THE WEEKLY FX DRIVE THRU
INTRODUCTION:
After my last blog, which followed a disastrous week of trading for many reasons I needed a week to consolidate.
Well, here we are at the end of the week and… I have and I haven’t consolidated. Yes, I have banked some pips but I have also banked more pip losses as well, plus I am currently holding trades that are under water. The trades being held are longer-term these trades that fit with my fundamental views of the longer-term market.
A week in Forex is a long time and this time next week, all the trades I am holding could reverse direction nicely and I would be well set up. I had these trades going into NFP last Friday, I think I did about an 11 page tweet to subscribers on my thoughts and this, actually followed a detailed email from the previous day with my overview from a macro level on the trades that I was looking to hold. It was touch and go to either close trades and take pain or hold and keep alive in line with convictions. There were two trades that were specifically causing me concern. I initially kept them both open but chose to cover one as the trading day developed. I am having a poor run at the moment and I need to get my mojo back.
Leaping forward…
Last week, I had a few comments about the ice storm that cut power in my area and affected over 260,000 homes in and around Montreal (on and off the island). Not that I want to turn this blog into a meteorological report each week, but I could not let it pass to inform readers that if Met. Canada is correct (they are about as good as Stephen Poloz at the BOC most times), from early this week we are returning to positive temperatures not just during the day but also overnight. This means that the snow melts, there is no more shoveling of snow and BBQ times are back.
THE FX MARKET PLACE:
LAST WEEK’S NEWS – MY THOUGHTS:
As usual, when you look back on a Non-Farm Payroll week, all of the data that was prior to NFP seems to pale into insignificance as NFP at the end of the week was so dominant.
The one thing apart from the economic data that stuck out for me was the price action in gold. It broke into new highs for the year, it took with it Copper and Silver and these precious metals supported the moves higher with the AUD and NZD currencies. From a currency perspective, it will be interesting to see how the RBA and RBNZ react to these moves with the AUD/USD above 0.7350 and NZD/USD above 0.6750. Bear in mind we heard from Mr. Edwards from the RBA recently stating that the RBA felt that fair value was around 0.6500. With regards to the RNBZ, we will hear straight from horses’ mouth on Wednesday this week when “Spinner” Wheeler (RBNZ governor) has an interest rate decision and monetary policy statement.
Why was gold so strong?
I can only think that because of central banks having negative interest rates, institutions are maybe looking at gold instead. It can’t be because they see it as a hedge against inflation… I was laughing when I wrote that last line. It’s above my pay grade but negative interest rates are the only thing that I can think of.
Back to NFP…
Blow out numbers once again; except for the fact that hourly earnings are not rising, in fact, they pulled back to a negative number.
242,000 New Jobs
(Previous reading was revised to 182,000)
4.9% Unemployment Rate
(Previous reading was 4.9%)
Average Hourly earnings – February -0.1% and yearly 2.2%
(The previous average hourly earnings were 0.5% and 2.5%)
As I said these were good numbers except for the hourly earnings and show that the U.S. economy is in good shape from a job creation perspective.
There was a huge amount of Australian data last week, for the most part very positive which along with precious metals (discussed earlier) has kept the AUD currency well bid. However, as mentioned, this brings with it its own problems for the RBA as they try to balance the very diverse economy, eastern versus western Australia. Who would want to be a central bank governor?
The UK had a string of PMi data, all poor, yet the GBP rallied on crap data…excellent… go figure!!
The BREXIT discussion rambled on but as more data was released about the consequences plus the names of who is pro and who is not pro BREXIT some stability fell into place. I will guarantee you one thing. No matter how heated the debate gets in the coming weeks and months in the UK, there will be no references to hair, spray tans, sizes of hands, wetting ones trousers, sweating, choking, con artists, liars, losers, fakes, phony’s, scams or penis sizes when the TV debates commence.
Politicians around this planet may in the main, be self-serving, protectionist vote grabbers. But there is just NOTHING to compare to the American republican parties, dysfunctional gang of non-performing immature, non-presidential numpties, who are nothing better than a group of 6-7 years school kids.
The circus, reality TV show that it is, is an embarrassment to democracy and quite frankly, is it any wonder that so many people are apathetic to politics and should they decide to vote it would probably be as a protest vote. In my opinion, the voters do not win in the long term. The only winners are the TV stations via ratings and they simply do not boldly question or highlight the fact that this behavior is unacceptable. As for the Republican Party establishment, they are presiding over an implosion.
I only mention this in the blog because we are going to see huge uncertainty in the U.S. market moving forward. The circus might amuse a little with the antics on the TV screen at the moment, but there really is a serious side to consider.
Moving on and finally….
Mario Draghi dropped a huge hint during last week (Tuesday) that the kitchen sink was about to be thrown at the market and we shall see exactly how big the sink is this Thursday at the ECB Press Conference. I am covering this in the next section.
WHAT’S ON MY MIND:
CENTRAL BANKS TAKE CENTRE STAGE THIS WEEK…BOC, RBNZ and ECB
Happy days are here again…
This week we have the BOC, RBNZ and ECB front and centre. If I were a stand up comic, there is so much material here based around what we will be told as being the central bank view on all things local and worldwide. I will try to keep this light with some facts to give an overview of how I see things.
BOC: Stephen Poloz (Governor) – Wednesday 9th March:
I think my views are well documented about the Canadian economy and what I think that the BOC will do / has to do moving forward.
Let me do a quick recap; for the past year the CAD currency has for the most part been a proxy for the price of WTi (oil). Many, mainly Canadian government officials, see this as rather unfair as the Canadian economy is much more than just the Alberta sands. However, it is what it is.
Last year there was a Canadian general election. Long time Prime Minister, Stephen Harper was ousted in favour of younger go-getter Justin Trudeau promising to spend, spend, spend on infrastructure, legalize marijuana and at the same time stick two fingers high up into the air with regards to balancing the budget.
Stephen Poloz last cut interest rates on 15th July 2015 by 0.25%. Since that date he has been sitting back and saying that the effects of the rate cut have yet to be seen to its full extent in the Canadian economy. He has also resisted further action due to a government election and budget from the newly elected Liberal Party under Justin Trudeau. Time and reasons for non-action are running out.
The initial budget from Justin Trudeau is due March 22nd and Trudeau has already stated that there will be no “big ticket” bazookas. Canadian GDP is like most G7 countries, falling backwards instead of moving upwards.
Soon it will be over to the BOC and Poloz to take action.
My thoughts are:
The BOC will probably stand still this month and leave rates unchanged at 0.50% in view of the Trudeau’s budget. This is further supported by the fact that there is only a rate announcement this week, no press conference. (On the basis that I have been calling for a rate cut the last two meetings and got it wrong back to back, get ready for a third error and be ready to trade long the USD/CAD!!).
Whilst I think in Canada there will be rate cuts in the near future to help stimulate the economy, these will take place after the Prime Minister’s Budget. I also think that negative interest rates and QE (Quantitative Easing) will also be on the cards.
The psyche and culture of Canadians is in my opinion, laid-back, and sometimes head in the sand to ignore reality at times, the latter definitely applies to Stephen Poloz as far as I am concerned.
RBNZ: Graeme Wheeler (Governor) – Wednesday 9th March:
Over the past couple of years it has been easier to win on the 649 lottery in Canada, than predict the RBNZ. They say one thing and their actions say the opposite lots of times.
At the moment the NZD/USD is attempting to break out above 0.6750 / 0.6800. One would not have thought that Wheeler and his table of accountants would be cracking open the champagne on this news.
Reading the comments over the past few months, the RBNZ appears to be relying heavily on the NZD depreciating to help bring inflation back to their 2% target. Well, Graeme me old pal, hows that working out for ya! – not very well at the moment I would say.
In addition, we have the PBOC in easing mode, the BOJ in easing mode and Mario Draghi at the ECB about to throw his mother-in-law, Granny and the kitchen sink at the market to try to fight DEFLATION and get some growth into the EUROZONE.
Just to keep a level playing field the RBNZ needs to ease… will they?
The RBA stood firm last week, which of course doesn’t mean that the RBNZ has to do the same. But a 0.50% cut to 2.0% would send a clear and unambiguous message that the RBNZ means business. It may need such a bold statement of intent instead of the usual pussyfooting about game that the RBNZ usual play. We should however, be ready for just more jawboning.
Whatever the RBNZ does, if it’s a rate cut they have to be firm with the commentary as well. In the past they have been fecking useless doing this. My dog Ozzy is very single minded, if he could talk he would have no problem nailing this.
ECB: Mario Draghi (President) – Thursday 10th March:
The prime news event this week is the ECB Press Conference with Mario Draghi. God love him, he has Merkel, Wiedmann and Schaeuble to contend with. I am sure these three amigos in Draghi’s eyes are like annoying zits that just keep coming back every time you think that you’ve squeezed the heebie-jesus out of them.
Mario Draghi is front and centre. He has been firing bullets at the EUROZONE problems every since the “whatever it takes” speech in London.
What does he have left?
I am off the Jack Daniels at the moment, so my creative thinking cap was diminished slightly putting some thoughts into this.
Last week, Draghi stated that the inflation trends for the EUROZONE were still weak; this is like the nod in central banker language that as traders we should get ready and be prepared.
Here is my list that I think he will look at and he may add none of these, some of these or all of these, only time will tell.
Increasing the negative interest rate at the ECB higher from the existing 0.30%. As far as I can see the feeling is that by the year-end the ECB target is 0.50%. Draghi may go the whole way now, or add another 0.10% making the new overnight rate -0.40%
Increasing / expanding the PSPP (Public Sector Purchase Programme) known more widely as QE (Quantitative Easing). He has a few ways to do this, either simply increasing the current scheme purchases each month from the current €60 billion a month at the moment to a higher volume. The problem is he will run out of assets to buy sooner, in fact as far as I can see quite quickly. Alternatively, he could broaden the scope of purchasing to include say, “Non performing loans” and riskier assets and there are plenty of them languishing in France, Spain, Italy, Greece and Portugal and at the same time increase the quantity of purchases each month (The double whammy approach).
I have read that he may introduce a new and updated version of the LTRO to target achieving greater liquidity. Although, I am not entirely certain what this would be and how this would work.
He could also announce a time extension to the overall programme, maybe another full year of support. This could be met with groans from the German contingent in the ECB governing council but Draghi needs a real full-on bazooka.
Whatever he does, he needs it to be jaw dropping and once and for all send a clear message. The EUROZONE is very close to dropping into recession and with BREXIT fears in the air he has to act strongly with conviction as far as I am concerned. Failure is not an option as the consequences are not worth thinking about.
Finally, he could also directly intervene in the currency markets. Sounds a bit out there but wow, would that make a statement… direct intervention. That would give Merkel, Schaeuble and Wiedmann nose bleeds at the mere mention!! Would you not love to watch them pour out their breakfast cornflakes as Mario Draghi announced direct money market currency intervention?
We shall wait and see what he does and it will be eagerly awaited, of that there is no doubt.
COMING UP THIS WEEK:
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: CNY – Trade Balance.
TUESDAY: N/A.
WEDNESDAY: CAD – BOC Interest Rate Announcement.
WEDNESDAY: NZD – RBNZ Interest Rate Statement & Press Conference.
WEDNESDAY: CNY – CPi.
THURSDAY: ECB – Press Conference and Rate Statement.
FRIDAY: CAD – Employment Data.
THE USD MAJORS SUPPORT & RESISTANCE LEVELS:
(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. If you have difficulty getting them to expand please let me know. Sometimes word press is difficult.
EUR/USD – Weekly Closing Price: 1.1004
GBP/USD – Weekly Closing Price: 1.4227
AUD/USD – Weekly Closing Price: 0.7436
NZD/USD – Weekly Closing Price: 0.6818
USD/CAD – Weekly Closing Price: 1.3312
USD/CHF – Weekly Closing Price: 0.9929
USD/JPY – Weekly Closing Price: 113.77
CLOSING THOUGHTS:
Another big week for news lies ahead of us.
We have three central banks with rate announcements BOC, RBNZ and ECB, and two of them the RBNZ and ECB have press conferences.
Of late the effectiveness of central bank intervention has been called into question, in particular with the BOJ introduction of negative interest rates. It could be a very choppy week once again.
The market has been guilty of late of not really providing an effective follow through. It should be interesting to see on Sunday evening / Monday morning if the reaction to the NFP data follows on into the Asian and European sessions.
Be savvy…
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/
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