I am not trading much at the moment, in fact, several of my broker accounts have been dormant for a number of days. I am still in wait and see mode.
In the U.S. the markets have reacted to the U.S. mid-terms and then the FOMC statement. In Europe ITALY and BREXIT continue to have an effect and, in the background, OIL has been moving lower, quite substantially from highs of USD$76.90 on October 3rdto printing USD$59.27 on Friday last week.
(Quite amazing though that the price of gas at the pumps has not reduced the same percentage. A 22% drop in price, yet it’s just been a couple of pennies at the pumps. Here in Canada, the provincial and federal government’s loaded on layers of small taxes in % terms when gas was at sub USD$40 per barrel and these stealth taxes based on % on % are just stoppers to bringing the prices lower…. I just hate opportunist politicians, it is NOT what we voted for).
Off my soapbox now… let me get back on track again…
Over the past two weeks or so, and I hate repeating myself in the blog but, inter-market correlations have been off or at the very best inconsistent. I have been struggling to get consistencies in my charting. The changes in sentiment with so many geopolitical events hanging over the markets like the sword of Damocles had resulted in much uncertainty and news flows were sentiment would change direction at the drop of a hat. I just could not function in those conditions, so I had to walk away and mainly remain on the sidelines.
I am now hoping that after the weekend things will return to somewhat normality, and I can once again re-join the market.
GERMAN ELECTION IN THE SPRING 2019?
From the blogger who brought you on October 6th 2018,
THERESA MAY WILL BE RESIGNING IN NOVEMBER 2018
(I have not yet ruled this out)
comes my latest prediction regarding Angela Merkel.
In recent weeks all the EUROZONE attention has been placed on ITALY and BREXIT. In the background however, we heard the news about Angela Merkel stepping down as leader of the CDU but that she wanted to remain German chancellor until 2021.
Here are my thoughts…
As we all know Germany is enjoying full employment, a budget surplus and in general terms with the odd out of sync number generally a solid economic performance. Germany is the European equivalent of the U.S. and CHINA. However, as a backdrop to this the “grand coalition” parties have been struggling in the background to hold matters together and appear unified.
In my opinion, the leadership has run out of ideas and to a large extent it looks like it has lost its way. For this, the buck stops with Angela Merkel and she must carry the can.
She steps back formally from leader of the CDU next month and she hopes to limp along as Chancellor until the next scheduled federal election in September 2021.
You have to ask yourself, with politics the way it is, can a lame duck leader survive two years. The uncertainty will make the SPD party very uneasy and jittery. Of the coalition partners they could be the first to pull the plug.
For uncertainty reasons and an already struggling coalition I believe that Angela Merkel will have no alternative but to step down and that an early election in 2019 is inevitable.
From an FX perspective, let me add a few more layers.
- The FOMC statement last week basically all but confirmed the FED will hike in December 2018. The dot plot has 3 more rate increases in 2019.
Two of the 2019 proposed rate hikes if not all three would take place before the ECB would start to think about normalizing.
The CENTRAL BANK divergence play remains strong. The FED would be closer to 3% interest rates and the ECB 0%. - ITALY is on a collision course with the EUROZONE in Brussels over their 2019 budget submission to the group.
Its all about growth as far as I can see but that may be too simplistic a view. The Italian government state 1.5% and the pen pushing jotter blotters in Brussels state 1.2%.
The result of this will be a head-on collision course and probably fines being imposed. - GERMAN uncertainty already mentioned.
- The EU cannot afford a “NO DEAL” any more than the UK. The EU economy would go into a tailspin, huge uncertainty and a major contributor of funds to the central pot gone and a huge void to fill.
- If the EU punishes ITALY too far, with a populist government in charge, with them tracking the BREXIT moves, there could be calls for referendums on continued EUROZONE membership.
The CONTAGION RISK is high. This is why the EU are playing very, very hard ball with the UK but it is a dangerous game.
With all the above factored in together, I remain overall bearish the single currency for the short to medium term despite many analysts calling for a EUR/USD spike higher. On the chart below, we could rise to around 1.2250 and still be in a down trend.
I view the single currency as a “SELL THE RIPS” currency moving forward.
As my revised trading approach comes into play next year, when I will solely be trading “LONG-TERM” trades this view will be my view for Q1, possibly Q2 as well in 2019.
What I do want to say is that given all the geopolitical influences on the FX market over the past two weeks or so, where the market closed last week is key for determining the broader market direction looking into the coming weeks ahead.
FOREX REVIEW:
1. FX – FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEK’S ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. BIAS CHART – USD MAJORS SUPPORT and RESISTANCE:
1.3. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
As you can see on the chart below the USD looks bullish. Last week I was sick to the back teeth of reading and listening on webinars on how the USD was going to be taken to the woodshed and spanked good style.
At times with strong FUNDAMENTALS they will override TECHNICALS all day long. Technical traders never get this point at all. So many Elliot Wave and Harmonic traders suffer really badly when FUNDAMENTALS kill everything in sight. I would say last week the technical traders were licking their wounds vis-à-vis some of the calls I heard and witnessed.
The DXY is about to re-test 97.22 again early next week all things being equal. From this re-test lies the secret to the following two / three weeks of FX. A break higher or a failure.
I think a break higher maybe to the 161.8% Fibonacci extension at 98.18. Then it’s anyone’s guess.
From my perspective it all depends on the sentiment of the EUR/USD.
I still have a “good” gut feeling that we will see the 100.00 level breached soon. My longer-term thoughts regarding Central Bank divergence are hard to move.
1.4. USD MAJORS – TRADING CHARTS and MY THOUGHTS:
1.4.1. EUR/USD:
The monthly chart below shows that the EUR/USD is in a down sloping channel.
My overall opinions have not changed too much. I listen to and hear several FX traders say that they expect a EUR spike higher even up to as high as 1.1800. In fact, the pair could spike to about 1.220 and it would still be inside a bearish channel lower, albeit around channel resistance.
The chart does NOT lie.
Long term and short term we are moving lower.
ITALY, BREXIT and Central bank divergence continue to weigh in on the EUR never mind the fact that the EUROZONE economic data is at best described as mixed. So, I remain a “SELL THE RIPS” trader.
1.4.2. GBP/USD:
As you know, I am expecting quite a sizeable pullback with the cable.
1.2700 was a big level to hold a couple of weeks ago.
The cable has fallen victim to sound bites and continued speculative news flows that are not accurate but there is NO SMOKE without FIRE in my opinion and it looks like a deal of sorts will be announced soon.
I am trading GBP cross-rates at the moment, I am staying away from the cable itself with my BREXIT related trades.
Focusing longer-term on the upside, there is a potential DOUBLE BOTTOM measured move pattern in play to 1.3800 on a break above 1.3320.
Between now and all that, we need to wait, watch and be ready. Above all be patient with the GBP/USD, it is liable to huge swings in price on headline news and is now simply a news driven pair.
1.4.3. AUD/USD:
We have broken out of the down sloping channel. Moves higher however have been well capped at 0.7300. This is hardly surprising in view of the unresolved CHINA TRADE issues with the U.S.
TRUMP meets XI at the G20 later this month until then, I suspect we will drift lower but consolidate ahead of trend line support.
1.4.4. NZD/USD:
Are we going to be witnessing a false breakout move higher with this pair? It would NOT be the first time this pair is just the gold medal winner for false moves. Should a false breakout be declared the move lower will be swift and powerful, or rather it should be.
At the moment however, the moves with this pair could only be described as pedestrian.
The big question I have is, will 0.6700 hold of will we drop lower?
1.4.5. USD/CAD:
With OIL falling so far, it is hardly surprising that the CAD$ is weakening.
How far can the move go?
I would like to be short around 1.3300 if that level is a possible hit.
1.4.6. USD/CHF:
No change. The BULL FLAG is still in play.
1.4.7. USD/JPY:
No change from last week.
God love me I want to enter short the USD/JPY. So far, every entry area chosen has met with disaster as far as I can remember.
My brain keeps telling me to wait until a decent Fibonacci level or trend line hits before trading. I am thinking somewhere around 115.00.
My issue is though, when equities fell lower, the USD/JPY remained well supported. I want to see the correlation between equities and this pair restored before I consider a trade set up.
Patience is required with this pair.
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. WEEKLY FX PREMIUM SUBSCRIPTION COSTS:
SILVER: 3 months (10 weeks) = CAD350.00
GOLD: 6 months (20 weeks) = CAD$600.00
PLATINUM: 12 months (40 weeks) = CAD$900.00
(Platinum renewal = CAD$750.00)
Go to my website www.weeklyfxdrivethru.comfor more details of all the subscription options under the TAB– “SUBSCRIBE”.
2.2. WEEKLY FX PREMIUM PERFORMANCE:
November month so far: 479 net profitable pips
2018 to date: 13,333 net profitable pips.
2.3. WEEKLY FX PREMIUM PERFORMANCE SUMMARY:
(Incorporating the last 5 completed WEEKLY FX PREMIUM TRADES)
3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
3.1. TRADING REVIEW and MY THOUGHTS:
3.2. CHANGES TO THE WEEKLY FX PREMIUM in 2019:
3.3. OPEN TRADES and HOW WILL I TRADE THIS WEEK:
3.4. MYFUNDAMENTAL and MACRO THOUGHTS:
3.5. CURRENT TRADING EXPOSURE:
3.5.1. BREXIT RELATED TRADES:
3.5.2. LIVE TRADES:
3.5.3. LIMIT ORDER TRADES:
4. THE FINAL SHOT:
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: #300 FREE NEWSLETTER
DATE: 11thNovember 2018