesday should be a very interesting day for the CAD currency.

Stephen Poloz, governor of the BOC has been true to his word and maintained credibility with the markets by doing what he said he was going to do.

I expected a lot of “Transitory” to be used during the Press Conference. I would be astonished if he raised rates at the moment, however, I would be looking very closely to hear his views on a possible hike before the end of 2017.

ScotiaBank still believe that a hike is on the cards before the end of 2017. If their predictions are as good as the service in the local branches I would take this analysis with a pinch of salt!! Being fair, they are not too far away on their FX analysis, but there is always a first time to be well off!!

I am currently SHORT the USD/CAD. Yes, I am that trader on the COT report!!

I still expect Poloz to remain with hawkish undertones to his statement. He cannot, turn around after two rate increases and turn dovish. Mark Carney would without a second thought, but Poloz is cut with a different cloth.

 

EUR: ECB RATE DECISION & PRESS CONFERENCE.

Finally,

Mario Draghi gets to have his day on announcing the ECB future monetary policy to take the markets through 2018 and beyond.

Will Draghi and the ECB pull it off? The want to start back on the road to normalization very slowly without the markets pricing everything ion from day one and destroying the EURO.

Given his past failures of being able to deliver the content and have the market reaction that he wants has always been the challenge facing the ECB President.

In the past, he has not been helped by “bubble and squeak” aka Wolfgang Schauble (ex. German Fin Minister) and Jens Weidman (Head of the Bundesbank), they would continually contradict and dispute Draghi’s path forward with ECB policy. (it’s all part of the EUROPEAN UNION approach to harmony). If they were not enough the Austrian Central Bank Governor, who, is on the ECB council, Ewald Nowotny, would also contradict and screw up the messages from Draghi!

So, to say Mario Draghi has an uphill task would be an understatement.

However, all is NOT lost.

Draghi has been cute this time around.

Ahead of this week’s press conference the ECB has been giving over the past two weeks what I am viewing as forward guidance.

Interest rates will remain accommodative long after the ECB bond buying (asset purchase) program has ended. Low rates will be policy for an extended period of time.

The Quantitative Easing (QE) program is being “Tapered”. Currently at €60 Billion is expected to reduce and the only answers that the market seeks confirmation on are to the following questions; new amount and for how long?

The problem that Draghi has is that beyond the top layer it goes much, much deeper.

28 countries in the EU (presently), with 17 of these countries inside the EUROZONE single currency.

You simply cannot have a monetary policy for 17 countries operating centrally. There is no one size fits all.

To even get close, structural reforms are required country by country to be more aligned. This is NEVER going to happen. How in the name of sanity can you compare the economies of Germany with those of Malta, Greece or Slovenia? It is just NOT possible.

  1. Therefore, aggressive policies will just NOT work. Maybe the ECB blueprint of accommodative policies to infinity is something that the markets will have to get their heads around.
  2. There is NO real inflation.
  3. Unemployment is high, especially youth unemployment in too many countries.
  4. Growth may be rising but it is patchy in some areas.
  5. So much of the positivity of late has been created with a fluctuating OIL price and this is making data better than it is.
  6. Negative rates may disappear. However, using the “old school” definition of interest rate normalization, I think is a dream for the ECB and there is no reason to increase interest rates unless there are signs of inflation, which there are NOT.

This Thursday, is a big moment for Draghi and the ECB, his words will be dissected, put back together again and then re-dissected. I was hoping that in conjunction with the FED it would be easier to see the path to trade the EUR/USD. I am not sure. My initial thoughts were to go long EUR/USD, then it changed to short EUR/USD given the ECB forward guidance and the support in the DXY to buy USD.

I closed my EUR/USD last Friday for a tiny profit. I am playing a waiting game now until after the ECB. I am sticking to cross rate pairs in the interim.

 

2.2.5: HOW TO PLAY THE MARKET THIS WEEK:

If I knew the answer to that question, I would NOT be sitting in front of a bank of computer screens typing away…

It goes without saying the USD leads. This week however, we have two Central Banks reporting.

The BOC and ECB for differing reasons both have the markets attention. Both are involved in potentially big moves for the FX market.

Add to this the fact that the market is twitchy over the announcement of the new FED Chairperson and the overhang of geopolitical tensions in NORTH KOREA and IRAN. Plus, we also have BREXIT and CATALONIA to work with.

THE NZD is close to being toast. This is covered in much more detail later in this blog for my PREMIUM SERVICE subscribers.

Basically, I would use cross rates until we see how the USD is going to react to the news when it finally comes through.

It is so tempting to trade EUR/USD and USD/JPY but in real terms the risks are too apparent at the moment.

The USD/JPY is no longer correlated to the Nikkei – huge RISK when it corrects or the Nikkei corrects either way it is impossible to gauge timelines and what happens first.

The EUR/USD is very just range bound itself because the markets are indecisive. It is winding up for a big move and I do not think that this will happen until the ECB announcement later this week. Bear in mind, a threat of Nuclear War, senior citizens being manhandled out of polling booth, Catalan Independence and BREXIT failings, have all failed to move this pair.  The change in FED chairperson has had more of an effect but even looking deeper into this, it’s been reasonably muted when all said and done.

I got suckered into EUR/USD trades last week, it took me a couple of days to exit with a small profit. I just DO NOT see the reason to go mad into anything USD related, maybe the NZD/USD exempted until the dust settles on several issues. There are plenty of other opportunities.

 

  1. THE PREMIUM SERVICE:

The PREMIUM SERVICE is my own subscriber based Forex support service that offers subscribers my suggested trade set-ups and market commentaries.
Full details of the PREMIUM SERVICE and costs to subscribe plus the various trade styles and how suggested trade set-ups are communicated can be found on my website landing page at www.weeklyfxdrivethru.com by selecting the HISTORY & PERFORMANCE tab.

CURRENT 2017 PREMIUM SERVICE PERFORMANCE:
LAST WEEKS PIP TOTAL: +1,112 net pips
OCTOBER 2017 TO DATE:           +1,753 net pips
YEAR TO DATE 2017:                    +9,159 net pips
Further information can be found by clicking TESTIMONIALS, PART-TIME TRADERS and FX PROMOTIONS tabs on my website www.weeklyfxdrivethru.com

Alternatively, if you prefer to watch a video recording about the PREMIUM SERVICE, click the link below. You will be directed to a 40-minute webinar presentation entitled “AN INTRODUCTION TO THE PREMIUM SERVICE”.

http://screencasts.weeklyfxdrivethru.com/watch/cb6fqiIAZX

To subscribe to THE PREMIUM SERVICE, you will require a valid credit card.

  1. 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: EXISTING CORE TRADES (PLANS & STRATEGIES):

4.4: CURRENT LIVE TRADES & LIMIT ORDERS:

4.5: FX BROKER NEWS with their MARKET FEEDBACK:

 

  1. THE FINISHING LINE: 

5.1: WANT A FREE PREMIUM SERVICE SUBSCRIPTION:

If you like what you have read in this blog and would like the chance to win a FREE SUBSCRIPTION valued at CAD$150.00, all you need to do is subscribe to my FREE NEWSLETTER (this blog), by adding your email address on my welcome page just below my cube logo at www.weeklyfxdrivethru.com

5.2: PREMIUM SERVICE SUBSCRIPTIONS:

If you like what you’ve read in this blog and should you want to go a stage further and subscribe to the PREMIUM SERVICE, this can be done on my website www.weeklyfxdrivethru.com under the Tab SUBSCRIBE HERE.

Subscribing to the PREMIUM SERVICE is not just about receiving a larger “DRIVE THRU” blog packed with more trading supporting information, my thoughts and ideas. There is much more to a subscription than those things. Check it all out under the tab HISTORY & PERFORMANCE on my website www.weeklyfxdrivethru.com

Alternatively, if you prefer to watch a video recording about the PREMIUM SERVICE, click the link below. You will be directed to a 40-minute webinar presentation entitled “AN INTRODUCTION TO THE PREMIUM SERVICE”.

http://screencasts.weeklyfxdrivethru.com/watch/cb6fqiIAZX

To subscribe to THE PREMIUM SERVICE, you will require a valid credit card.

5.3: 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: #256 FREE NEWSLETTER

22nd October 2017

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