- INTRODUCTION:
Such a lot to talk about last week, it is difficult to know exactly where to focus first. However, that is for a little later in the blog.
The USD got its mojo back last week in some style. I am still struggling to find reasons to be long the USD. Of late data has started to be the right side of “mixed” to support a move higher in the DXY, the PMi data was good. In addition, the recent FED speak has been very HAWKISH in tone. See the chart below (The chart does contain a few additional thoughts).
Overall though I think that maybe it’s the fact that the market is starting to believe that regardless “of whatever”, Yellen is leaving her position as FED CHAIR next February with another rate hike in her purse?
However, this is my piece du résistance on the matter of recent USD (DXY) strength.
I have a thought process along these lines….
- The FED is raising rates come what may.
- The BOE has real dilemmas to face.Theresa May’s longevity as Prime Minister. She could be removed as Tory leader before I complete this blog!BREXIT negotiations are pretty much a shambles. The “No Deal” scenario is openly discussed more and more. If May is “kicked out” another timeline vacuum ensues and this results in additional pressure on the exit deadline.
The recent PMi data was basically poor…well really CRAP. The UK economy is declining and it will only get worse before it stands a chance of getting better.
3% inflation or not. I just think it’s a suicide mission on the UK economy to raise rates with so much uncertainty.
- The ECB governing council are basically crapping the bed about tapering and a timetable announcement of returning to an interest rate normalization policy. The latest meeting minutes included commentary like:“HIGHLY ACCOMODATIVE UNDER ALL SCENARIOS”
“SUBSTANTIAL STIMULUS STILL NEEDED”
“CONCERNS ABOUT CURRENCY VOLATILITY AND EURO RISE” “MUST BE MINDFUL OF MARKET EXPECTATIONS ON FUTURE POLICY”I would define this as not quite sure and uncertainty! - RBA was playing stick. Not looking to move away from being accommodative / supportive. Then like a “bolt from the blue” out comes RBA board member Ian Harper who quipped that if the Australian was to worsen the RBA has NOT ruled out an interest rate cut.Well, in all honesty. That is normal. It’s what a Central bank does in its normal course of day-to-day business. However it is usually done on a nod and a wink basis, not in font size 72 to the media… interesting. This comment came after two bloody awful months of Retail Sales data.
- RBNZ has recently stated that it is remaining accommodative for an extended period.
- BOC, Stephen Poloz is being cagey on what the BOC will do next after two recent rate hikes. The recent run of data has been disappointing. Of all the Central Banks except the Fed I still think that the BOC will raise rates if only to curb house prices and personal debt borrowing in Canada.
- SNB and BOJ remain unchanged, interfering if required and accommodative for generations to come!
Simply put, the divergence of Central Bank policy is once again at the forefront of institutions as they head into the year end. Many have books based upon the calendar year and from now through to the end of the year the big movers and shakers will be getting positioned.
I am still a HUGE believer that Central Bank monetary policy is what primarily moves a currency. I know that within this framework there are a lot of idiosyncratic reasoning behind some moves and that certain personalities believe that policy is more about themselves rather than the country, but overall, in my opinion Central Bank monetary policy is primary.
Basically, the FED is raising interest rates in the U.S. and the rest are in limbo at best.
There will be some very interesting trading conditions ahead but from the way I am looking at this, I need the dust to settle a little at least until I can see a clear shift in sentiment.
At the end of the day we could just be retracing technically in the DXY and there is a bear flag formation setting up to move the DXY lower once again inside the longer-term trend.
I am finding it difficult to get an absolute fix on what is driving the USD and then on top of everything we have the geopolitical tensions. North Korea could raise its head once again as we enter a period of the country’s anniversaries. I noted during the week that TRUMP mentioned that we are now in “The calm before the storm”. In addition, there is the Iran nuclear deal that TRUMP wants to amend or discard (not sure it’s hard to keep up). Both items have enough to reverse the USD move at the drop of a hat.
There is a lot to consider if you are not a market scalper or day trader.
Moving on…
I have finally recorded, changed, updated, re-recorded and finally placed a version of “AN INTRODUCTION TO THE PREMIUM SERVICE” on my YouTube and Screencast channels.
It is essentially for new subscribers to add a little more to a subscription decision other than the written word on my website. I can also use it with some advertising as well. I am never happy with these things and I will no doubt tinker with it moving forward. A couple of segments were re-worked but perhaps still require a little more attention. There comes a point however, that if I do NOT just post it, it may never see the light of day.
http://screencasts.weeklyfxdrivethru.com/watch/cb6fqiIAZX
However, …
Not as much luck with my EA’s (Expert Advisors) this week. These algorithms have taken a serious backseat. This coming week is a slack week for economic data so I should get a chance to move forward all things being equal.
- THE FX MARKET PLACE:2.1: LOOKING BACK AT LAST WEEK’S NEWS.
On my God… there is so much I could write about, I will be selective and to the best of my ability concise (Please allow some tolerance I am from Liverpool and I love having this SOAPBOX option).
GBP: PMi DATA, THE BOE, BREXIT and THERESA MAY’S MELTDOWN.
Holy shit… there is a book in that heading alone.
The PMI data was as predicted in last week’s DRIVE THRU. Manufacturing and Construction to miss and Services to beat.
Overall the numbers were poor. In fact, Construction came in at 48.1 against 51.1 which placed it in the contraction zone being less than 50.0. Manufacturing recorded 55.9 against 56.7 and Services showed 53.6 versus 53.2.
Frankly, this data is backward looking but in all honesty in the name of sanity how can the BOE raise rates on these numbers? The numbers are more akin to RATE CUTTING not RATE HIKING.
Old flip-flopper will be flip flopping in my opinion but he has an out on his side to save face. First, whilst I realise the BOE has a mandate on inflation, second and thirdly, it also must consider economic stability and prevent unnecessary market volatility through uncertainties.
BREXIT is just a bloody disaster by all accounts. Politicians are fecking useless at negotiation. The UK have put up David Davies a politician against Michel Barnier a “pen pushing jotter blotter” from Brussels who has no accountability to a parliament or voters. Barnier couldn’t give a crap. It’s just a job. Mind you he doesn’t appear to have to do a damn thing anyway, the Brits can’t even get into the starting blocks, absolutely fecking useless numpties.
The UK is so bad they are even promoting a “NO DEAL” as the outcome. FFS what a load of crap.
If that was not enough…
Theresa May at the Conservative Party conference in Manchester coughed and spluttered her way through her speech. She even took a cough drop from Chancellor Philip Hammond to try and stop her coughing spasm. At the same time, in the background letters that were obviously stuck to the stage set with double sided tape fell off. The slogan which originally read” Building a country that works for everyone” ended up being “Building a country that works or everyon”. If that weren’t enough she was handed a P45 by a gatecrasher (In the UK you receive this form when you leave your existing job).
What’s the phrase “When shit happens…. shit happens!!”
She was praised by her team of her arse-lickers stating that she carried on brilliantly through adversity. However, in the real world the wagons are circling just like in an old John Wayne movie!
The speech was low on content. BREXIT has brought the party to a dysfunctional state. The cracks, that were covered in paper after the referendum are widening and the paper cover gone. The word disastrous is being used by many media outlets to describe Theresa May’s performance. Far from rallying the troops she has heightened the differences.
Her position a Prime Minister and leader of the Conservative Party is hanging by a thread. I believe she will be booted out with little dignity much like the way Maggie was, whilst on a business trip in Paris. It would be better for Theresa May to walk sooner rather than later.
Having said that what numpty wants the responsibility of BREXIT? Maybe it’s best to leave her in position, her career is fecked anyway and the BREXIT negotiation disaster can be pinned 100% to her legacy.
Here’s a point to consider…
The UK has done feck all on getting the BREXIT negotiations started. Could there be another referendum with a new leader as the “Unsullied” in the shires think that the Tory government have really fecked up BREXIT so far.
Just saying and thinking aloud…
Anyway, enough of that….
With regards to the above, Carney in my opinion, has a decent case to say; “Hold on, no rate hike” (even with 3% inflation which he could argue is transitory like all Central bankers do!). I think that there is a chance he could get away with it without being categorized again as a flip flopper. This would apply especially if Theresa May were to resign or be ousted inside the next 2/3 weeks.
EUR: CATALAN, BRUSSELS and the GERMAN ELECTION FALLOUT.
WTF…
Some horrible scenes around Barcelona were televised last weekend with voters being dragged, hit, whacked with batons and generally beaten up over simply trying to vote. For those who thought that Spain had come a long way since the Francisco (General) Franco era… think again…. it would appear NOT. Quite a disgrace.
In addition, the silence from the rest of the EUROPEAN UNION, BRUSSELS etc. was a shocking display of how a united EUROPE could NEVER happen not in a million years. It was an embarrassment to those who call themselves leaders. The silence to me however spoke louder than any words that politicians could utter.
We enter another weekend of probable disturbances as Mariano Rajoy (Spanish Prime Minister) suspends the Catalan Parliament session next Monday in an attempt to block an independence vote taking place in the regional parliament.
The Catalan leaders are at a crossroads. Either move forward with declaring independence or try to negotiate a settlement to separate with Madrid.
This story has a great deal more left in it, with the King of Spain (Felipe) being accused of being a mouthpiece for the Spanish Government by the Catalan Regional President Carles Puigdemont.
Meetings are scheduled moving forward through the weekend but I feel that this item has a long, long way still to run before its settled. Already businesses are moving Head Offices out of Catalonia in readiness for the split. It does not seem to have directly affected the single currency that much… weird to me.
This is very quiet news…
Angela Merkel is still busy in the background working away trying to finalize a revised coalition government. This is taking some time and press releases are sparse which, to me indicate issues on agreements. With so many parties involved, the result will be a washed out version on what Merkel campaigned on. Coalitions = weak government.
I do not believe that this has been factored in at all to the single currency exchange rate. It appears to be in suspended animation mode at the moment. I think that the larger traders are more concerned with the moves from the ECB than anything else.
AUD: RBA RATE STATEMENT, TRADE BALANCE, RETAIL SALES.
The RBA is standing firm and frankly looking around at what is going on, strong leadership from Philip Lowe is paying off.
In last week’s statement, he stated that high exchange rates would harm the economy and as usual the RBA provided subtle jawboning which has worked.
During the week, the Trade Balance data was good (+0.99BAUD$ against a forecast of +0.88B AUD$), this was counterbalanced at the same time by poor Retail Sales at -0.6% it was worse than last month at -0.2% but the forecast was a +0.3%, the AUD was taken to the woodshed and spanked lower.
On Friday, last week RBA member Ian Harper leapt out of the masses to quip that the RBA would cut interest rates if the recent slowdown in the Australian economy worsens.
CAD: TRADE BALANCE and JOBS DATA.
More poor data was seen from Canada in the guise of Trade balance numbers that missed expectations (-CAD$3.4B forecast –CAD$2.6B).
The USD/CAD was whacked up another cent from 1.2470 to 1.2570 on the back of that data.
The jobs data followed 24 hours later and it was a very slight miss at 10k jobs vis-à-vis 12k anticipated. The Unemployment Rate remained at 6.2%, a slight uptick to 6.3% was expected.
Because the U.S. data was so erroneous the market struggled to know what to do and how to react and this overrode any logical moves with the CAD directly. Therefore, it basically tread water after the initial market volatility.
USD: NON-FARM PAYROLLS and ISM PMI data.
The number was a negative 33,000 jobs created and the unemployment rate dropped to 4.2%, which is less than pre-the GFC. Average hourly earnings rose to 0.5% from a previous 0.1% and forecasted 0.3%. This was strong.
The USD strengthened but did not go hell for leather to break the trading ranges.
As I mentioned in last week’s blog even before we were made aware that last week’s numbers would be hard to interpret, given the storms and hurricanes that basically battered the U.S. of late, I was already of the opinion that NFP helping the FED with policy was a non-event. As, in my opinion, the Fed have decided already.
2.2: LOOKING AHEAD TO THIS COMING WEEK:
2.2.1: THIS WEEK’S ECONOMIC DATA RELEASES:
2.2.2: USD MAJORS – MY SUPPORT & RESISTANCE LEVELS:
2.2.3: USD – TRADING CHARTS and COMMENTARIES:
The charts below contain commentary (my thoughts and views), these are the USD major charts that are reflected in the spreadsheet above.
EUR/USD:
GBP/USD:
AUD/USD:
NZD/USD:
USD/CAD:
USD/CHF:
USD/JPY:
2.2.4: MY THOUGHTS ON THIS WEEK’S ECONOMIC DATA:
Not a lot this week to choose from at all.
USD: PPi, RETAIL SALES and CPi INFLATION DATA.
I would never be-little the power of inflation data for an economy. It obviously takes on greater importance when the U.S. economy is involved, as this data represents such a vital barometer for sentiment moving forward. However, without wanting to sound as complacent and blasé as the markets are to data releases, I do think whilst these numbers are interesting to read from a trending perspective, from a FED viewpoint I do not think they are going to matter unless they miss by 5% or greater… something mind blowing off forecast is what I mean.
The FED has made its mind up vis-à-vis an interest rate move higher in December.
The FX market being a future pricing mechanism based primarily off Central Bank Monetary Policy will be baking this into pricing as we move closer to the December FED meeting on the 12th and 13th, with the announcement due on the 13th December 2017 at 2PM EST.
Back to economic data…
Last time around, everything was positive 0.2% – 0.4% except for Retail Sales which posted a poor -0.2% number.
This time the forecasts show basically an improvement across the board with Retail Sales expected at 1.5%. We are dealing with the ultimate consumer society in the world. The biggest economy in the world. The forecasts should be a piece of piss.
Always expect the unexpected.
2.2.5: HOW TO PLAY THE MARKET THIS WEEK:
There is not a lot of data due this week and as such we will be captives to the movements in equities, securities and commodities.
I do not think I would get much disagreement when I say almost since TRUMP was inaugurated the market has been more headline news driven that anything else.
I think that I am alone with these thoughts as I do NOT find this market easy and I am struggling to get the reasoning behind moves and finding traction with direction and trade set ups is a little more difficult than usual.
This makes trading more of a gamble than a well thought out reasoned strategy or TRADE PLAN. For traders with more than a 60-minute trading horizon this brings a raft of issues into play that the scalpers of this world do not have to consider.
We have considerable heightened geopolitical news hovering around us with regards to “Little Rocket Man” and the Iran nuclear deal review.
It would very easy and glib to say just be careful trading this week. It would be accurate but a bit wishy-washy.
The USD weakened into the close last Friday, I see this as purely positioning as frankly no-one would really want to be heavy into being long the USD into the weekend with all the geopolitical risk being about.
We are in ranges at the moment that last week’s NFP could not break and whilst some individual pairs cut extremes (GBP/USD & AUD/USD), the EUR/USD held above 1.1660 which, I think is significant.
More detail of my thoughts and ideas will appear for PREMIUM SERVICE subscribers as I add back trade set ups at the start of this week’s trading through Monday / Tuesday.
From a general perspective, a lot depends on the news.
Therefore, the only logical guide to present here would be to trade smaller sized positions. I expect a chop fest with no real overall direction, although, I do think that the chances of the USD breaking much higher will be limited unless a significant break past the 94.00 (DXY) the 23.6% retracement of the TRUMP inauguration move. If we break through 94.00 then the 95.86 (38.2%) would be in view, but in my opinion unless TRUMP has some significant “wins” I think the DXY moves lower with the trend and the USD takes another hit.
Therefore…
Play the waiting game to see the reaction on Monday after NFP has been digested thru all markets. Try and get a confirmation of the bigger move before pulling the trigger.
- THE PREMIUM SERVICE:
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- PREMIUM SERVICE SUBSCRIBERS ONLY:
(Only SUBSCRIBERS to the PREMIUM SERVICE can view this section of the BLOG)
4.1: TRADING REVIEW:
4.2: SENTIMENT CHART, FUNDAMENTAL & MACRO THOUGHTS:
4.3: EXISTING CORE TRADES (PLANS & STRATEGIES):
4.4: CURRENT LIVE TRADES & LIMIT ORDERS:
4.5: FX BROKER NEWS with their MARKET FEEDBACK:
- THE FINISHING LINE:
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5.3: 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.
Scott Pickering
The Pip Accumulator
Twitter: @pipaccumulator
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BLOG VERSION: #254 FREE NEWSLETTER
8th October 2017