THE WEEKLY FX DRIVE THRU – HAVE WE SEEN A TOP IN THE EUR/USD?

 

  1. THE VIEW FROM MY TRADE DESK:

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

1.1: LOOKING BACKWARDS:

The title of last week’s overall blog was: –

IS NOW THE TIME TO SELL THE
COMMODITY CURRENCIES?

Looking back I think that I was a week too soon with this trade idea. I say this because last week, I took a beating from the market, and to be frank, I should have known better, however, I dug my heels in like a spoilt child.

This month so far I have taken four bigger than usual pip losses on trades. I made a basic and elementary mistake. I thought I could dictate the market, I believed I knew which way the market was going and that it would turn in my favour. I was given a beating, and quite right too, as I should have known better.

I have spent a good few hours beating myself up. The trades themselves were roughly in line with an extended RISK TOLERANCE that I adopt during periods of extreme market activity from time to time, however I hold up my arms in surrender.

Now it is time to draw a line underneath everything and move forward.

Since the poor NFP statistics were released, the continued layers of poor USD data frankly just exacerbated what was already a poor and difficult trading environment that I was stuck in.

Last week’s poor retail sales and PPi from the U.S. were like nails in the coffin of hope that the FED will raise rates this year. Then the following day the CPi data was roughly in-line. The weekly unemployment claims are holding on average just below 170,000. This must be viewed as positive.

I am still struggling to see how the CPI data was in line?

The revisions to the U.S. data can be brutal and, it makes it really difficult to formulate anything other than a 15-minute plan at times. How can it be that the U.S. with all its resources cannot deliver accurate data? It is not that far away from the Chinese data in the way it should be interpreted. The revisions are just crazy sometimes especially with the jobs data.

It certainly is both an interesting and difficult time to be trading. As I say to my friends when they ask me about trading and I give them an overview, I end with….”Welcome to my daily fecking nightmare”… that would have made a great title for an Alice Cooper album, back in the day.

Apart from the U.S. data highlights nothing else really springs to mind from last week from the economic data release standpoint that warrants any further comment.

That is of course, apart from this fecking merry-go-round, circus ride, helter bloody helter-skelter uncertainty induced shambles that Yellen and the rest of the FOMC are responsible for surrounding the 0.25% potential damn rate hike.

I mean come on for God’s sake.

I am the first in line criticizing the ECB for its shambolic handling of the media in run ups to press conferences and when after the official release, the opinions of the ECB members are delivered to the media in 15 second sound-bytes and are in conflict with what Mario Draghi has said. In fairness he (Draghi) seems to have kicked a few of these repeat offenders within the ECB in the nuts, and with aching samosas being the result of saying the wrong thing, the other ECB committee members now shut the f**k up.

In my opinion, the FOMC is worse than the ECB ever was. You will have no idea how hard it was to write this, unless you are a regular reader. What comes out of the regional FED presidents is complete and utter bollo**s, it counts for nothing.

Look…the committee makes a decision. It releases a statement. These hangers on (Regional FED presidents), crave their moment of fame on TV being chatted up by one of the “hotties” on CNBC or BLOOMBERG. Their opinions count for nothing because when they vote around the table Janet Yellen’s word is final. If these FED presidents want to be outspoken and have different opinions to the FOMC minutes, they should grow a pair and rebel so that it is recorded in the minutes or better still let Janet Yellen “out them” in a press conference. At least then we would have consistency instead of the present, wishy-washy, namby-pamby headline driven quotes that disappear soon after they are given when we realize the quote means nothing and the deliverer of the quote is never challenged about it. They simply just crawl back under the rock they emanated from and hide.

I know it’s a game. They have zero responsibility as the buck stops with Janet Yellen. In my opinion, she needs to strike hard, this will give those TV-happy FED presidents something to think about and maybe bring matters in line. If she did this half of the uncertainty in this news driven marketplace would be removed allowing for greater stability.

 

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: CNY – GDP and Industrial Production.

MONDAY: AUD – Monetary Policy Meeting Minutes.

TUESDAY: GBP – Words of wisdom? from Mark Carney (BOE).
TUESDAY: NZD – Dairy Prices.
TUESDAY: USD – Words of wisdom from Janet Yellen (FED).

WEDNESDAY: CAD – BOC Rate Statement and Monetary Policy.
WEDNESDAY: CAD – Stephen Poloz (BOC) Press Conference.

THURSDAY: GBP – Retail Sales.
THURSDAY: CAD – Core Retail Sales.
THURSDAY: EUR – Interest Rate decision.
THURSDAY: EUR – Words of wisdom from Mario Draghi (ECB).

FRIDAY: EUR – French & German Flash Manufacturing PMi.
FRIDAY: CAD – Core CPi.

 

MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:

The biggie this week for me living in Canada is the BOC announcement and press conference by Stephen Poloz on Wednesday, just two days after the Federal Election. Whilst I am expecting Poloz to cut rates, I doubt whether he will do so as this meeting is close to the election. If incumbent Stephen Harper retains overall control, maybe. If we have new minority government as expected I think any cut will be delayed by the BOC, to allow them to see policies to be driven through by the collation.

Waiting to cut could be a real “own goal” for the BOC, so it should be interesting given that any further stimulus delay could make matters much worse. The situation south of the Canadian border does NOT help matters either.

In addition to the BOC, the items coming up this week that are high on my radar are speeches from Mark Carney (BOE) and Janet Yellen (FED) on Tuesday and obviously Mario Draghi’s (ECB) press conference due this Thursday.

I think that I have said this before; “when these people cough and the markets react”. We are in very uncertain times, mostly created by the central bankers and governors. We “the people” do not elect these people yet they have more powers than Prime Ministers and Presidents to move the financial markets.

 

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: 1.1348

We are still range bound albeit in quite a big range. From last weeks close we are only 13 pips lower in price.

The range in my opinion is now basically from 1.1100 to 1.1500 as shown on the chart below.

As I will write later, I believe the resistance at 1.1500 could represent a top with this pair given the ECB meeting this week and the fact that the issues / problems in the Eurozone are far from over, a slip lower would in my opinion definitely not be out of the question.

Should Draghi drop a bomb on the market a test of 1.1000 is the line in the sand as far as I am concerned that says yes or no to a test of parity.

EURUSDDaily18102015

 

GBP/USD – Weekly Closing Price: 1.5440

We have trend line resistance at 1.5508 and a little horizontal resistance as well from August this year. Cable has been flip-flopping around as usual, although I am wondering (maybe rather foolishly) have we seen a short-term top. Every time I send out an alert or chart to my subscribers for the GBP/USD I feel like having a bottle of Jack Daniels on the side of my desk… ice at the ready.

I suppose trying to be consistent across all the major pairs, the cable has to some extent under-performed the others. My buddy Mark Carney is due to give the world further words of wisdom this week, which will no doubt get an instant reaction and cause me probably to wonder once again what the hell is this guy smoking!

The GBP/USD is the master of false moves and Carney is the master of leading the market the wrong way

I am bearish the pair, but I would not get too sexed up with a short trade until we have cracked 1.5300, having said that, there are both long and short trade opportunities with this pair.

With the cable you have to be careful. If we have three or four days of chop it will be a bull flag pattern that we are creating and instead of a reversal just a continuation move.

GBPUSDDaily18102015

 

AUD/USD – Weekly Closing Price: 0.7267

I never feel 100% comfortable being long this pair. Right now, I see a range of 0.7200 to 0.7380.

Recent economic data from Australia has been poor and rather inconsistent. I feel that the RBA will go HAWKISH; I know they claim the Swiss approach of neutrality at the moment but frankly this just cannot last. My reasons for the thoughts are simple; Japan and Commodity Prices.

My bias is to the short side and I know that it is always dangerous to pick a top but the 0.7380 – 0.7400 level offered good pricing back in August this year.

AUDUSDDaily18102015

 

NZD/USD – Weekly Closing Price: 0.6806

This pair gives me very similar thoughts to those relating to the AUD/USD. I will believe that the bears are in control 100% when we break below 0.6620. Right now, I think we have topped. But looking at smaller charts it could be a bull flag.

What is making me think it’s a top?

Very simple it’s RBNZ monetary policy. They do not want the value of the NZD/USD in their faces at 0.7000; they are more in favour of 0.6000 or probably even less.

Looking at the chart below, it does look rather bullish and we could be flagging but I hope not.

NZDUSDDaily18102015

 

USD/CAD – Weekly Closing Price: 1.2921

This pair has basically consolidated its drop of 650 pips from its 1.3455 highs in the past week. There was only a difference of about 20 pips in the closing prices this week versus last week.

I am hoping for a further move lower to 1.2750. This pair is part of my TRADE PLAN and my goal is to be long. I try not to chase so I will be looking for a pullback this week to enter long… 200 pips of a pullback would be just great!

Only when we are back above the 38% Fibonacci retracement level of 1.3070 will I start to believe that the bulls are firmly back in control once again.

I see 1.2830 to 1.3000 controlling prices over the near- term. Remember, the BOC meets this week for a rate announcement and there is a Canadian Federal election on Monday 19th October, it could be volatile.

USDCADDaily18102015

 

USD/CHF – Weekly Closing Price: 0.9537

I am STILL long this pair.

I do expect it to breakout higher. I see 0.9550 as a big resistance test and should we break through this level with conviction; we should start to accelerate higher.

Key support lies at 0.9475.

USDCHFDaily18102015

USD/JPY – Weekly Closing Price: 119.44

This pair is being speculated upon at the moment in the sense that the BOJ is rumoured to be considering more QE. Well if they are considering QE, a lot of money is being burned.

I think we are starting to flag on lower minute charts with this pair ahead of the expected announcement at the end of this month.

In my opinion, it is gambling to get long now, much the same as people did earlier this year on the EUR/CHF floor being supported at 1.2000 by the SNB. I am not expecting the same reaction in the markets should the BOJ not ease further but expectations and GREED are high.

I think a break above 121.00 will be crucial for the bulls and the bears are looking below 118.00.

USDJPYDaily18102015

 

1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):

Regular readers will know that for sometime I have been promising a new look to the format of the blog.

A small working party of subscribers from my fee-based subscriber group (The Premium Service), have been working with me on options and alternatives moving forward.

The changes highlighted have been delayed for two reasons: –

Firstly, the group leader has been away on business for two months, which we knew about in advance of the updates being implemented, but we had hoped for the changes to be in position ahead of the blog resumption in September and prior to his departure. Sadly we missed the deadline set and as Janet Yellen and Mario Draghi say the existing blog is transitory.

Secondly, I was looking at the option of hosting the paid subscribers away from the same site as this blog and this created more discussion than I thought, which is still on-going and I am far from clear what route is going to be adopted.

I am now therefore looking at a timeframe of January 2016 after the Christmas / end of year holiday.

We are in a chop fest of a market and basically I see no change on the horizon. I think that the FOMC has really created this period of uncertainty in the markets and every time extremes in pricing are approached we see a huge increase in volatility and a pullback resulting in more volatility as bulls and bears fight for control.

I suppose I should not complain too much, at least we now have a two sided market. For what seems like years we have been operating in a bull market environment only.

Therefore, as a result we just have be more aware of what the other markets are doing and the interactions to the Forex market. Correlations do matter and they do count towards the consideration to trade. I am not a believer of analysis paralysis but the more we take into consideration the better when placing a trade.

In these choppy markets sometimes bear in mind you best trade may be the one that you decided against taking; food for thought.

 

  1. WHAT’S ON MY MIND: 

HAVE WE SEEN THE TOP IN THE EUR/USD?

Let me answer my question:

Have we seen the top in the EUR/USD?

I believe we have…. YES.

Why do I say this?

Very briefly, the Eurozone has been somewhat of a back seat driver for a while now with the GREECE ELECTIONS passing by with a mere whimper and poor economic data out of the Eurozone being rather throw away as not that important. For months now it seems that the Eurozone has been playing second fiddle to the FED.

Basically, after the FOMC kept rates on hold, it was as if a huge sigh of relief was heard from Wall Street. The ensuing economic data from the U.S. has been practically 80% of the time poor. It would not surprise me at all if the next intervention by the FED were to re-introduce another form of Quantitative Easing (QE). After 7 years of zero interest rates, the biggest consumer driven society in the world has failed to even get a 0.25% rate hike through. Policy has failed and the only policy known by central bankers is QE.

We have DEFLATION practically all over the western world. There is no known cure for this except that a country has to grow and there is no confidence, with commodity prices on the floor, sales all over poor, production output is poor, and purchases of raw materials weak.

The combination of these factors has us bordering on RECESSION and DEFLATION.

Back to the Eurozone; Merkel wanted austerity rather than QE. The Germans fuc**d up Europe single handedly once again, so much pain and for what?

After 6 years of a failing austerity program, they then introduce Quantitative Easing, which hasn’t had the desired effect either.

After the FOMC minutes were released relating the “HOLD ON RATES MEETING” the EUR/USD made its way to 1.1500 and then failed.

I believe that a number of factors caused a sanity pill to be swallowed and then the EUR/USD has started to drift lower. I am personally hoping for a re-test of just above 1.1414 then a complete failure to lower levels once again. Basically, we had a short covering rally and now I believe common sense will prevail – Good Lord, did I just write common sense when talking about the Forex market?

Last week one of the ECB members who you can always rely on to speak when he shouldn’t, Ewald Nowotny (Austrian Central Bank President), said that low inflation (DEFLATION to you and me) and low growth are worrying. He said something along the lines of “it’s obvious that additional financial instruments are necessary” (More QE to you and me…. at least).

I think that his comments, were probably too late for something to be introduced this week. I just cannot see that something would have been worked out in secret without a leak from within the ECB. But I do think his comments would have resonated with many in the Eurozone.

Here are a few numbers / statistics in no order of importance that political leaders in the Eurozone should be disgusted with as their policies after 7 years have failed miserably and there is NO light at the end of the tunnel. (By the way the U.S. is NOT much better): –

  • EURO AREA – GROWTH RATE (GDP)                            0.40%
  • EURO AREA – INFLATION                                                -0.10% (DEFLATION)
  • EURO AREA – YOUTH UNEMPLOYMENT RATE          22.3%
  • EURO AREA – CONSUMER CONFIDENCE                   -7.1
  • EURO AREA – BUSINESS CONFIDENCE                     0.34%
  • EURO AREA – RETAIL SALES (Monthly)                         0%
  • EURO AREA – RETAIL SALES (Annualized)                   2.3%
  • EURO AREA – MANUFACTURING PMi                           52
  • EURO AREA – SERVICES PMi                                         53.7
  • EURO AREA – INDUSTRIAL PRODUCTION                 0.9%

At least the PMi’s are above 50 apart but from that it is dour reading. To say that economically the Eurozone is bouncing along the bottom is generous. There is no real improvement at all.

It is any wonder that Nowotny spoke what was on his mind?

On top of all this we have to add in the VOLKSWAGEN effect, which is not factored at all in these numbers

A German car manufacturer found “cooking the books” lying for over a decade, the ramifications are massive, and they will be extremely costly. Not just to the VW Group but probably to Germany as well.

The Germans were extremely reluctant to cut any slack to GREECE, they will be looking to their European partners to dig into their pockets when it comes to the matter of reducing the VW effect on the Eurozone.

So as traders I think YES, we have seen the shorter-term top in the EUR/USD. I am expecting an orderly move lower. Draghi’s press conference will be interesting this Thursday. The last couple have passed by very uneventful, but this time I expect a few fireworks.

I believe he will outline, if not announce, the extension of the QE program beyond 2016.

He will make a few comments about some/ many economic factors being transitory (How fecking long is a transitory period – over a year?). That’s how long low inflation (DEFLATION to you and me) has been following Draghi around like a doting little puppy.

He will refer to instruments with three letter abbreviations (TLA) that he has up his sleeve and ready to use, and basically state that he is ready and armed to assist with all programs that are inside his operational mandate.

Questions will be focused on timings and which additional programs are appropriate or worthy of consideration.

I do feel this meeting will raise the profile of the Eurozone problems once again and this will place a lid on 1.1500.

 

  1. MY FINAL THOUGHTS:

OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:

Another week another chop fest!

I see absolutely no reason at all why the market drivers should change this coming week.

We have a big news week. The BOC and ECB are my key events to follow. However, hanging over the market will be the ongoing pain in the ass “FED FACTOR”.

It will be difficult and choppy. I am starting to look at cross rates, but their volatility can at times give you the over-riding feeling of moving from the frying pan to the fire. It they catch a run in the wrong direction…whoosh! That can be 200 pips in an hour or many times even less. They are so reactionary, being caught the wrong side in such a twitchy market can be a cruel experience.

Trade smaller and wider to keep those hopes and dreams alive!

Take care.

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

 

 

 

 

 

 

 

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