This blog was almost complete at the time of the Paris terrorist bombings last Friday.
My condolences go out to the families and friends of those who lost their lives.
- THE FX MARKET PLACE:
LOOKING BACKWARDS, FORWARDS & SIDEWAYS (FOR GOOD MEASURE) AT THE FX MARKET:
1.1: LOOKING BACKWARDS:
For me this was a week light on volume of Economic data, full of lots of Central Banker speeches but, in the end so much promise, but, bugger all delivery apart from Draghi on Thursday, in my opinion it flattered to deceive.
What’s that well-known phrase I use from time to time when looking back over a weeks work… yes that’s right sh*t happens.
As one of my London (UK) subscribers says “Would you Adam and Eve it?” (Native cockney [someone from London] rhyming slang = believe) ie: Would you believe it?
The USD would appear to be in such demand that even though last Friday’s Retail Sales and Producer Price index data releases were poor / bordering awful, the USD was not taken to the woodshed and spanked, instead it rallied off the poor data.
So there you have it, it’s not just a buy the dips it just a buy, buy and buy. In my opinion this state of play could persist right the way through to the FED meeting in December. Equity bulls I would say at the moment are pooping in their pants. Is it time to buy shares in Costco the biggest seller of toilet tissue in the world?
If you are an equity bull, I think you can put you heads between legs lean forward kiss your own ass (not everyone can do this… FYi, I am one of these), whistle Dixie at the same time and forget about the Santa Claus rally this year.
Dates for your calendar are therefore: –
3rd December 2015: ECB meeting in Frankfurt with press conference.
16th December 2015: FOMC meeting with press conference.
At these meetings I am expecting: –
ECB:
- Confirmation of more Quantitative Easing (QE) to be added to the existing program.
- A formal announcement of an extension of the existing program beyond September 2016.
- Details of an extension to the types of bonds to be purchased.
- A revision to the overnight deposit rate for central banks within the Eurozone.
- Revisions of Eurozone growth targets to lower levels for 2016-2017.
FOMC:
- Confirmation of an initial rate increase, probably 0.25%.
- Details from the economic projections “the dots” will be amended.
- Information regarding when future rate increases could be introduced.
- A revision of 2016-2017 growth objectives.
I am not an accountant. However, I strongly expect many revisions to the “books” going forward and the “egg-heads” at the FED and ECB will be number crunching from now right through to the dates above. Yup… them books will be cooked in Frankfurt and Washington as I type this 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: NZD – Retail Sales.
MONDAY: EUR – Words of wisdom from Mario Draghi (ECB).
MONDAY: CAD – Manufacturing Sales.
MONDAY: AUD – Monetary Policy Meeting Minutes.
MONDAY: NZD – Inflation Expectations.
TUESDAY: GBP – CPi.
TUESDAY: EUR – German ZEW Economic Sentiment.
TUESDAY: USD – Core CPI and CPi Data.
TUESDAY: NZD – Dairy Prices (GDT Price Index).
WEDNESDAY: USD – FOMC Meeting Minutes.
WEDNESDAY: JPY – BOJ Press Conference and Monetary Policy Statement.
THURSDAY: GBP – Retail Sales.
FRIDAY: EUR – Words of wisdom from Mario Draghi (ECB).
FRIDAY: CAD – Core Retail Sales and Core CPI.
MY THOUGHTS ON THE NEWS ITEMS THIS COMING WEEK:
In comparison to last week’s economic data, we appear to have much more of a mixed bag.
All over the globe, growth is an issue. Deflation although not mentioned is an obvious issue.
Regular readers will know I love to follow the consumer data. Without consumers buying goods and services what’s the point of manufacturing?
From New Zealand we have Retail sales, Inflation data and Dairy prices. I am so bearish this NZD, despite all the issues surrounding the mis-leading, non- consistent information emanating from Graeme Wheeler (RBNZ Governor). He makes it a challenge to trade the Kiwi across the board, as in my opinion, it is about to be caught so badly with a China hard landing that is on the horizon.
I always look forward to NZD data.
In the Eurozone apart from German ZEW, we have some comments due from Mario Draghi. You just never know what he might say. Always bear in mind his “Whatever it takes” was taken literally by the markets even though in his own words it was taken a little out of context. The EUR/USD is bordering on a breakdown and it can happen ahead of the December meetings.
I would suspect that the ECB wants an orderly drop with the EUR/USD, frankly I couldn’t care less, give me 500 pips and a bounce to sell into. That would be just fine with me. However, I am certain they want a nice casual drop over an extended period. Whatever happens, all Eurozone data and comments will be scrutinized very closely.
Canadian data fascinates me at the moment, not just because I currently live in Canada, but also because I do not believe most of the data. For the whole of 2014 false employment numbers were supplied to the markets by the government and when I look at some of the current data releases I think they are wish lists rather than the true picture. I am finally long the USD/CAD again and I am looking for a huge breakout higher. I am not long the USD/CAD however, with my longer-term FUNDAMENTAL TRADE set–ups yet and that is a cause of frustration. This Friday we have core retail sales and core CPi.
I am expecting a rate cut from the BOC before the year-end, the next BOC meeting is on December 2nd 2015. Let’s see if it happens.
With regards to the USD, expect plenty of media attention and “off the cuff” quotes will be the order of each day this week, in fact, in my opinion the U.S. media frenzy over the FED rate hike will continue through to the December policy meeting and right up to the press conference.
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: 1.0775
GBP/USD – Weekly Closing Price: 1.5237
AUD/USD – Weekly Closing Price: 0.7130
NZD/USD – Weekly Closing Price: 0.6544
USD/CAD – Weekly Closing Price: 1.3328
USD/CHF – Weekly Closing Price: 1.0063
USD/JPY – Weekly Closing Price: 122.65
1.3: LOOKING SIDEWAYS (FOR GOOD MEASURE):
This week in my full blog this section is an advertising feature, which cannot be displayed on ForexTell
- WHAT’S ON MY MIND:
THE CARDS HAVE BEEN DEALT – TIME TO PREPARE FOR 2016
To all intents and purposes it looks like the cards from the ECB and FED have been dealt.
At the moment though, it’s like a game of poker, I am not quite sure this particular type of poker is called, but you have two cards that no-one else can see and there are three cards face up on the table in front of you that the whole table can see.
This is how I view matters at the moment. Both Janet Yellen and Mario Draghi know what they have and how to play their hands but the final two cards will not be revealed until next month.
From a trading perspective where does that leave us?
I always like to gather as much opinion as possible to verify / confirm my own thoughts, whether they be market contrarian or not, or maybe after a small debate toss my own thoughts into the nearest waste paper bin.
As I referenced at the beginning of this blog poor U.S. data resulted in USD strength. I had a brief webinar meeting with my trading peer group at 6.00AM EST Friday morning about the upcoming news event.
This small group of four is built up as follows: –
Two of us have subscriber based options to our blogs, the next member is a fanatical Elliot-wave specialist (I am still confused) and the last member of our group is an ex bank employee chartist, pattern maker!
Our focused discussion was based around the EUR/USD:
Two of the group wanted to close all trades ahead of the news expecting poor data. The chartist and I said were on the other side of the discussion, primarily based upon the fact that the EUR/USD could not hold above 1.0800 and was pushed back in the previous U.S. and Asian sessions. I already had two live EUR/USD trades set up with stop loss levels moved out from 1.0840 to 1.0900 to cope with a short squeeze. I had taken my FLASH and RADAR trades off the table the previous day and banked $$$. My remaining EUR/USD trades were DIVERGENT FUNDAMENTAL TRADES and on the basis that these were for the longer-term I was going to hold and then add at highs.
I am not writing this because in the end 1.0800 held, it wasn’t even tested after the news release, the markets had just decided they wanted to own the USD no matter what.
I am writing this because I was reacting to the hand I was holding (figuratively speaking) with my open EUR/USD trades. Had I had open trades with EUR/USD as RADAR or FLASH trades my actions would have been different.
I did at that time, and still do, own USD/CHF longs, NZD/USD shorts and USD/CAD longs. The reaction with commodities (Gold, Oil and Copper) ahead of the news, gave me comfort to hold the NZD and CAD trades open. With regards to the CHF, this currency is breaking out and a fall back was another buying opportunity to add. My primary concern was the EUR/USD only.
So basically, what I am saying is that we all play the cards we are dealt with when making choices or decisions in Forex trading.
Right now we have about 60% of the picture that Yellen and Draghi have, maybe a little more. Looking ahead, I do not think that we will get a glimpse of the cards “in the box” that Yellen and Draghi hold until their individual big day arrives, although I do expect plenty of rumours as to what they are holding.
From my perspective, I want to keep it simple… very simple.
The FED are the HAWKS and the ECB are the DOVES.
That’s it – end of story.
In my opinion the fun starts now after the poor U.S. data.
Towards the close last Friday afternoon, the EUR/USD drifted up from lows of 1.0715 to 1.0775. I just see this as a selling opportunity early this week. Incidentally, the EUR/USD rallied 60 pips while the inverse relationship USD/CHF fell only 40 pips.
I say that the fun starts now because the flood gates will once again be opened, the rocks will be lifted up, and from beneath the rocks the creatures that blessed our TV screens and twitter feeds earlier this year will once again be let loose.
These numpties who were saying back in January/ February this year that the EUR/USD was going to 0.8000, 0.9000, 0.9500 and parity etc. will be perched on stools behind desks on CNBC and BLOOMBERG spewing it out once again, in repeat format until we can take no more.
The fact is, they were wrong earlier this year with their timings, but now they could be right with their target prices albeit for different reasons.
I have read umpteen bank reports with regards to the EUR/USD target price ranging from 0.8500 to 0.9500, and frankly this is very possible given the fact that we will be entering a period of at least two years if not more of divergent central bank policy. It is the FED versus the rest. Scary as it sounds, it is the FED on one side and the rest (ECB, BOE, BOJ, SNB, BOC, RBA and RBNZ) on the other side.
Recently as traders it has all been about scalping and day trading. That style of trading has and always will be there and there are many great shorter time period trading specialists. But what about the longer-term perspective traders who like to plan taking a much longer-term view. Retail traders have had their accounts pressured in 2015 as it became more and more difficult to seek out these trades. Yes, there have been big moves but being able to grab them and plan the market did not allow for that this year in comparison to previous years. We have been in a state of limbo due to central bank policies not being clear or promises not being delivered on time. The delays created uncertainty and this uncertainty gave us choppy markets.
Looking forward, those traders who adapted to day trading to make a living can now add back position trading.
It is now time to plan and strategize. I have already started but I will not be at full steam (100%) until early 2016. Once we have the FED’s plans on further rate increases the divergence will escalate and we have a full proposal from which to base from.
From a traders perspective this is just brilliant. There should be both momentum and directional trading most of the time. There will be sideways moves and retracements from time to time but generally speaking trading with the power of a central bank behind you, you cannot ask for more.
There are obvious trades based around the USD majors. The USD/JPY being the exception, we need to see how it will react and this will then set the tone for the JPY cross pairs and of course the commodity cross rate pairs as well. Will we return to a simple risk on / risk off trading environment once again?
Whatever happens, we have time to plan and select our favourite currency pairs to trade.
Whilst I expect December to offer lots of trading opportunities in the interim period we can research and strategize ahead for next year. The great news is if you plan well in advance and establish core positions from which to add to or base, your strategy in 2016 has all the promise of being a great trading opportunity.
Of course, there will be risks but it is how we manage those risks, which creates differentiation away from the other traders.
In 2015 many traders left FX trading partly due to the EUR/CHF peg removal, millions of dollars were lost in a few hours. Then for a week or so thereafter, with uncertainty in the air there were numerous quite wicked squeezes. The traders, who left, called FX a “mugs game”, a “gamble”.
This is just NOT true.
Forex has always been and always will be about RISK MANAGEMENT and how you manage RISK. As retail traders we cannot move markets our “niche” is to capture bits of the moves created by banks and the large institutional investors. If we over leverage, or, poorly position ourselves with trades that is our problem through lack of knowledge, skill, ability or understanding.
In my opinion, there will never be a better time, a better opportunity to manage risk effectively, than next year 2016. We know the players and what cards they have to play with, we will have it all on the table before Christmas this year. You do not have to be a hero with big trades and risk your account.
As I have previously stated, this is for the longer-term. We have the opportunity to take profits bit by bit and grow our broker accounts organically with central bank policy behind our core moves.
Start planning now.
- MY FINAL THOUGHTS:
OVERVIEW OF TRADING TIPS & THOUGHTS FOR THE WEEK AHEAD:
We are now entering a period when I hope that we will not stagnate waiting for the ECB and the FOMC to meet and inform.
I think that institutional traders across all markets will be re-addressing their portfolios and making the required adjustments over the next two weeks or so. This could cause some periods of volatility so we should be ready as usual.
In the background the normal flows of economic data will provide the basis of day-to-day direction but these moves that emanate from an economic data release could be trumped by a reaction to breaking news from central banks or a positioning trade from a big player being placed or removed.
Remember, there is not as much activity in the Forex markets this year in comparison to last year and a lot of the banks have lost big bucks trading FX this year. Therefore, liquidity issues are there for very large trades being dumped into the market.
As usual trade within your means, use your TRADE PLAN manage RISK with correct POSITION SIZING and STOP PLACEMENT.
Longevity in trading is paramount to success. Success in trading is based mainly trading high probability trades with your RISKS MANAGED.
Take care,
Scott Pickering
The Pip Accumulator
http://weeklyfxdrivethru.com/disclaimer/
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