THE WEEKLY FX DRIVE THRU
INTRODUCTION:
I have always said that in my blogs and with trading being honest is just an important as it is in life.
I am active in social media. Twitter for example is an important tool for me to communicate with. However, if you follow twitter you will notice that no one loses money on trades, they never make a bad judgment call they never seem to lose pips or cash.
In the real world of course life and trading is different. Trading Forex you will lose money and you will get trades wrong and lose pips.
On twitter, the traders that never lose, when they do lose they just disappear. I tell it as it is.
Last week was my worst week in Forex Trading since I started trading for a number of reasons.
Firstly, the week opened with Boris Johnson (Lord Mayor of London), announcing hours before the market opened that he would be in favour of a BREXIT. I was quite active on twitter at the time about the fact the Boris although being Mayor of London is a little eccentric, and on the basis that many years ago, wanted the government to take VAT off bicycle puncture repair kits, would not carry much sway. It also appeared that, the Mayor of London, the largest financial capital in Europe supporting the BREXIT would seem a little weird to say the least.
The facts were the market liked his BREXIT announcement and whoosh the GBP was hit across the board. I had positions long GBP/NZD. My wife and I were away from home; the initial GAP lower was partially filled, so I felt that the “Boris” effect was nullified. Returning home I was well under water looking at Fibonacci levels and after a huge fall, the GBP/NZD stabilized. These were longer-term trades and the pair had basically moved to the limits of the monthly ATR range. For a couple of days it looked like they were maintaining this level and consolidating the position. This pair moves on average in excess of 900 pips a month, 200/300 in a day can be normal.
So, in summary, not happy to be so far away from the market but in reality this pair does need a lot of wiggle room.
Secondly, living just outside of Montreal, we are prone to severe weather. On Wednesday evening we started receiving severe freezing rain (an ice storm), which resulted in over 260 areas of power outages affecting over 250,000 homes in the immediate Montreal area due to the weight of the ice on power cables etc. No electricity, no Internet connections. My backups were not working, everything was frozen out! Even the cell phone (mobile) connection was on emergency only.
I trade with stops but they are wide to keep me in trades to avoid the chop and due to the fact that the markets are now operating on much less liquidity they need to be wider. (I was going to write about FX MARKET LIQUIDITY this week but that has been postponed, I have 4 topics on ice now).
Thursday afternoon I went to a friend’s home to charge up devices and check on matters Forex. At this point I had suffered two big losses on the GBP/NZD as I had been taken, other trades I moved stops to either keep me in or take me out at just below or above the next levels of Fibonacci support or resistance. I was sacrificing trades… to coin a phrase; I was not a happy bunny.
Returning home, I found out that the local community centre had opened to support the locals and at the same time that we would not have power restored for at least another 30 hours! You have to bear in mind we are at -10/-15 degrees Celsius with no heat, or power. This is why we have two Labradors (Ozzy & Aoife (Eefa)); you can cuddle the dogs, one each, to keep warm!
In the cold, no computers, no power, listening to an emergency self-cranking radio for news in candlelight. Romantic maybe; but all the time I knew that there was a good chance that I was probably hemorrhaging cash and pips from my accounts. The hydro (power) came back earlier than anticipated but then the ISP’s were not functioning 100%. Connections to both the hydro and ISP’s on Friday during the day were unreliable and came and went with frequency. It was just impossible to do anything. I tried to communicate about stops and taking profits and losses. It was as I tweeted to subscribers a complete nightmare.
Coming next on the horizon is about 30 cms of snow over the next 7 days, so not sure what excitement lies ahead with this weather front!
In summary, I took a hit cash wise and on pips (over 2,000) as trades were sacrificed or stops were taken. This was my own version of the EUR/CHF peg removal from just over a year ago. I bounced back from that event, like I will bounce back from this one.
So, the phrase is I am charged up like a “Duracell Bunny” ready to go… but no revenge trading!
THE FX MARKET PLACE:
LAST WEEK’S NEWS – MY THOUGHTS:
It was all about BREXIT at the start of the week. I was quite shocked that the EURO was not under as much pressure as the cable. The Brits potentially leaving the community is a big thing for the EUROZONE. I must admit to finding all the action in the cable a little weird.
Now let me caveat that, the EUR/CHF nosed dived, so even with negative interest rates there was a flight to safety. The EUR/GBP moved higher as the GBP/USD moved lower so cross rate effects were at play. Plus at the same time market uncertainty was high and the JPY was strengthening as well creating an overall flight to safety in FX.
I missed the GDP release in the U.S. at the end of the week, but the FED will no doubt be delighted that GDP was revised up to 1.0% from the previously released 0.7% for Q4 2015 (Q3 was 2.0%). The USD strengthened across the board, all day it was relentless.
It comes to something, not quite sure what when, the largest economy in the world had GDP at 1.0% and the market reaction, at least in FX is euphoric. What a strange, weird, crazy world we live in!
That is said, without any reference to the “circus” aka the U.S. GOP (Republican) Presidential Debate from last Thursday. If that is the best that the U.S. GOP has to offer as the “Leader” of the free world, God help us all.
There was nothing Presidential about the 2 hours I saw on a CNN repeat showing overnight. Frankly, that program was shown all around the world, if an American ever questions why the world views them as idiots and why the U.S. political process and government is viewed as dysfunctional here is the answer.
It was embarrassing to say the least and frankly the TV networks see it as sensationalism rather than what it actually is. Not one TV station has thought beyond the now, no in-depth thoughts, just a cheap media circus vying for viewer numbers to gain advertising revenue. It was awful. These people believe that they have what it takes to be a President, and I am really focused on Trump, Rubio and Cruz, zero respect for each other, it was childlike and if either of these three should become President…my God!
It was a reality TV show at it’s best or worst depending upon your viewpoint. I do not like to get too political in this blog, and the only reason I bring up that debate is that moving forward the market uncertainties will be huge.
On one hand you have Donald Trump way out in front with the Republican Party but his chequered history is starting to catch up. On the other side, there is a good chance it’s Hillary Clinton and she could be indicted ahead of the presidential campaign.
The GOP party machine must be pooping their pants at the moment. I would say in the coming months there will be smear campaigns and court battles ahead. Welcome to the “free world”, the worst of America will have its dirtiest underwear washed in public… guaranteed.
Is this the best the U.S. has with a population of 300 million people?
Good Lord, what a world we live in.
Never mind “God Bless America”, it will be “God Help America”.
WHAT’S ON MY MIND:
BREXIT… WTF
Harold Wilson, the long gone Labour Prime Minister of the UK in the 1970’s and 80’s was famous for two quotes that resonate with me even now after so many years: –
“This will not affect the pound (GBP) in your pocket” – after sterling’s devaluation
and
“ A week is a long time in politics”
A week ago David Cameron (UK Prime Minister), returned from Brussels waving papers in the air reminiscent of pictures from WWII, saying that we have a deal worthy of remaining in the European community. Cable rallied / shot up across the board, like a rat up a drainpipe.
48 hours later Boris Johnson (Lord Mayor of London) holds a press conference on his doorstep outside his swanky London abode telling a gathered press that he has agonized over his thoughts and at the end of this torture he has decided that in his opinion, the best interests of the UK people are served if they are no longer connected to Europe and that he is in favour of a BREXIT.
WTF – the Mayor of the Financial centre of Europe says bollks…fk this for a game of soldiers.
He is entitled to his opinions, I have no issue with that at all, but take a step back and think about the ramifications. I am not going to dwell on this, enough has been and more will be written about the effects on the UK.
Briefly, the gripes in the UK over Europe can probably be summed up in one word SOVEREIGNTY. The Brits who support BREXIT believe SOVEREIGNTY is just being continually eroded and at the same in return for losing more control over one’s own destiny you pay more each year into the EUROZONE coffers for this privilege. In recent months, Migration, Regulation, Costs of Membership of the EUROZONE about $80 million per day and reduced influence as the UK is not a single currency user have all fuelled the BREXIT calls.
The UK does NOT adopt the EUR (single currency) therefore they are not in the elite club at the heart of Europe. What influence can you have if you do not have a seat in the centre? This is a compelling argument.
Here are a few of my initial thoughts: –
Could $80 million a day be better spent?
Without EU regulation could the UK once again strike up better trade deals with China, U.S., the Commonwealth and even the EUROZONE?
Could another variance of EFTA (The European Free Trade Association) be formulated for those countries in Europe but not in the EUROZONE?
Moving forward…
Could this be the beginning of the end of the EUROZONE, as we know it?
The EUROZONE existence is fragile at best. There is no union as I have written about many times over the past three years. On paper the concept of a unified Europe looks good but it has so many flaws and it was born in another bye-gone era when the world was different and expectations were different.
This is an article in itself for a future blog.
At the centre of BREXIT, I have mentioned SOVEREIGNTY but as with the failings of the EUROZONE we should also consider culture. Geographically, the English Channel has always kept the UK one step removed from continental Europe. The cultural divergence between the Mediterranean countries in the south and the powerhouses with money in the North has always been underestimated. The one size fits all approach has proved not to work. The Brits may have money like other Northern European countries but the way of life in the UK whilst cosmopolitan is different to that of France and Germany. Deep-rooted mistrust of the French is often joked and laughed about in pubs and over meals at dinner parties. The non-bending German approach, seen by most Brits is arrogance. The one thing that Brits love is pomp and ceremony if anyone can afford arrogance it’s the Brits not the Germans.
The counter-balance argument is that Britain needs Europe, for trade, it is the UK’s biggest trading partner. This is business, price dominates and the EUROZONE will not cut off its nose to spite its face. Deals will still be done. Exports will still happen. Neither the UK nor the EUROZONE, which exports hugely to the UK, can afford a trade war.
It sounds like I am writing that a BREXIT would be good for the UK. My point is I believe the BREXIT if it were to happen late June when the UK referendum takes place, is bigger for the EUROZONE than it is for the UK.
I will say one word – CONTAGION.
I will revisit this subject in a future blog article.
What’s next?
As Forex traders how will all this affect our trading?
“A week is a long time in politics”, however, “Four months is a fecking lifetime in trading currencies”
Although I was taken to the woodshed with my GBP/NZD longs, I am still holding some GBP/NZD long trades, for the very long-term, I might add.
What do I think we should look at? It is very, very early but my thoughts at the moment, and, they could change are as follows: –
Obviously all BREXIT news will affect the GBP/USD directly and the crosses GBP/AUD, GBP/NZD and GBP/CAD will be very volatile. The AUD and NZD crosses are very tradable with “RISK ON or RISK OFF” and the GBP/CAD will be influenced as well with movements in crude oil.
I am interested in the EUR/GBP and maybe the EUR/JPY, GBP/JPY and GBP/CHF. Why I hear you ask?
EUR/GBP is liquid. It is often ignored. Since December last year it has appreciated about 5% as we moved from an ECB meltdown risk to a referendum risk. Is it the best barometer of risk? With regards to the Scottish referendum it was the trade to be in and many people, including myself missed it. Its direct European focus interests me.
The GBP/CHF is the inverted trade to the EUR/GBP and because of the CHF flight to safety trade it would be consistent with a direction. The EUR/CHF could also be traded for the same reasons. As with the EUR/GBP direct European based currencies may offer better directional consistencies.
The EUR/JPY and GBP/JPY are key pairs with regards to the trade relations between UK, Europe and Japan and sensitive to changes that can affect trading conditions.
There is no doubt in my mind if the BREXIT fails the GBP will rocket for two or three days on the news and as traders we should be long GBP/USD, GBP/AUD, GBP/CAD, GBP/CHF, GBP/NZD, GBP/JPY and short EUR/GBP. In addition the EUR/JPY long should be a good trade.
Should the BREXIT vote win, there would be carnage…. blood all over computer screens and terminals. Not because of the fact the UK wants out of Europe, but due to pure and simple change and uncertainty.
Markets hate change… they certainly hate uncertainty… the keys drivers of any market would then rule… FEAR and GREED.
The markets would adjust over time, right now even JCB digger Mark Carney (BOE Governor) has admitted that plans are afoot in case of a BREXIT decision.
It will take time to exit. It will be volatile as things settle but life goes on. At least the UK is not going back to Sterling (GBP) from the Euro (EUR), which would have been more volatile and I would say that had the UK been a full member of the EUROZONE (with the Euro currency) that would have been the end of the single currency.
I will revisit this topic on several occasions in the next four month.
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).
SUNDAY: N/A.
MONDAY: AUD – Building Approvals & RBA Rate Statement.
MONDAY: CNY – Manufacturing PMi.
TUESDAY: GBP – Manufacturing PMi.
TUESDAY: CAD – GDP.
TUESDAY: NZD – GDT Dairy Auction Prices.
TUESDAY: USD – ISM Manufacturing PMi.
TUESDAY: AUD – GDP.
WEDNESDAY: GBP – Construction PMi.
WEDNESDAY: USD – ADP Non-Farm Employment Change.
WEDNESDAY: AUD – Trade Balance.
THURSDAY: GBP – Services PMI.
THURSDAY: USD – ISM Non-Manufacturing PMI.
THURSDAY: AUD – Retail Sales.
FRIDAY: USD – Non-Farm Payrolls, Trade Balance and Unemployment Rate.
FRIDAY: CAD – Trade Balance.
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 usually contained on the charts. However, this week my usual charting service is not responding and therefore my comments are below the charts for each currency pair.
EUR/USD – Weekly Closing Price: 1.0927
A nasty engulfing daily candle has been posted to end the week. We closed just on trend line support. The next Fibonacci level lower is at 1.0850, the 61.8% retracement. I would say that this is a key level to hold moving forward. A break of this level and we are heading to 1.0500 once again. Remember, we have Mario Draghi on March 10th. This meeting takes on even greater importance should this pair come under pressure at that time.
GBP/USD – Weekly Closing Price: 1.3866
What can I add that hasn’t been added by umpteen analysts and commentators already? The cable is under real meltdown pressure and frankly using Fibonacci extensions and previous horizontal support levels is the best that I can do. 1.3775 offers a confluence of fibs, it’s too messy to put on this chart. After that we have 1.3660 and 1.3500, and after that to quote Alice Cooper we’re all off to hell on one bastard of a ride!!
This pair needs to break above 1.4050 to take the selling pressure off. That level seems a mile away.
AUD/USD – Weekly Closing Price: 0.7121
A nice bearish engulfing candle to end the week. Beware though; there is a great deal of front line Australian data this week, the biggest being the RBA Rate Statement late Monday evening (EST).
Without doubt this pair will suffer if commodity prices come under pressure once again and we also note that China PMi data is also out on Monday evening before the RBA announcement.
This is a big week for this pair. Support at 0.7000 will be big and if you look at the chart above you will see wicks above the horizontal resistance line at 0.7245 these indicate false breakouts. This is bearish in my eyes.
NZD/USD – Weekly Closing Price: 0.6627
Looking forward, the support level of 0.6600 will be big support not for just being a round number but it is also the 38.2% Fibonacci support level. Similar to the AUD/USD, a false breakout above previous good resistance is bearish in my eyes. The Dairy auction prices on Tuesday will be interesting to follow and also the RBA statement will have influence on future RBNZ policy moves as well.
USD/CAD – Weekly Closing Price: 1.3510
The 61.8% support at 1.3550 has given way and this pair looks bearish on the daily chart. The USD/CAD is now not as responsive to oil prices as it has been in the past. If oil blasts higher this pair will drop like a lead balloon and the cross rates will go with it.
For now, I still feel that the oil relationship will come back sooner rather than later and with a Canadian budget due plus another BOC meeting shortly after (I think), do not be surprised if these two events combined weaken the CAD$.
For now I feel bearish the pair, but longer term knowing what I do know about the Canadian economy is that it is under pressure everywhere apart from Toronto and Vancouver and expect a weak CAD moving forward.
USD/CHF – Weekly Closing Price: 0.9955
I like being long this pair. I always feel like I am trading if I am selling the CHF currency, excepting peg removal day.
Should the EUR/USD continue to move lower, this pair should head higher unless a flight to safety trade takes over in Europe due to all the geopolitical news around. 1.0030 (61.8% Fibonacci) is a key level to pass and recent trend highs of 1.0250 will be difficult to pass unless the EUR/USD takes a nosedive.
I have an ARMAGEDDON long trade set up below 0.9500. What a wonderful mind I have just in case the wheels fall off the bus!!
USD/JPY – Weekly Closing Price: 113.96
I have marked the 38% retracement at 115.00. I believe that is a great area to enter short. If that does not hold, try again at 116.00. Looking at the past few days 115.00 has held and so the risk / reward looks good.
Although not on this chart there is a head and shoulders measured move to about 105.50 available once this pair breaks below 110.80.
CLOSING THOUGHTS:
A big week for news lies ahead of us.
Obviously, U.S. Non-Farm Employment data on Friday is the big end to the week.
There is a great deal of Australian news this week starting with the RBA on Monday evening (2230 EST). This will be a big week down under, as the comments from Glenn Stevens will be examined more closely than usual given recent comments by his sidekick Edwards stating that RBA would be more comfortable with the AUD/USD exchange rate around 0.6500.
The cable will be in the news a great deal this week as the political debate over BREXIT or not to BREXIT will gather some steam.
I should also be watchful over risk sentiment this week. Should the commodity area come under pressure the USD will strengthen once again and before we know it we could be back up at 100.00 again if we see a very bullish and positive NFP number.
It is the circle of life FX style, because a bullish NFP and bullish USD will bring back commentary relating to how many damn rate hikes there could be by the FED in 2016! Just when you thought it was safe to step out of the door, all the bloody CNBC and BLOOMBERG contributors spouting off I told you so will come crawling out from under their rocks again…
By the way I told you so as well…I am still in the camp of 3 / 4 rate increases this year, I believe that Janet Yellen has at least a 1.0% goal in mind. Holy Mother of God, all these shenanigans over the biggest economy in the world where we are constantly being told everything is so damn brilliant we struggle to get off zirp… go figure. It’s like a GOP debate full of cow, camel and bullsh*t.
Be careful and ever watchful on oil. The CAD is acting wild like its nickname the “loonie”. Do not worry though, the Canadian politicians who have more holidays than workdays are back in the Ottawa parliament and soon the eagerly awaited budget by new Prime Minister Justin Trudeau will be released. Together with masterly inactivity by Stephen Poloz at the BOC, I predict the USD/CAD at 1.5000+ by the summer, with QE (Quantitative Easing) and negative interest rates also in play.
Be savvy…
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.
Take care,
Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
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