- THE VIEW FROM MY TRADE DESK:
LOOKING BACKWARDS, FORWARDS & SIDEWAYS (FOR GOOD MEASURE) AT THE FX MARKET:
1.1: LOOKING BACKWARDS:
Like many other traders I viewed last week as a pivotal week to give us as Forex Traders guidance into the end of the year and the first quarter of 2016. Having had time to reflect on statements from the FED, RBNZ and BOJ, I have to admit I am both clear and then unclear…… fecking great!
I made a few trades and banked $$$, but I am also caught in a few trades under water but believe them to be in the right direction moving forward…who doesn’t!
Maybe I want, or, maybe I expect too much from central bank governors / presidents. I thought, obviously incorrectly, that part of their role and responsibility is to maintain stability with the currencies that they represent and give direction to ensure that market uncertainty is kept to a minimum. I am struggling to see how any central bank governor / president is managing this aspect with any real commanding degree of effectiveness.
My main article this week is aimed primarily at the FED and its behavior over recent times so I will hold those comments until later.
Looking at the RBNZ: Yer man, the governor of the RBNZ Graeme Wheeler, confuses the crap out of me. One-minute Kiwi valuations are too strong and he talks down the currency and in the next breath he says nothing, after a rally out of nowhere.
Basically he took his foot off the gas to press the pair lower and it bounced from 0.6300 back to almost 0.6800. I wish I knew more about the Kiwi money supply but I would guess that it must be out of sync with the size of the country.
What I mean is New Zealand is a small country and it is primarily a milk exporter. Looking at international bank currency data, the NZD was ranked 10th in the world a year or so ago with an average daily turnover $105 billion, which at the time was just under 56% of GDP.
To give some scale the percentage of GDP to over the counter trading volumes with other majors are: – CHF 32%, AUD 27% and USD 13%. With the NZD at 56%, it brings to mind the phrase “you are punching well above your weight”.
Having this as a backdrop, and, the RBNZ is well aware of these numbers and you can bet more up to date data as well, you would think the RBNZ governor would be stronger and act accordingly. This is why I consistently have a go at Wheeler. In my opinion he does not offer great guidance and creates uncertainty. This is one reason why the NZD flies all over the place.
If you were an institution trying to take advantage of the interest rate differential it must be pure hell with the Kiwi. In my eyes, you would be better off using the Las Vegas option!
The upshot is; at the next meeting I think he will jawbone. Right now I bet there are some very twitchy bottoms with the NZD/USD approaching 0.6800. I think some of this recent upward move is on the back of China news that allows families to have a second child subject to approval from the state (I cannot believe it’s 2015 and I have just written that sentence).
The BOJ kept easing on hold, but gave themselves 6 months extra to achieve their self imposed 2% inflation target and at the same time of announcing this they also said they would have an additional budget announcement. From my perspective, the door to more Quantitative Easing (QE) has been left slightly ajar.
Being a USD bull on the back of central bank policy divergence policy, you can imagine the poor USD data at the end of the week has me in great form for this weekend. I am of course being 110% sarcastic. The poor USD killed my open trades, I now reckon I will require either one unbelievable day of USD strength or alternatively a bit of momentum trading over a few days to bring all of my broker accounts in line.
Joking apart; with USD data so poor (GDP, PCE etc.) and with a FED stating that increases in rates are “Data Dependent”, next weeks job data releases need to be blowout numbers for a December rate hike… or do they? I have a contrarian view on this later in the blog.
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: AUD – Building Approvals.
SUNDAY: CNY – Manufacturing PMi.
MONDAY: GBP – Manufacturing PMi.
MONDAY: USD – ISM Manufacturing PMi.
MONDAY: AUD – RBA Rate Statement and Cash Rate.
TUESDAY: GBP – Construction PMi.
TUESDAY: NZD – Dairy Prices.
TUESDAY: EUR – Words of wisdom from Mario Draghi (ECB).
TUESDAY: NZD – Employment Data.
TUESDAY: AUD – Retail Sales.
TUESDAY: AUD – Trade Balance.
WEDNESDAY: EUR – Words of wisdom from Mario Draghi (ECB).
WEDNESDAY: GBP – Services PMi.
WEDNESDAY: USD – ADP Non Farm Payrolls.
WEDNESDAY: USD – Trade Balance.
WEDNESDAY: CAD – Trade Balance.
WEDNESDAY: USD – Janet Yellen Testifies (FED).
WEDNESDAY: USD – ISM Non-Manufacturing PMi.
WEDNESDAY: AUD – Words of wisdom from Glenn Stevens (RBA).
THURSDAY: EUR – Words of wisdom from Mario Draghi (ECB).
THURSDAY: GBP – BOE Inflation report.
THURSDAY: GBP – BOE Official Bank Rate.
THURSDAY: GBP – Words of wisdom from Mark Carney (BOE).
THURSDAY: AUD – RBA Monetary Policy Statement.
FRIDAY: CAD – Employment Change and Unemployment Rate.
FRIDAY: USD – Non-Farm Employment Data.
MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:
The first thing that comes to mind looking at my list above is “yikes no sleep”.
This week is about prioritizing time. It is a heavy week on key data and I am not saying that you need to be around for it all, but everything seems to inter-connect more than ever.
My key trades at the moment involve the following pairs: – EUR/USD, USD/CHF, NZD/USD, EUR/GBP, EUR/CHF and EUR/NZD.
Basically, I am screwed!
U.S., European, China and Antipodean data is all-relevant to my open trades. It looks like I am not going to get much sleep at all.
The standouts are obviously, the BOE Inflation report and U.S. Non-Farm Payrolls at the end of the week. The Central bank speeches sometimes flatter to deceive but they are important to follow as well in my opinion.
Looking at it all, to be honest it is another pivotal week for data.
For me, my longer-term trading strategy will be provided with more macro and micro economic data this week to place in my melting pot of trade ideas.
There will be a lot of information this coming week for us to store and take into consideration to help formulate plans and strategies moving forward. It will be a tiring week – of that there is no doubt.
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.
All of my thoughts, ideas and relevant comments are contained on the charts.
EUR/USD – Weekly Closing Price: 1.1005
GBP/USD – Weekly Closing Price: 1.5429
AUD/USD – Weekly Closing Price: 0.7137
NZD/USD – Weekly Closing Price: 0.6775
USD/CAD – Weekly Closing Price: 1.3071
USD/CHF – Weekly Closing Price: 0.9881
USD/JPY – Weekly Closing Price: 120.62
1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):
I have a trading pitfall at the moment.
I am not perfect (my wife will also verify this point).
If you were trading last Friday as the London equity markets were closing at noon (EST), you would have been aware of what can only be described as the most violent closing fix / flows I think that we have seen for months, definitely the wildest ride this year without a shadow of a doubt. The fact that last Friday was the last day of the month just exacerbated the end of month flows.
What has this highlighted?
It makes me look at my stop placement more and more.
I am guilty of not placing my stops in line with my RISK TOLERANCE levels within my TRADE PLAN. I am not sure but it must be something psychological within me that like’s to have a tolerance level behind the initial level of the stop that is placed when the trade is entered into.
Psychological or not, it creates additional stress and this manifested itself around the London fix last Friday.
I wanted to take advantage of the “Fix” extremes by adding additional trades but I had to initially deal with my USD/CHF long trades, which were moving closer to my stop loss levels and required attention. This cost me about 20 pips on the EUR/USD and USD/CHF new trades that I wanted to enter as I spent time adjusting the stops on the existing open trades.
I know reading this it looks stupid. Why not just set your stop at the right level from the moment the trade is active? I know… the psychology of trading is something that we all deal with in different ways. Being a Forex Trader there is so much to consider and be aware of to make your daily routine easier.
This may seem a little crazy to write about, but from a psychological viewpoint identifying this as a trading issue and writing about it will hopefully help.
The fact that I was “pratting” around moving stops and tweeting this to my subscribers when I could have started new trades at better prices hit a nerve!
- WHAT’S ON MY MIND:
FOR THE FED – IT’S ALL ABOUT CREDIBILITY NOW….
The FED under Janet Yellen is so cautious, how does this woman as a pedestrian ever cross a street?
There are risks to everything in life. However, I keep returning to the one fact that continues to haunt me over and over again. After 7 years of zero interest rates; if the biggest economy in the world cannot even raise rates by 0.10% WTF! For months, the FOMC has dithered. If the U.S. economy is that damn fragile, the FOMC should be held accountable for mismanagement and fired after 7 years of basically having a free-reign.
How long ago did tapering end?
If you cannot remember it was just over a year ago in October 2014. Ben Bernanke announced then that normalization in monetary FED policy would return sooner rather than later.
Well… here we are 12 months later “Helicopter Ben” has been replaced by “Dithering Janet”.
Four words stood out from the FED statement last Wednesday for most analysts, which were – “At the next meeting”.
Personally, I think it’s going to take a recession to stop a rate hike in December.
I know that many of you think that I love placing my balls on the chopping block time after time with some of my views, but in this particular instance, my balls are on the chopping block because I really think it’s all about FED credibility.
If you are a regular reader you will know that I think that just prior to the summer the FOMC should have lifted off, then in September I thought it better late than never. I was astonished that they did not raise rates last month. I said and stick with it…. it was dithering.
Now the FOMC is at the last station on the line before the terminus.
The FOMC said that they would raise rates in 2015, they keep talking about data dependency, but they have moved goal posts this year regarding data dependency. They threw in a red herring about the world economic position in the September policy statement and ensuing Press Conference, to justify no rate increase in September.
Then last week the world economic slowdown and other world economics are all of a sudden not that important anymore. This equates to classic dithering in my opinion.
If the FOMC does not raise rates this year they will lose credibility as far as the markets are concerned. Everything they say from now on will be taken with a pinch of salt. They will NOT be believed.
In my opinion, it is going to take a massive world event, or the worst ever set of job numbers in the history of the U.S. to prevent a rate increase in December.
All the consumer data should show increases after Thanksgiving. The seasonality effect of most sales numbers, which will be paired back because of a slowdown in the run up to the final quarter, will come in, in line or slightly better. There will be a massive amount of part-time hires from now through the holiday season if the FOMC cannot muster a 0.25% rate increase she will at least have to sanction 0.10% with a note of more to come in 2016.
We are talking about the biggest economy in the world. It is now over 12 months since we were advised that FED monetary policy was changing and normalization was returning.
I ask you…
How many times do we have to hear the word “Transitory?”
We have had 12 months of transitory. The issues that cause concern each meeting cannot remain transitory for a year; by now they must be permanent one must have thought.
I know I am somewhat alone with these thoughts, as most views are looking further down the line, to possibly the first quarter in 2016 before a rate increase would take place. Time will tell if my thoughts resonate with the FOMC and whether or not credibility with the markets is important to them.
I really do believe that Janet Yellen regrets not raising rates in September. This uncertainty and market volatility that we see is pure and simply self-inflicted upon us by the FED.
- MY FINAL THOUGHTS:
OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:
This should be one hell of a week. There is so much on the agenda, as mentioned earlier in the blog that finding time to sleep will be a challenge.
This will be a pivotal week for gaining the knowledge on how to move forward with our macro level trade plans. Because there are so many economic news events from the four corners of the globe, if ever there was a time to trade with wider stops and smaller position sizes this would be it.
The chances of seeing false moves given all the data is higher than normal and one does NOT want to be trapped the wrong side because an oversized trade was entered into at the wrong time.
Remain keen but trade lean…is the motto this week.
Take care and enjoy,
Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
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