- THE FIRST SHOT:
Another week has just flown by once again.
I am banking $$$ and pips as I go along although my brokers containing my POSITION TRADES are just mainly a sea of red. Every now and then I bank pips, in fact, this month I have +1,115 pips from POSITION trades alone but the broker accounts never seem to move! My shorter-term trades are far more fluid, with just over +1,000 pips emanating from shorter-term trading so far this month. It looks as though February 2018 could be a record month. I thought that last year’s +1,420 pips was a great total but providing nothing stupid happens this February will be the best since 2014, which was the PREMIUM SERVICE inaugural year.
Moving on…
Most of the focus recently has been on US10year Treasury Yields as they approach 3%.
It appears to me that the only subject that is consistent across all the G10 major Central Banks at the moment is INFLATION. It used to be DEFLATION that was the primary focus, but Central Bank Presidents and Governors couldn’t say that word without squeezing their buttocks together, so they created the word DIS-INFLATION instead. Since the US 10YRTreasury 3% level became a reality, INFLATION is mentioned soooooo many times now!
From a trading perspective at least, we know more than ever what data attracts more policy attention and focus.
However, we had the FOMC minutes from Yellen’s last meeting published last Wednesday. What a farce that was. A massive spike in stocks and drop in DXY to be completely reversed and “some more” all in 3 hours. Just some crazy movements in prices. I just love the TV anchors / analysts trying to find a logical reason behind a complete reversal switch in market sentiment. Sometimes it is just impossible to know why. I am now more often than not sidelined at these bigger “market moving” news events: – FOMC, NFP, ECB Press Conferences and BOE Super Thursday’s. I no longer see the point of trading these events they are often just knee-jerk moves and to trade to make 20 pip moves is just NOT my bag at all. Having said that at times beggars can’t be choosers!
- MARKET OVERVIEW – MY THOUGHTS:
CALM BEFORE THE STORM?
I sense an unease with market sentiment… God I’m good at this!
No matter what you trade, BONDS, STOCKS, FUTURES, COMMODITIES or FOREX every morning regardless of your location on this planet you must get the “I wonder is this going to be the day” thoughts going through your head.
I only trade Forex, I am just NOT interested in anything else to trade although from next year, I may add trading indices to my trade portfolio, but that is as good as my “what happens if’s” that I post to twitter most mornings to my PREMIUM SERVICE subscribers, it may not happen for any number of reasons.
We are in volatile trading times at the moment. A little bit of background.
- The USD index (DXY) is presently bouncing off recent lows of 88.15 trying to establish a base and work its way back above rent short term highs of 90.45. If it does NOT surpass this level, I will be calling the bounce off 83.15 a dead cat bounce.
- THE SPX is off its recent highs of 2,728.75 following the recent crash in prices. It hit an intra-day low of 2,706.25 and it is trying to use this level as a base from which to attempt to regain lost ground.
- Given that we now have inflation into the US economy, the traditional flight to safety of GOLD has been flexing its muscles. It has been in a range from lows of $1,309.00 to highs of $1,370.50 per ounce for the past 3-4 weeks.
- US Treasuries 10 Year Bond Yield. This has been the subject of much speculation because of the recent equity markets crash. The yield has been drifting higher for quite some time, ignored by equity traders. At the time of the last Non-Farm payrolls print, which included the mark-up in Average Hourly wages deemed to be the reason for the crash the yield spikes to 2.88%. Since NFP day it has been as high as 2.95%… 3% is looming!Higher U.S. interest rates from the FED on the horizon caused treasury yields to react higher.Bond yields are sensitive to inflation and there is also a relationship between the US 10 year note and the USD/JPY.
Now, I could spend hours on this subject. I do not want to do that because it’s boring, my point that I want to make is that everything, regardless of market is linked one way or another. It is the classic DOMINO EFFECT.
A couple of years ago I wrote a blog titled THE DOMINO EFFECT and, in my opinion, we are here again. The penny may have finally dropped with equity traders that interest rates are going to rise and instead of burying their heads in the sand, they make a more professional approach.
I think that it would be fair to say that the FX market reaction has in the main been fairly muted. The EUR/USD has not been running up and down the charts like a headless chicken, it has been very placid. The USD/JPY has been flexing but no way near as much as I had thought it may have given the situation.
If this current market revision in sentiment, was a party, I would say that the BOND and COMMODITY traders arrived first, followed quickly by the FUTURES traders then by the FX traders and what seems to be the case on every occasion the EQUITY traders are last to arrive. The penny needs to drop with a loud bang for the message to register.
The FOMC minutes release last week was a classic case in point. On a quick scanned glance, I thought that the minutes looked confirming, to me it was HAWKISH. I was astonished when the USD was sold off. I covered positions and took limit orders off the table, only for about 60 minutes after being released the USD started to spike as the reality of the content of the minutes was interpreted accurately. The USD losses were more than wiped out with gains into the close.
We have markets that are having problems adjusting. The BUY THE DIP approach is just NOT going to work in a two-way market which finally looks like it’s going to be on the cards once again.
But it’s not going to be that simple.
We have an administration in D.C. that really does NOT want a strong USD, which, seems to be a hand in glove partner to the T-Bill moves, the stock market moves, and the commodity price moves that will be on the cards with inflation and a cycle of increasing interest rates in the pipeline.
This creates uncertainty, which in turn will fuel volatility.
I am a believer in correlations; correlations do matter whether they are inside one market or an inter-market correlation. These are fundamental to the DOMINO EFFECT.
It’s complicated but trying to keep it simple. USD (DXY), US Treasuries, GOLD, OIL, USD/JPY, the VIX and the SPX all have a correlated inter-woven part to play to moving forward. Right now, there is an element of doing their own thing. The SPX is no longer reacting the 10 Year Yields, OIL and the USD not in sync, USD and GOLD not quite there.
The upshot is that at the moment we have a CALM… a CALM BEFORE THE STORM. It is inevitable that a reaction is going to take place. The mini crash of a couple of weeks ago saw price movements in chunks at a time so fierce was the volatility. It will happen again.
When and what will be the trigger?
The $64,000 question.
Right now, I would say if treasury yields cross 3% it could be a strong catalyst. But it could as easily be something else like a collapse in OIL prices.
However, this week we have the new FED Chair, Jerome Powell delivering the FED Monetary Policy Report (Humphrey-Hawkins testimony) to congress this coming Tuesday. If he delivers a very interpreted HAWKISH view of the U.S. economy, it is possible that this could be the catalyst to set the DOMINO EFFECT in play.
However, …
There are so many “If’s and buts”. I think the phrase is “If ifs and buts were candy and nuts we’d all have a happy Christmas”. This STORM will happen long before Christmas this year, I think that I am safe in announcing that!
All we can do is sit in front of our screens each morning, go through our startup routines and ask the question… “Is today going to be the day” and get prepared. With every day that passes without reaction the big day looms closer!
- USD SUPPORT and RESISTANCE with my BIAS:
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- PREMIUM SERVICE SUBSCRIBERS:
(This section is for PREMIUM SUBSCRIBERS ONLY)
5.1. TRADING REVIEW:
5.2. SENTIMENT, FUNDAMENTAL & MACRO THOUGHTS:
5.3. THE WEEK AHEAD:
5.3.1. ECONOMIC DATA RELEASES THAT INTEREST ME:
5.3.2. MY KEY EVENTS ON THIS WEEK’S CALENDAR AND WHY:
5.3.3. HOW I WILL APPROACH and TRADE THE MARKET THIS WEEK:
5.3.4. MY “MACRO” TRADING PLAN FOR THE WEEK AHEAD:
5.4. CURRENT LIVE TRADES & LIMIT ORDERS:
5.4.1. CURRENT LIVE TRADES:
5.4.2. CURRENT LIMIT ORDER TRADES:
5.6. FX BROKER NEWS and MARKET FEEDBACK:
- 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: #271 FREE NEWSLETTER
DATE: 24th February 2018