THE WEEKLY FX DRIVE THRU
INTRODUCTION:
Wow, that was some week for the USD. There were huge moves with the USD/JPY and EUR/USD about 6% and 3% respectively against the USD, quite incredible.
However, it’s all fueled on promises from THE DONALD that he is going to spend, spend, spend on U.S. infrastructure, this is going to fuel inflation and increase U.S. debt. Add to this a now probable FED rate hike and bingo… the markets love it. The long bonds have had a massive sell off creating the correlated weakness with the USD/JPY sending that pair higher by almost 1,000 pips since THE DONALD ‘s victory 10 days ago. A welcome early Christmas present for Japanese Prime Minister Abe.
All of this has sent the FX, Equity and Bond markets on a Walter White meth trip. I trade and only trade FX, but my economics background tells me that for the inflation related to THE DONALD spend would take at least two years to work its way through. So, all the talk of the FED chomping at the bit about inflation maybe just a little premature. Whilst FX is a future pricing mechanism two years in advance and on a TRUMP promise to boot, I would not be banking on a 100% guarantee of results.
I have read that market analysts are now predicting three maybe four rate increases quickly if the TRUMP spending goes through. FFS, the Fed is led (presently) by the biggest fecking dove on the planet. I just cannot see “the ditherer” signing up to four rate hikes in 2017. I think, and it’s probably proven, Janet Yellen likes to be behind the curve. I just cannot see multiple rate hikes next year without some economic evidence. THE DONALD doesn’t get into The White House until the end of January 2017. From my perspective, it’s all a bit premature
You must admire the moves in the emini’s (S&P futures) though. After the massive drop when it was evident that HILLARY had lost the election, it was LIMIT DOWN and a low of circa. 2.028. Then THE DONALD inflation move against what all the analysts had said would happen, just started to gather traction. From the lows of 2.028 the emini’s went on a non-stop rampage hitting on Friday 18th the level of 2.186 which was the 127.2% Fibonacci extension off the LIMIT DOWN lows.
All I can say is “What goes up must come down”.
Moving on…
This week’s blog is the penultimate release of 2016. After next week, the DRIVE THRU will be on vacation until January 8th 2017. For PREMIUM SERVICE subscribers, I will be trading but winding down for the year. I will not be sitting back in an armchair cigar in one hand and a Jack Daniels “Fire” on ice in the other, I have some key goals and objectives to fulfill in the break.
- Review of my existing Trade Styles 2016.
- New definitions of Trade Styles for 2017.
- Revisions / updates to web pages at weeklyfxdrivethru.com
- Trading review of 2016.
- Marketing Plan for 2017.
- Revision of Trading Brokers for 2017 versus 2016.
- Revision of Trade Plan for trading “cross-rates” in 2017.
Therefore, I have enough to keep me occupied.
Back to trading…
It was a good week from a pip perspective with +498 new profitable pips added. All other parameters are well within my RISK PARAMETERS.
I remain very positive with FX Trading for 2017, as I think it has all the possibilities to be what I thought 2016 was going to be from a trading perspective. I am however, still a little spooked by the market’s reaction to the TRUMP victory. We have gone a long, long way on a promise and the moves are 100% not what any bank, financial institution predicted would be the outcome from a TRUMP election victory. We all know that on many occasions banks sell retail traders against their books and personally, I find some bank financial information great to go against in the opposite direction, but on this occasion, for them all to be arseways on the effect of a TRUMP victory should be concerning if NOT alarming.
I am ready for 2017, I see no reason why I cannot generate my 10,000 pips objective for PREMIUM SERVICE subscribers. I showed early this year that I could adapt my style and approach very, very quickly to the market conditions. I suffered from a 72-hour power outage, and ISP’s out of action for 24 hours all because of severe ice storms earlier this year. I took severe account losses as these outages were while the BREXIT became a huge issue when Boris Johnson the then London Mayor announced that he was supporting the BREXIT. I was run over on several trades that caused real pain. In essence, I started the trading year from March 1st. Therefore, to be almost +13,000 pips for 2016 so far I am happy with.
LOOKING BACKWARDS: THE FX MARKET PLACE
LAST WEEK’S FOREX and ECONOMIC NEWS – MY VIEWS:
30 YEAR U.S. T-Bond / DXY / USD/JPY:
Correlations do matter.
That was a title of a blog that I wrote back in 2014, I think that we were on vacation in Las Vegas at the time when I penned that little ditty.
It is just as true now as it was then. NO matter what we as traders think, the market will do what the market does. I focus on Forex. However, inter-market relationships matter and the push in one market is a pull in another and they usually all correlate as a domino effect takes place.
Whilst, some correlations are off at the moment, or maybe not as strong, the selloff in U.S. long bonds related to the DXY and the USD/JPY is fixed and solid.
I can pontificate here for pages about how I think these moves are predicated on bulls**t that may not happen and that I think that the moves are way overdone and extreme to say the least, it is was it is
The weird thing is…
I have for the past week not attempted to trade the USD/JPY apart from a few personal scalps on the night of the U.S. election results. The 1,000 pip move higher has passed by me. Why? I have let my own beliefs and thoughts about this move cloud my judgement. I don’t believe that this move is sustainable and I am expecting a sharp / painful reversal at any time.
My problem…
Janet Yellen has now fanned the fire by virtually stating that the FED will raise interest rates next month. This has fueled the USD (DXY) and this has sparked greater weakness in the USD/JPY and this in turn has pushed the long bonds lower. It’s all connected.
After the election, it was inflation hopes that sparked the long bond selloff. I didn’t buy the longevity of that trade. So, I missed the JPY moves.
Now the FED has triggered the next stage and I will NOT chase the JPY.
My point here is that you cannot be in every trade and sometimes trades you want to be in you must just watch and let trades go by because you cannot get a decent pullback to obtain a value entry.
Last week there were three specific pairs that I wanted to establish positions in but I have yet to have my LIMIT ORDER entries triggered and I am still waiting. My entries were close to going LIVE but never actually did:
USD/SEK – just on a tear. Pullbacks are so shallow; I have adjusted my entries twice and I may as well give up.
USD/CHF – I had a FLASH TRADE trigger at what I thought at the time was a weak entry. I banked $$$ and re-set my entries at better support levels. I am still waiting and totally frustrated as I want to establish a core long position with this pair.
USD/CAD – missed my entry by 4 pips and it is now trading well over 100 pips higher.
So, it has been a very frustrating and annoying time for me this past week despite adding almost 500 pips to the monthly total.
THE EUROZONE:
One currency that has been under pressure this past week or so is the single currency. The EUR/USD has moved about 600 pips lower since the U.S. election. Thankfully, I have grabbed bits and pieces along the way with this drop.
The word on the street is that Italian Prime Minister Renzi is going to lose the constitutional reform vote on December 4th. All votes at the moment, have taken on the mantle of being protest votes and it looks like the Italian vote will be no different.
A “NO” vote would, in my opinion, cause a Renzi resignation, and more uncertainty in the EUROZONE. Hence the single currency is under pressure now as the populist / anti-establishment / let’s have change vote gathers pace.
We have Austrian, French, Greek, Dutch and German votes on the horizon through to Q2 2017. It will get dirty and nasty.
This is now the long overdue payback time from the people for the failed German induced austerity measures that crippled the EUROZONE.
There is complete denial out of Brussels, but the populist vote in the EUROZONE is gathering massive momentum.
I predict that 2017 will be dominated not solely by THE DONALD but just as much by the EUROZONE as it implodes. I also predict that the likes of Hollande and Merkel will be out. The two primary architects of the EUROZONE problems will not stand again.
BREXIT and THE CABLE:
For the past 10 days or so, I have reached analysis paralysis with regards to the GBP. My fundamental views as a result have turned, at least I need convincing to go back again.
Why?
Remarkable as this sounds and, although I am not yet 100% on board, but it is weighing heavily on my thoughts, the cable is now perhaps a safety trade given the EUROZONE issues.
Here are my thoughts below behind this change. Some are more finalized than others, therefore they are not ALL work in progress but collectively they are sufficient for me to take a step back for now: –
- The EUROZONE election issues (above).
- The BREXIT will affect the EUROZONE as much as the UK.
- The UK economy for all the fear mongering carried out ahead of the BREXIT vote by the REMAIN believers has NOT imploded. Yes, some data is mixed but the promised implosion has just NOT happened. I know there are issues ahead but for now, the end of the UK did NOT happen. This may change when greater data information feeds through.
- Economically the UK is resilient and strong and it can manage its own affairs moving forward, despite BREXIT rulings and timings.
- The EUROZONE cannot save itself because of itself. One step forwards, two steps backwards or kick the can down the road is all that the EUROZONE can offer. It has NO coordinated approach on practically everything.
- The usual flight to safety for institutions is the CHF. This is costly at 0.75% from the SNB for overnight deposits. Deposits may sit for a day or two but a longer-term solution is required and even with BREXIT the UK is seen as a better location, a great option worthy of consideration.
- I know, and fully realise that BREXIT issues will come into play, and these issues could potentially drive the cable one way or another and override the move that was in existence at the time.
I am not saying that I think cable has bottomed, but I am now struggling to think that moves to parity, 1.1000, 1.1500 are NOT going to happen. I do think that we should tag the 1.2080 lows and then I think that we are done.
Obviously, this is just my opinion. Having now written this in black and white and published my thoughts, the GBP/USD will probably head sub parity!!
The bottom line is after taking a -40-pip loss on a EUR/GBP short (Friday), plus also on Friday, I closed out two GBP/USD shorts for a grand total of +20 pips combined to clear me out completely from cable trades. I am out and until I get over my analysis paralysis I WILL NOT be going back to cable.
LOOKING FORWARDS:
THIS WEEK’S FOREX and ECONOMIC NEWS – MY VIEWS:
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: EUR – Mario Draghi (ECB) speaks.
MONDAY: NZD – Retail Sales.
TUESDAY: NZD – PPi.
WEDNESDAY: USD – FOMC Meeting Minutes.
THURSDAY: N/A.
FRIDAY: N/A.
There is the Thanksgiving holiday on Thursday and “Black” Friday on Friday so from a trading perspective it will be probably more like a 3-day week as many traders take Black Friday as a holiday as well.
Nothing excites me about this batch of economic data.
I do however want to re-iterate what I wrote last week regarding the fallout from THE DONALD’s victory.
MY THOUGHTS ON “THE DONALDS” FALLOUT
Now before we all start popping Krug as if it were Dom Pérignon, there is much, much more to consider.
Let me just list a few of the initiatives that THE DONALD has in mind based upon what I would refer to as his ELECTION MANIFESTO.
- THE WALL: not a Roger Waters version, but the one to be erected between the U.S. and Mexico.
- THE AFFORDABLE HEATLH CARE ACT (aka OBAMACARE): to be repealed.
- NAFTA (North American Free Trade Agreement): To be torn up.
- NATO (North Atlantic Treaty Organisation): re-financed, replaced or eradicated.
- IRAN NUCLEAR AGREEMENT: To be torn up… revoked, repealed whatever.
- THE FED: Janet Yellen to be replaced by someone who will normalize U.S. interest rates at a faster pace. THE DONALD wants an aggressive little fecker in the FED as chairman.
All the above is still as valid this week as it was last week in my opinion.
We must be careful as this market will reverse as quickly as it shoots higher. All these moves we have seen are on a promise, not facts. Nothing has been implemented.
As mentioned before from the S&P futures being LIMIT DOWN at 2.028 it has rallied to the 127.6% Fibonacci extension at 2.186 in 6 working days…. quite remarkable and all on a promise.
THIS COMING WEEK – THE USD MAJORS (MY THOUGHTS):
(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 contained on the charts.
EUR/USD – Weekly Closing Price: 1.0582
GBP/USD – Weekly Closing Price: 1.2342
AUD/USD – Weekly Closing Price: 0.7330
NZD/USD – Weekly Closing Price: 0.7006
USD/CAD – Weekly Closing Price: 1.3495
USD/CHF – Weekly Closing Price: 1.0097
USD/JPY – Weekly Closing Price: 110.84
MY CLOSING THOUGHTS:
From the outside looking in one would say that this is a one-way market. It certainly looks that way when you glance at the daily and weekly candles. The moves seem to get going in Asia and when the U.S. comes on line we chop about inside 30-40 pip ranges in the majors with a few exceptions every now and then. The moves starting in Asia makes a lot of sense because of the effect that the JPY had on the USD moves last week.
I am a non-believer in this market move, it is way overdone in my opinion and I think that equities will pullback. The USD is still in demand now that the FED looks like a rate hike is going to happen.
Because of the shortened week next week in the U.S. I would be very careful about getting too heavy in trades. Thinner liquidity from lunch-time (EST) Wednesday will hit the markets. It is not just a one-day thanksgiving. It is 2.5 / 3 days for many people. Bear this is mind when trading. Over recent years there have been examples of many wicked moves on low trading volumes.
So once again, the sword of Damocles STILL hangs over the markets.
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.
Take care,
Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
BLOG VERSION: #42 FOREXTELL
DATE: 19th November 2016.
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