I BET YELLEN WISHED SHE’D HIKED RATES LAST MONTH NOW!

THE VIEW FROM MY TRADE DESK

LOOKING BACKWARDS, FORWARDS & SIDEWAYS (FOR GOOD MEASURE) AT THE FX MARKET

1.1: LOOKING BACKWARDS:

One big event dominated the news last week, which was of course U.S. Non-Farm payrolls, expected was 201k and we saw 142k. That was a big miss and the prior two months data was also revised down by 59k

Within minutes of this number being released there was a sea of red all over my charts and twitter feeds were out looking for the Fed to backstop equities again via the re-introduction of Quantitative Easing (QE). The “sky is falling”, doom and gloom abound, the ECB would be on for more QE, the BOJ likewise and Carney at the BOE, well, God only knows what he’s going to say. Whatever it is he has to say, I would suggest that you do not believe him. I would also check to see if he has a JCB at the back of his office to dig himself a hole with.

Moving on….

Now, lets just take a step back.

Monetary policy by central banks is not akin to a “knee-jerk” practice. Central bank monetary policy is like a huge oil tanker trying to turn around whilst out at sea. It takes about 5 miles to stop, then start turning, it’s all done very slowly and precisely. Central banks do not make up their monetary policy on the back of a cigarette packet (maybe Mark Carney does at the BOE?).

Policy is longer-term…it is conservative with a big C. These people who set policy and sit on these committees are generally dull and boring. An exciting day for an accountant is if the weatherman predicts rain and the sun shines. Basically, they are all accountants; they will never stick their necks out to make a decision that could in anyway be seen as innovative, courageous or revolutionary.

With this as a backdrop do you honestly believe that they will make a decision to alter policy on one months data?

Do you not think they base policy more on cumulative results?

I am saying that a rate hike is not off the table. It’s now back onto the timing once again. Time will tell, but I can assure you that Janet Yellen probably wished that she had hiked rates last month.

My reason for saying that I bet she wished she had already acted and not dithered is quite simple. At least today, she would have something put by for a rainy day. Right now with the children on Wall Street running around like headless chickens, she has nothing. I just cannot believe I read about QE. QE what number is it now, “QE IV” the son of QE “the FED chair bites back”?

Janet Yellen’s dithering has caused this uncertainty, the very thing she claims she wants to avoid in the markets. Some will argue that the FOMC nailed the decision not to hike last month. Personally, I see it as dithering; we are talking about 0.25% after 7 years of zero, not a 3% rise, after all is the USA not the biggest economy in the world, you would think it could handle 0.25%. Are things really that fragile?

Fundamentally, there is a problem with the fact the data was poor. However, although I believe the FOMC will not react to just one month’s data, the fact that the numbers for the previous two months were revised lower, in my opinion was a killer to a rate hike later this month. The FOMC will consider much more than what we were presented with last Friday. However, in real terms all the data was pretty dire, from the hourly average earnings growth – which was flat and the participation rate, which is now at its lowest level for 38 years

BTW, in 2015 why the hell do we still have revisions?

Is it not possible for the greatest country on earth to manage this counting process more efficiently?

Why do we wait months to hear of these revisions?

If NFP is that important it should be delivered professionally, which in my opinion is NOT the way it is done today.

Getting back on point….

Where do we go from here?

Non Manufacturing ISM data is due this week. It has to be a blow out number. If not I would be very surprised to see an October move in the FED funds rate.

If this number is low, confidence will be low moving forward and this could be the catalyst for a rather dour winter. It is going to be so difficult for the FED to “lift-off”, in my opinion, they missed the moment and the opportunity was last month. As mentioned last week and again just above, the frightening aspect of all this for me is that we are only talking about 0.25%, you would think it was a 3% hike in discussion.

Time will tell what the outcome is going to be, but as stated already, I think QE calls and low rates forever are rather premature.

In the name of sanity if the FED moved policy on every bit of economic data they would be as dysfunctional as the politicians on Capitol Hill.

I really do think the moment was missed and to “lift-off” now is difficult. The FOMC really have created a problem for themselves that they should never have had in the first place. Dithering has created huge uncertainty.

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: USD – ISM Non-Manufacturing PMi.
MONDAY: AUD – Trade Balance and RBA Rate Statement.

TUESDAY: USD – Trade Balance.
TUESDAY: CAD – Trade Balance.
TUESDAY: NZD – Dairy Auction Prices.
TUESDAY: EUR – Words of wisdom from Mario Draghi (ECB)

WEDNESDAY: BOJ – Monetary Policy Statement & Press Conference.

THURSDAY: USD – FOMC Meeting Minutes.

FRIDAY: CAD – Employment data and words from Stephen Poloz (BOC).

MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:

The ISM data in the U.S. will be eagerly awaited on Tuesday. If that comes in weak, the cries for a rate hike in late 2016 will gather momentum

I am looking forward to hearing what Draghi has to say, I would not like to be in his shoes this weekend pouring out his cornflakes. If the U.S. really is on a slowdown the Eurozone is going into deep, deep, (deeper than Mark Carneys hole with his JCB in) recession, absolutely no doubt about it. If this whole event gathers traction it will make 2009 look like the tea party from Alice in Wonderland.

Equally, the BOJ comments will be interesting, however, to round off the week we have “Ostrich Man” (Stephen Poloz), “everything is great in Canada, but let me just bury my head in the sand” to contend with. My ars* its great, open your ears and listen…. He will be delivering a few choice words Friday afternoon after the employment data is released on the same morning. There will be a rate cut in Canada sooner rather than later, Federal Election or not later this month. I have been saying this for weeks now, and the U.S. reaction to the NFP data will have Poloz sitting on his “throne” (toilet) most of the weekend. He has a dilemma…he has to chose between doing his job or sucking up to Stephen Harper, Canadian Prime Minister prior to the election. His language could give clues, that’s if you can hear him through sand.

This week the on-going reaction to the NFP data will drive the Forex Market. Whether we believe it should or not is totally irrelevant, but believe me it will. This continual news item of a FED rate hike has been with us for 6 months now and I for one am sick of hearing about it. I cannot stomach ditherers.

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: 1.1192

After all the shenanigans of last Friday, we closed last week just one pip higher than the previous week. Moves in the EUR/USD are going to be watched very closely now, even more so than usual as this pair is going to be really sensitive to breaking news. Do not get me wrong, it always has been sensitive, but now I am expecting stupid moves for no apparent reason like we saw in 2009.

We also have to consider the Eurozone reactions, it’s not all about the USA, and the Eurozone has its own issues to overcome. However, in the Eurozone they do not overcome they prefer to “can-kick“ issues / problems, hoping it all goes away. But there are issues and ramifications from NFP that the Eurozone will have to consider moving forward and this will create volatility.

After NFP the EUR/USD rallied about 150 pips and stopped at 1.1325. I see this level as resistance now with 1.1090 being support.

EURUSDDaily02102015

GBP/USD – Weekly Closing Price: 1.5176

The cable ended the week just 6 pips higher than the previous weekly close. Cable looks weak. The GBP cross rates look weak. I hate trading cable; it is the master of false moves. I feel a bit worried writing that in spite of everything that happened last week the future of cable is lower, more like 1.4000 than 1.5000.

The cross rate effect could weigh in quite heavily on movements in the GBP/USD.

The highly publicized GBP/CAD head and shoulders measured move triggered late last week. It is a potential move of 1,000 pips lower. The move lower started in the last hour of North American trading. At that time we have totally illiquid markets, with very light volumes that promote exacerbated moves for such a thinly traded pair. Nevertheless, it moved, but the jury is still out, until at least the European close on Monday on whether it’s a legitimate confirmed move.

Activity in the EUR/GBP will become quite twitchy, as the Eurozone issues start to weigh in more. As the EUR sells off the EUR/GBP will rise placing upward pressure on GBP/USD and should the GBP/CAD drop off as a result of the continued out of nowhere CAD strength coming into the market, the GBP/USD could tread water as cross-rate effects could nullify any moves. Even if the oil price drops which, I think it will, and the CAD weakens as a result, the trading volumes in the EUR/GBP are so great on its own it could still create the GBP/USD appearance of just treading water.

What I am saying here is the GBP/USD may not be a straightforward a trade as you might first believe, having said that I do think that it will be downside pressured.

Support is big at 1.5085 and resistance is good at 1.5250.

GBPUSDWeekly02102015

AUD/USD – Weekly Closing Price: 0.7028

This pair failed to break higher. This has surprised me a great deal. I have resisted for a week or so now from trading this pair to the short side, as I believed we were going to see a move to 0.7200, from where I was ready to short.

We are in a range from support at 0.6940 to resistance at 0.7050 and then 0.7110.

AUDUSDDaily02102015

NZD/USD – Weekly Closing Price: 0.6416

This pair has a very similar story to the Aussie. I had a short for a couple of days last week, took +30 pips on it and closed it just prior to NFP. I will re-short through the PREMIUM SERVICE early this week. Our levels are clearly defined, as are my outer levels from the FOMC Press Conference day last month.

Support is at 0.6350 then at 0.6240, with resistance at 0.6465 and 0.6490.

NZDUSDDaily02102015

USD/CAD – Weekly Closing Price: 1.3151

I am long this pair and not completely comfortable at the moment, the GBP/CAD sell off into the close pulled the USD/CAD to close at its lows last Friday. I am not a happy teddy with this one.

Longer-term the BOC will cut rates. Oil will fall as demand shrinks even more as confidence fails around the globe. The Canadian economy is on the brink; in fact it’s already in what is now termed a “technical recession”. Yup…. you cannot say DEFLATION anymore, its now called “disinflation” and RECESSION is now referred to as a “technical RECESSION” by the BOC. The use of the term Happy Holidays was bad enough for me, this is now just utter bulls**t.

Longer-term I believe that the USD/CAD is going above the recent failed breakout level of 1.3460. I see at least a move in the medium term to 1.4000. There is even a longer-term “cup and handle” that has a projected measured move of 1.6000.

In the present, we cannot rule out a test of the bull-bear line in the sand of 1.3160. However, that is the worst-case scenario. It is the CAD$ reaction to oil that will be key to its near-term moves.

Support is at 1.3110 and resistance at 1.3230. A break above 1.3230 could see a re-test of the break out level once again.

USDCADDaily02102015

USD/CHF – Weekly Closing Price: 0.9714

I am long this pair. We were so close to the breakout on Friday just ahead of NFP, and then we had a +150 pip drop. I am a little concerned that as the EUR/USD sold off into the close that this pair did not close around 0.9750.

Fundamentally, this pair is going back above parity and it should be taking all the CHF pairs with it. Do not rule out Thomas Jordan (SNB) coming out to play to manipulate the EUR/CHF. They want this pair above 1.1000 as a minimum and it is struggling around 1.0900. Should the SNB intervene, the CHF will sell-off and my long trades will be very profitable.

The bottom line is that the SNB has sat back for over 6 months, unless we see Eurozone action the SNB may act.

Back to the present, this pair is supported at 0.9650 and 0.9580 and resistance now is at 0.9750 and 0.9820.

USDCHFDaily02102015

USD/JPY – Weekly Closing Price: 119.88

Being sensitive to equity prices is should not be a surprise to note that last Friday this pair was as high as 120.40 and as low as 118.65. A wild ride and when you consider it pulled back off its lows to close just below 120.00 it was quite a day. All JPY pairs except the CHF/JPY basically had the same roller coaster ride.

The BOJ are front and centre this week with a policy statement, this could be fun. The range mentioned above is the support and resistance to take note of moving forward this week.

USDJPYDaily02102015

1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):

If ever there was a time to keep your trading a little lighter and your position sizes a little smaller it is now.

We have uncertainty.

We have a FED that dithers.

We have a world market taken by surprise by the NFP numbers.

We also have the EUROZONE moving back to the edge again (see later in Section 2.)

Whether or not we believe the hype is not important. There are “fat cats” on Wall Street who are loving this moment, as they can visualize the FED backstopping equity prices for another prolonged period. The “fat cats” can get fatter, if they can encourage panic, and fear.

Panic / Fear and Greed all mean uncertainty and volatility.

To me as a seasoned trader it tells me to slow down, cut back, and wait a little to let the dust settle. There are no prizes in Forex for guessing, the market takes no prisoners, it is 100% totally unforgiving.

I have nothing else to say here except be careful. The markets are now going to be driven by news events and quotations correctly or incorrectly attributed to someone and both FUNDAMENTALS and TECHNICALS in these situations mean nothing.

WHAT’S ON MY MIND:

THE FORGOTTEN STORY…
THE EUROZONE IS DRIFTING
BACK TO THE PRECIPICE ONCE AGAIN

The Eurozone is the forgotten story. Everything has been FOMC this, FOMC that, will Yellen do this or should Yellen do that.

Whilst all the FOMC stuff has been going on, the Eurozone has been drifting. Events that would have had airtime on TV and column space in the written media have really for want of a better word been minimalized.

Greece is no longer trendy; the American commentators do not understand the culture. So instead of trying to understand it, the approach is just to ignore it…. It might go away. Sadly, just like the GOP would love Donald Trump to go away so they could have a “YES” man controlling the polls, he isn’t and he won’t, and nor will Greece.

My Eurozone headlines are: –

  • GREECE
  • PORTUGAL
  • SPAIN
  • GERMANY SLOWDOWN
  • RECESSION and DEFLATION
  • VOLKSWAGEN

The above five topics have Mario hoping, wishing, pondering, panicking and probably praying all at once. Oh, I forgot possibly drinking as well. I know I would be, if I were carrying these issues.

Let me be brief about each point this week and over the coming weeks I will place more flesh on the bone: –

GREECE:

Alexis Tsipras (Syriza Party) was re-elected as Prime Minister. He pledged to the EU that he would implement, deficit-reduction measures including tax rises, changes to pensions and social welfare cuts in return for an €86 billion bailout. He has to persuade the Eurogroup later this month that the terms of the bailout are being met and are on time. His initial meeting to show progress was originally set for Monday October 5th, but I cannot confirm the date, or whether it has been re-scheduled due to the recent elections. Maybe it’s just no longer on the calendar.

The IMF has stated that unless there is an “explicit and concrete” agreement on debt relief for Greece that it may refuse to be a party to the bailout. Germany does NOT want any Greek debt relief.

Culturally, Tsipras (always the chancer) believes that an election win will give him some clout when dealing with his creditors to negotiate debt relief and less onerous austerity measures. This is at complete odds with Germany and the European Institutions that imposed the draconian measures on Greece in the name of fiscal discipline. Basically, the bailout terms gives the Eurozone a host of powers over Greece when it comes to policymaking.

We haven’t heard from “the pit-bull” recently but Schaeuble is bound to be on the wires very soon scathing about the fact the Greeks will not have completed the reforms agreed to in the bailout within the timescales allocated.

The Germans with their rush to get the bailout through never got the IMF on side to hold the privatization trust fund to supposedly hold Greek assets worth about €50 billion.

Yes, it’s another Eurozone mess. I cannot find out if Monday’s initially proposed meeting to show its creditors what has been achieved is on / off or re-scheduled.

By November 15th if the actions taken by Greece are in accordance with the bailout they get some €2 billion in dosh!

The last we heard from Jeroen Dijsselbloem (Eurogroup leader) was that if Greece did not follow the detail of the agreed bailout to the letter, there would be no tranches payable to them. I have no doubt that the pit-bull would echo those comments, and if he had the power he would follow through.

Somehow I just think the can kicking will start all over again. This story is just going to gather traction as time goes on.

PORTUGAL:

It’s election time. The centre-right party led by Prime Minister Pedro Passos Coelho is running neck and neck with the socialist party and political stalemate looks the likely outcome.

When coming to power in 2011, if you recall, the government was taken to task for imposing tax hikes, and making cuts in salaries, pensions and public services. The Socialist opposition led by Antonio Costa, claimed the austerity measures taken went way too far beyond the terms of the €78 billion bailout deal agreed with the prior socialist government.

It is therefore quite remarkable that Coelho is still in the running to form a new government. He has had a tough period in charge with a record 17% unemployment level, 4% of the population has emigrated since 2011 and continual strikes and mass demonstrations have at times paralyzed Lisbon. How the hell has this guy stayed in the running? Costa must be weak, you would think.

The numbers on practically everything have improved of late, unemployment this year is down 4% and Coelho claims his tough measures are working now for the good of the country.

The problem is electoral stalemate. Uncertainty and instability are created, and whilst both parties believe it or not have very similar manifestos, the cores of each party are very diverse.

If a stalemate election result creates fragility moving forward this could push Portugal backwards once again. Within the Eurozone Portugal is famous for having one of the worst debt to GDP ratios at 130%.

SPAIN:

Prime Minister Mariano Rajoy has called a Christmas election for December 20th. There are massive fragmentation risks in Spain, with the separatist alliances winning popularity in the Catalan regional elections.

There will no doubt be demonstrations for Basque independence etc all the time during the campaign and the old chestnuts about bribery and corruption inside the Spanish government will no doubt come to the forefront once again.

It is very uncertain what might happen in December, the only certainty is that Spain looks very fragmented at the moment.

More uncertainty.

GERMANY SLOWING DOWN and VOLKSWAGEN:

The old powerhouse of the Eurozone is starting to suffer, production and employment is starting to pinch. At the same time the VW revelations could not have been brought to the forefront at a worse time. Allegedly many parties have known about the German “fiddle” for years. How did this remain undercover for so long is what I want to know. I will also bet there are other car manufacturers with twitchy bottoms as I have no doubt VW is NOT alone.

In any event, these pieces of news come at the wrong time, not that there is ever a good time.

EUROZONE RECESSION and DEFLATION:

The majority of Europe is bouncing on the thin line between recession and growth.

Like many other areas of the world, the Eurozone still suffers from DEFLATION. As I have stated on so many occasions, the central banker’s around the globe can feed an economy. They can use extraordinary measures to support their economies; they can almost pull a rabbit out of a hat. However the one thing that no one central banker has been able to do is find a possible solution for DEFLATION. It is the “Holy Grail” of central banking and right now there is more chance of “Hell freezing over” than a central banker finding the cure for DEFLATION.

Yikes…

So it’s back to the starting line once again for Mario Draghi. Yes, he has been here before but now he has several fronts on which to focus. The uncertainty of general elections may on the face of things be small fry, with new people around the table; a different style can cause friction. Tsipras is a classic example of this on how to ruffle the feathers of the cheese and wine drinking chappies and chapettes in Brussels.

Factor into Draghi’s melting pot the U.S. jobs data and he must be thinking the old story, should the USA get a cold, the Eurozone gets the flu.

More QE is on the cards for the Eurozone. It is the only supportive action that he can take.

How the Eurogroup reacts to Greece will be pivotal. This time, Tsipras through no doing of his own may get a moral victory over the Eurogroup as the fragility of the Eurozone can not afford to be rocked or rather pushed over the edge of the cliff.

This action in my opinion will drive the EUR/USD towards parity.

Very interesting times ahead.

MY FINAL THOUGHTS:

OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:

In my opinion, patience is now the key trait to adopt moving forward. Do not be too hasty adding trades; let the dust settle following NFP.

As stated earlier, if ever there was a time for trading smaller position sizes to allow for a wider stop to cope with volatility, that time is now.

There are market-moving events and the markets have decided with the initial knee-jerk reaction that we are at the crossroads of change. The FOMC under Chair Yellen has said nothing. Be calm, be patient.

If we remain flexible as traders, we stand a good chance of reaching a point when we can achieve longevity in trading and provide an income.

Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
 

 

 

 

 

The post I BET YELLEN WISHED SHE’D HIKED RATES LAST MONTH NOW! appeared first on www.forextell.com.

Leave a Reply

Your email address will not be published.