WHERE NEXT FOR THE USD (DXY)?

THE WEEKLY FX DRIVE THRU

INTRODUCTION:

I thought that this week I would be very upbeat on performance and on how January has turned around. Maintaining my honesty with my approach in this blog, I have to say that my analogy last week of “one step forwards…  two steps back”, can be further enhanced this week by saying FFS and WTF.

I am not a happy trader at the moment. I have allowed some loss (under water) trades to dominate my time, energy and focus. Whilst, fundamentally, I may be trading in the correct direction, this stupid error on my behalf has deflected and distracted me for the whole of last week. I have been focused on losing trades, and letting a few set-ups on charts go by. Elementary errors, and I thought that I had eradicated these from my trading approach… apparently not.

Just because I have strong fundamental views on particular currencies and geopolitical events, I had jumped in perhaps a little too strong instead of a gradual easing into positions. I have been guilty of trying to pick a series of tops and bottoms, inside a time-line, that has a new and without doubt volatile U.S. President, whose antics are reminiscent of a children’s playground at times.

Moving on from the pleasantries…

The big news items last week involved personalities, Theresa May (UK Prime Minister) and Donald Trump (U.S. President).

The supreme court in the UK passed a ruling that the UK Parliament must ratify the decision to BREXIT. Thankfully, it did not give special dispensation to the devolved governments in Northern Ireland, Scotland and Wales. Had this been included in the decision there is no doubt in my mind that the March 31st deadline imposed by the Prime Minister to trigger article 50 would not be met. Even now, there is a chance that MP’s who are happy to run the gauntlet against their constituents wishes and maybe vote REMAIN in a “commons” vote, could table some amendments to the bill served on the UK Parliament, all 137 words of it, last Thursday. There is a very tight passage for the bill, including sanction time in the House of Lords for it to return back to the House of Commons in February for a vote. We shall see.

On the other side of the pond, “THE DONALD” has been signing off executive order after executive order keeping his campaign promises intact.

TRUMP has amongst a few other things: –

  • Had a twitter fight with the Mexican President and called off a state visit. Kissed and apparently made up via a telephone call. But do not mention “the wall”, I mentioned twice last night by the way and I got away with it!!
  • Told the big three domestic car manufactures to build in the USA or face stiff import tariffs.
  • Enraged the greens over pipe-line approvals.
  • Banned immigration to the U.S. from a selection of Middle Eastern and African nations.
  • Banned ALL refugees for 120 days.
  • Went to the Pentagon saying he thinks water-boarding is fine, but then said yer man in charge of this area “Mad Dog” Mattis can overrule him, it’s his decision****.
  • Had a meeting, lunch and held hands with Theresa May (UK Prime Minister) in Washington under the pretense of discussing the framework for a bilateral trade agreement.
  • Abe (Japan, Prime Minister) is not far behind on a trip to Washington to match the UK. He is apparently booked in for a chat next week now that THE DONALD has withdrawn the U.S. from the Trans Pacific Partnership (TPP).

All “THE DONALD” needs to complete a great job done in his first week is out China as a currency manipulator!

PLEASE NOTE FROM ABOVE: **** I cannot let this point go by, it just would not be fair. If THE DONALD is going to rule the Country like a business and delegate authority like he has indicated here, and if this were to be done across the board,

i.e. He leads with his ideas and his cabinet manage, personally, I think that this is a “Good Thing”.

I believe in management by delegating actions, it is a proven business win, it allows for confrontation, debate, reconciliation and agreement, and at the same time 100% focus, without diversity from the big picture for a leader. Should this style take hold in Washington, America could reap some big wins.

You may not agree on the policy, but things may actually get done. That in itself would be a huge, momentous, massive achievement for a dysfunctional environment that is still spilt by the party divide.  The Democrats have played their hand quite blatantly in the first week; the good of party not the people. The party first, NOT America still prevails, and it is probably deeper now given style and antics of THE DONALD so far.

(You see I can offer a balanced approach)

 

Moving on… “LIVE Broadcasts – THE WEEKLY FX DRIVE THRU – LIVE”.

My webinar last Monday plagued a great deal with software issues that I thought I had mastered in my demo runs. I am hoping that #2 on Monday 30th at 5:30PM will be a little easier.

  • You need Google Chrome as a browser to attend.
  • You cannot view on smart phones or tablets, only Laptops and Desktops.

The link is below: –

http://bit.ly/drivethru-live

 

 

THE FX MARKET PLACE – LOOKING FORWARD:

NOTE: This year, 2017, I am not going to look backwards in this section only forwards. News items / points of interest from the prior week will be covered in the introduction. 

ECONOMIC DATA RELEASES:

ECON NEWS 28012017

MY THOUGHTS ON THE WEEK AHEAD:

Big week coming up culminating with the US Jobs data on Friday.

Several items catch my eye this week: –

  1. BOJ: It will be interesting to read the narrative this time around vis-à-vis the US changes that have taken place. Whilst I strongly suspect that Kuroda (BOJ Governor) will remain dovish and 100% supportive of a weak Yen, the JPY is currently being used as the flight to safety currency given that it is only 0.10% per overnight for institutions in comparison to the CHF which is a 0.75% cost. There could be rhetoric about this as the JPY weakness trade has pulled back significantly from the 118.00 levels seen after TRUMP was elected. Whilst we are hanging around the 115.00 level we have tested the trend lows at 112.50 regularly of late.
  2. CAD: The GDP number on Tuesday will be an interesting read to see if any clues can be sought following Poloz’ ill-timed (in my opinion) mention that interest rate cuts were back in the frame once again.Since then we have seen the TRUMP pipeline order that has strengthened the CAD somewhat, but the GDP number will be a great tester to look out for moving forward.
  3. NZD: Jobs data on Tuesday. Most NZD data of late have been beats. I would prefer the mother of all fails…DIE KIWI DIE!!! As you may guess I am short the NZD currency. Talk about self-inflicted pain!
  4. CHINA: Manufacturing PMi data will be a good read. This will spill over into both the AUD and NZD pairs for potential moves.
  5. UK: Manufacturing, Construction and Services PMi, Interest Rate, BOE Inflation Report, Monetary Policy Summary and Mark Carney speaks…A plethora of UK data and information to absorb, plus we will have the TRUMP / MAY bilateral trade talks to digest. If that is not enough there will be BREXIT progression through the UK parliament to consider as well.

    There is a lot of data. Carney’s words and BREXIT will, in my opinion dominate. The market may be looking for inflation hints and ideas on interest rate increases. Quite frankly, I think that Carney would do nada, even if he had inflation at 3%. But that is just my opinion.

  6. RBA: Monetary Policy Statement. I believe in the Central banks so I will read this one from Dr. Lowe with interest.
  7. USD: Jobs data, the FOMC Policy statement, Consumer Confidence, ISM PMi data and “THE DONALD”.This will be an interesting week stateside. Janet Yellen, can’t really do too much at the moment given the fact the policies from TRUMP so far are just impressive signatures on a series of Executive orders. The US data is improving and I am certain that should “THE DONALD” focus on infrastructure spending and Tax Reform these will be sufficient to have Yellen attempt to turn HAWKISH. Frankly, I do not think that she has it in her to go HAWKISH, once a DOVE always a DOVE in my opinion. If she treasures her job she’ll go HAWKISH good style and be ahead of the curve. Otherwise in my opinion TRUMP will have her out, quicker than wife Melania can say “Baron, pass me the HP sauce”.

    Most of the time next week, we will be waiting on “THE DONALD” to fill up our otherwise boring, dreary existences!

All in all, it will be a heavy week, with little sleep. However, even with all this data and information about to be directed our way, I am still not certain that we will have the clues we need moving forward into the medium term.

There is so much uncertainty surrounding “THE DONALD”, THE BREXIT and THE EUROZONE it is a day to day existence in my world, which I hate. I much prefer a steady directional move in place even with pullbacks and the like involved. Right now, we leap one way then the other on news items rather than policy. This is not good for the markets or its participants.

USD MAJORS – “IMMEDIATE” SUPPORT & RESISTANCE with TREND:

 

TCHART 28012017

My trade charts for the USD majors are below. My thoughts, views and commentary is written on the charts.

You will find my charts, hopefully easy to follow. I only use Fibonacci levels, trend lines, confluence points and sometimes chart patterns to identify my high probability trades. If you have any difficulty understanding the points that I am trying to make, please do not hesitate to contact me.

EUR/USD:

EURUSD D 28012017

 

GBP/USD:

GBPUSD D 28012017

 

AUD/USD:

AUDUSD D 28012017

 

NZD/USD:

NZDUSD D 28012017

 

USD/CAD:

USDCAD D 28012017

 

USD/CHF:

USDCHF D 28012017

 

USD/JPY:

USDJPY 28012017

 

 

SCOTT’S SOAPBOX:

WHERE NEXT FOR THE USD (DXY)?

This will be a very short article…

“It’s anyone’s guess, fu**ed if I know”.

Have a great week trading and good luck!

So, there ya go….

 

As a fundamental trader, and someone who prefers to take a longer-term time horizon with trading, this market is difficult for me at the moment.

I, like most of you, will listen to and watch the likes of BLOOMBERG and CNBC and take note of what the expert analysts say. The problem as I see it is, these guys have no clue either in the short-term other than say that it will be volatile. With their so-called “picks”, I would have to say that quite frankly my 5 year Labrador Ozzy would be just as accurate. Like most of the analyst’s, Ozzy has “no skin” in the game either.

Let’s face facts they all (analysts) got it wrong on how the markets would react to a TRUMP Presidency and they have in my opinion shown the same consistency since.

The simple facts are: –

  • The GBP has reacted to the BREXIT news.
  • The JPY rallied and then pulled back.
  • The MXN has been up and down like a stripper on a greasy pole ever since TRUMP was elected.
  • We are just in a sideways range, with the odd spike here and there.

Long term I feel comfortable with my directional core position trades. However, apart from watching the “chop-chop” everyday what clues am I looking at, and what am I looking for?

I have written over the past few years in this blog about about CORRELATIONS, LEAD INDICATORS and ALIGNMENTS. Trading Forex is repetitive and for the most part boring. It is the same old, same old day after day.

My wife and I love our two dogs Ozzy and Aoife (Black Labradors, brother and sister), I often joke about how much of their lives are spent waiting. An hour before feeding time in the morning and the evening they are like coiled cobras waiting to pounce. They are stressing out about food; “I need it now”. They wait in the sitting up position staring at you trying to brainwash you to feed them early. You put them out in the gardens to do “wee’s and poo’s, they come back to the door and wait. Every day the same routines are repeated over and over.

My point is, my existence at the moment, is very similar to my dogs, in the sense that I am waiting and staring for hours on end at my computer screens for something meaningful to happen.

Moving back to my point…

My LEAD INDICATORS are where I am spending most of my time looking for ideas, alignments and correlations as well as some inspiration. My LEAD INDICATORS are: –

DXY, OIL, GOLD, COPPER, USD/SEK, USD/CAD and AUD/USD.

My routine is as follows; I scan all seven charts each time before I start trading. I also look at US 30 year treasuries and the S&P on most occasions.

I use the daily charts just to see alignments and correlations. These give me directional trading confidence. At the moment, some correlations are off and alignments are not at 100%.

Now let’s get this straight. This is not analysis paralysis. As you will see from the charts below, I am getting a flavour, of course if I want to dig deeper I can and I do. But in real terms I am usually drinking my first coffee of the day as I look though these charts. These charts are basic, clear, very little on them. They are simple, clean and functional for what I want. I am looking for changes from the previous day, how has Asian news affected these charts, if at all. What about the European open has anything taken hold?

USD Index (DXY):

DXY 28012017

 

The above Daily DXY chart has been on one my screens since early December last year. If I miss a tweet from THE DONALD, not to worry the effect is usually seen here most of the time.

Over the longer-term the DXY has broken higher. Right now, we are moving lower but within this move, the longer-term overall move is making a series of higher lows. This gives me some comfort, as ultimately I am bullish the USD. Since “THE DONALD” was elected we have been moving lower, then higher, than lower again. The level of 100.00 is a key psychological number. Just below we have 99.80, which has acted as support from where we have based and started to move higher once again.

 

XAU/USD (GOLD):

SCOTTS SOAPBOX CHART GOLD D 28012017

I look at GOLD as being inverse with the USD currency overall with a high correlation to the CHF. Generally speaking, the correlation with the USD is intact. If you compare the two charts we are following the same route. As the DXY based for say three days the GOLD chart topped for a similar period.

USOIL (OIL):

I look at these LEADING INDICATOR charts very quickly first thing to get an overall feel.

Wti 28012017

With regards to OIL. I do not believe a word that comes out of OPEC and in my opinion it will just be a matter of time before the first violator of the production freeze is outed. That aside, $55.00 is the top and I am now looking at $52.46 as the 61.8% retracement to see will that hold or fail. After we have a trend line support and then in my opinion I see a test of $50.00 and then we go lower. The OPEC deal will be dead in the water by this stage, I think they were hoping for almost $70.00, the fact that $55.00 could not be passed must be biting hard.

The correlation of OIL to the USD/CAD is off at the moment.

 

XCU/USD (COPPER):

 

COPPER 28012017

I get asked many times why Copper?

Very simple, copper is used in all types of buildings in wiring. It is a great indicator of the building industry. It’s usually bought early, ahead of other commodities and as I have stated many, many times before “IT’S ALL ABOUT COMMODITIES” … the rest follows. We may get “laggers” but the rest follows.

The COPPER chart above looks to be a potential bullish wedge breakout. This is one to keep on your radar moving forward.

Copper and the AUD are linked in my opinion. The Copper chart looks bullish, the AUD/USD is far from it. It is sideways looking more bearish than bullish. With the AUD/USD being linked to copper and as a commodity currency it’s a great barometer of several markets in my opinion.

 

USD/SEK:

SCOTTS SOAPBOX CHART USDSEK D 28012017

In a channel, downwards sloping channel and going sideways. It has been trying to establish a base ahead of 8.7800, which offers great support from October 2016.

This pair is extremely USD sensitive and is a superb gauge in my opinion to get sentiment. We are sideways. That says to me clear snow / paint a wall / walk the dogs.

USD/CAD:

 

SCOTTS SOAPBOX CHART USDCAD D 28012017

As we all know, it has been the proxy for OIL. This has uncoupled of late especially as “THE DONALD” has been signing his name over a few pipelines related executive orders.

I have mixed views here. “THE DONALD” is strengthening the CAD. Poloz at the BOC is looking at rate cuts, which should weaken the currency.

The currency pair itself whilst showing weakness over the past two days cannot be trusted. It has been screwing with longs and shorts taking them both out in the same session with extreme moves.

I do NOT like it when this currency which is renounced for prompting USD moves first cannot be trusted.

 

AUD/USD:

SCOTTS SOAPBOX CHART AUDUSD D 28012017

Not comfortable with this pair. It is not following Copper or vice versa and its Antipodean counterpart, the NZD is much stronger at the moment with bolder moves. Whilst I do think that 0.7610 is a great short to sell against. It is with extreme caution and a tight stop given the Copper chart.

 

SUMMARY:

As you can hopefully see using charts to try and gauge the USD direction is also as unclear as the TV pundits. We have in my opinion a lot of mixed messages.

So, when I started this article with “fu**ed if I know” … I do not believe that I am alone. If you are looking to blame someone blame “THE DONALD”.

Most of the market uncertainty is based around the US President. His aggressive stance on trade protectionism is scaring the crap out of some people. I believe the FED’s inflation objective of 2% will be achieved very quickly once increased costs flow through the US economy and FED interest rate hikes will be on time, possibly quarterly.

The UK will not be far behind. It is the commodity currencies that will lag in my opinion as factory prices will be held for as long as possible and then this pressure will force commodity prices lower initially followed by stocks. The USD should hit the recent 103.50 highs and then strike towards the 120.00 level from 2001-2002. Now there’s a call!!

So longer term you can see where I am coming from. Short-term, it is just chop-chop and more chop-chop.

Uncertainties over the BREXIT and the EUROZONE elections should give some directional trading, but, we live in a “King Dollar” world and directional trading at the moment is mostly in 20 minute chunks.

To give you something to hold onto. It was crucial in my opinion for the DXY to hold 99.80. I was thinking we could drift to 99.50. This in itself shows that the USD has value, it would at the moment, be the winner in the less ugly competition for some people because it has a value.

You can put lipstick on the EUR, but it is still a pig and its direction given all the headwinds it is facing in my opinion has to be lower. As the EUR accounts for over 50% of the DXY mix of the currency basket this will / should support the USD moving forward.

I paint a challenging picture in the immediate time frames. That cannot be helped, it is how I see things.

I am NOT comfortable trading at the moment, but what I will say quite categorically is PLAN YOUR TRADES if you are going to trade and LET THE TRADES COME TO YOUR PRICE… do not jump in all guns blazing.

 

CLOSING THOUGHTS:

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.

Take care, have a great trading week.

Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
BLOG VERSION: #47 FOREX TELL
DATE: 29th January 2017.

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