Probably like many other FX traders given the improving economic position seen across the EUROZONE, I was rubbing my palms with excitement thinking that there would be thousands of pips up for grabs in 2018 as Draghi brought the ECB dovish accommodation to an end and the ECB began tapering out of QE (Quantitative Easing). The same FX traders are no doubt like myself saying WTF.
The EUR/USD was to all intense and purpose seen as a nailed on 1.3000 exchange rate this year, now I am in the 1.1600 camp before we see 1.3000.
Why, I can hear you asking?
The latest set of EUROZONE inflation data continues to show weakness, and when the weather, combined with the timing of Easter are both used as excuses, for me this is clutching at straws. The rot had already set in. This is just bull on top of camel shit and it is something that the markets are fed on a consistent basis at the moment.
The last set of data last week showed consumer price growth to be just 1.2% and core inflation taking out food, was only 0.7%. Both sets of data were way below estimates, in fact the worst set of data for over a year.
It is getting to the point that I can imagine in Q1 2019, some flute stating that the Q4 2018 objective was missed because Christmas Day fell on December 25th! You know it’s coming, it’s only a matter of time, not if but when.
Both the ECB and the “Pen pushing, Desk sucking, Jotter blotters” at the European Commission predict an upturn in data. But against a backdrop of tariffs and huge uncertainty on trade negotiations, you can only guess that major capital outlays are being postponed until matters are clearer.
The weak inflation data must have the ECB thinking that if no improvement is seen before the summer, they may have to look at extending the bond purchasing program timescales and either delay tapering or have a much longer than anticipated tapering period.
Let’s face a simple fact; the 2% EUROZONE inflation is a dream, there is simply no evidence at all that it is in the offing, in fact the EUROZONE is heading closer to DEFLATION than INFLATION. With this as a backdrop there is no way on planet earth that Draghi will try to normalize under these conditions.
Of late, Draghi’s forward guidance has been a “finger in the air” approach to see which way the wind is blowing.
Given the fact the FED is on a three or four rake hike cycle in 2018, the Central Bank Interest Rate divergence trade comes into play and the USD will strengthen over the single currency. This is why I believe that as the FED continues to normalize and as the ECB continues to accommodate there is no doubt in my mind that the EUR/USD exchange rate will move lower towards 1.1500.
The only factor that will change this is an about turn in ECB monetary policy and the same with the FED. Given that there is more chance of getting shit out of a rocking horse my 1.1500 objective remains in place.
God love her, poor Theresa May must wonder what the feck she did wrong in an earlier life (if you believe in such things).
Another day another crisis...
The BREXIT deal just cannot be delivered.
This time the EU27, well at the moment Michel Barnier, Chief EU27 negotiator on the BREXIT deal, is not happy with Theresa May’s proposed solutions for border controls between IRELAND and NORTHERN IRELAND (If Joe Kernan from CNBC is reading this which I doubt... these are TWO DIFFERENT COUNTRIES).
Barnier did not support the UK governments idea on a compromise to retain a borderless border.
Putting it simply, late last year BRUSSELS produced a working EU paper in which it drew up its own version of negotiation RED LINES on the BREXIT agreement.
- The EU wants common customs across the island of IRELAND, and this means that the EU wants border controls between NORTHERN IRELAND and the UK mainland. This is a UK government RED LINE not to have.
- The EU paper also proposed that the European Court of Justice retain the power to arbitrate disputes involving the UK after Brexit. Another UK government RED LINE not to cross.
The issue is that the “GOOD FRIDAY AGREEMENT” that brought peace to NORTHERN IRELAND is in jeopardy if a frictionless border is NOT maintained. Whether the eventual agreement on customs is called, a union or a bilateral free-trade agreement, a hard border on the island of IRELAND cannot be built.
Theresa May is in a no-win situation. She has so many rebels within her party that do not want a customs union of any sort with the EU after BREXIT, she cannot possibly win a House of Commons vote without the support of the Labour Party, who frankly appear to have policies on all sides and they would probably not support her so that it could possibly force another general election. Her cabinet is split on the issue and many are euro skeptics who reside there as well as in the House of Commons. She could also face a vote of no-confidence if matters were brought to a head.
The Conservative Party had some by-election results during the week and this should give strength to her position as leader, which, always seems to be hanging by a thread. But personally, I just cannot see it that being enough to sway party rebels and euro skeptics.
Jacob Rees-Mogg, who is seen as the voice outside of the cabinet leader of the BREXITEERS through what is called the “European Research Group”, has consistently stated that a “Customs partnership” between the EU and UK, where the UK would collect EU tariffs and refund later just wouldn’t work. On a point of interest, he has in his group over 60 supporters and this if a vote of confidence was taken would be enough to oust Theresa May from her office.
I am just not sure where this ends up. It’s too simple to say, back to the drawing board.
I can once again envisage calls that a NO DEAL BREXIT should be the preferred option. This would neither be good for IRELAND, the UK or the EUROZONE. The ferocity of “anti- Brussels” sentiment in the UK should NEVER be under estimated.
Extending the deadline date. This may be the only option as both sides are trenched in.
It’s high stakes poker whichever route she takes.... Cabinet rebellion, House of Commons rebellion and then the House of Lords rejecting everything anyhow! Who would be a politician?
The simple fact lost here is that the UK electorate voted BREXIT, and, given the midweek by-election results, I would suspect that the Jacob Rees-Mogg support in the country with voters has gathered more momentum.
I can see Theresa May having to back track and try to sell the concept of an extension to remain in the customs union to all in Westminster, ousted as leader of the government, a no confidence vote and another general election are all options moving forward.
The uncertainty could send the GBP/USD lower and back towards 1.2000 again. Political uncertainty, economic uncertainty, a potential recession, you can envisage the Sunday Paper headlines already!
It never just rains it pours.... back to the EUROZONE:
US tariffs takes a new twist. In a rather bizarre move, the EU, through the President of the European Commission, Jean Claude Juncker, ex. Luxembourg politician now based in Brussels, with a huge expense account and no fears about domestic voter popularity, has stated the EU27 will not deal with the US on tariffs whilst the US is threatening the EU27 with tariffs. TRUMP will just love this.
The EU is potentially taking itself deep down a huge black hole.
I immediately think, UK customs issues already implies uncertainty moving forward, add US uncertainty and tariffs just being loaded by TRUMP, which, he will do in order to drive reciprocity, could potentially kill German motor vehicle exports very quickly.
This story will develop, TRUMP thrives on confusion and uncertainty. Brussels bureaucrats are like insurance actuaries, boring and anally retentive. All boxes must be ticked with i’s dotted and t’s crossed before we move from stage one to stage two. Directly opposite to the way TRUMP works.
If German cars were loaded with duties to match US car imports into the EU, i.e.: raised from 2.5% to 25%, think it through. It could get very messy, very quickly.
Another reason for supporting a weaker EUR/USD trade lower.
BTW we had NFP last week as well!
- FX - FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEKS TRADE INFORMATION: ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. THIS WEEKS TRADE INFORMATION: GEOPOLITICAL EVENTS:
1.3. BIAS CHART - USD MAJORS SUPPORT and RESISTANCE:
1.4. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
Looking at the chart below: -
- We have an INVERTED HAMMER CANDLE to close off last week.
- The TRUMP inaugural trend line and the 200 DAY SMA are now well behind current pricing and will now come into play as support on any downside move.
- My eyes are fixed on the 94.14 PIVOT POINT as being the next target.
There is so much USD momentum at the moment and we have seen a sentiment shift. Obviously, a lot depends on the USD 10YR Treasury. If it consolidates its position above 3% this week, in my opinion, this will keep the USD March higher intact.
1.5. USD MAJORS - TRADING CHARTS:
We are seeing continued EUROZONE weak economic data. It seems never-ending and when one adds the USD strength that has come through the markets with a vengeance last week the move lower with this pair has been explosive given we had been range bound for most of 2018 prior to the recent move lower.
We have a confluence of Fibonacci levels supporting price action at the moment. On the chart below you can see the 61.8% retracement at 1.1932, this level is also the 161.8% extension of the move higher in December 2017 to the highs in February 2018.
I feel that this pair is heading a lot lower, for reasons already discussed in the introduction section of the blog.
The RSi at 30 whilst demonstrates an oversold condition is not as low as it has been of late.
Currently the 127.6% Fibonacci extension is supporting price. You can also see that price gravitates to the GREEN LINE which is the 200 DAY SMA, and this is currently around the Fibonacci extension level.
I am expecting the UK press to go “to town” over this weekend on the recent political and BREXIT events in the UK.
We have a double top in play as you can see from the chart and I see no reasons at this time why it should not play out. My only caveat is that should there be an announcement that concludes BREXIT negotiations on a positive note, this pair is heading much lower.
A false breakdown?
This pair is struggling to break down through 0.7500. The longer it takes the more likely it is to spike higher. The only issue is with the USD being so strong this pair although not in the weighted basket will still move in the general direction of the USD.
I think that as long as we are below 0.7640 this pair is bearish, in fact, if the truth be told the downtrend is not broken unless we peek back through 0.7800.
I would view any pullbacks as opportunities to sell into.
The Double Top is in play with a measured move to 0.6910. Any spikes or rips higher with this pair are in my opinion selling opportunities.
As mentioned last week 1.2900 appears to be controlling spikes higher. After NFP last week, it still held as resistance.
Rips are selling opportunities in my opinion given the NAFTA trade agreement. I think that a reasonable short objective longer term as the BOC will soon start raising rates is back to 1.2400 – 1.2500.
We have broken free of the triangle pattern.
Having missed this entire move. From my perspective one would have to see a move back to 0.9850 (trend line break) as a gift area to enter long.
Movement in US treasuries are encouraging me to enter short this pair and once again to look at the JPY cross rates.
I need to look at this pair once again early this week. Price was held at 110.00 last week and I think that is significant.
- THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. WEEKLY FX PREMIUM PERFORMANCE YEAR TO DATE:
(Incorporating the last 5 WEEKLY FX PREMIUM TRADES)
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- TRADER EDUCATION:
No item this week.
- WEEKLY FX PREMIUM SUBSCRIBERS:
(This section is for WEEKLY FX PREMIUM ONLY)
4.1. TRADING REVIEW:
4.2. OPEN TRADES... HOW WILL I TRADE THIS WEEK:
4.3. SENTIMENT,FUNDAMENTAL & MACRO THOUGHTS:
4.3.1. OVERVIEW THOUGHTS (MY MACRO PLAN & IDEAS):
4.3.2. THE MARKET SENTIMENT CHART:
4.4. CURRENT LIVE TRADES & LIMIT ORDERS:
4.4.1. CURRENT LIVE TRADES:
4.4.2. CURRENT LIMIT ORDER TRADES:
- THE FINAL SHOT:
Nothing more to add here, I have said enough except,
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.
The Pip Accumulator
BLOG VERSION: #281 FREE NEWSLETTER
DATE: 5thMay 2018