This year since January 13th, twenty-seven DRIVE THRU blogs have been posted. I am now at my summer break. After this blog I am not back with my weekly thoughts until September 15th.
The big decision was what to end 2018 part one with?
A WEEK AFTER CHEQUERS &
A DAY AFTER THE TRUMP ROADSHOW
I decided to focus on the GBP, because I believe through to the end of this year there could be a major trading opportunity ahead, the likes of which we have not seen as FX traders for a number of years. FX Premium subscribers are already aware that over the past month or so, I have been building positions, taking profits, re-establishing positions and layering in trades ready for what I believe will be the future price action.
I still have more trades to layer in, and, as the GBP is hit with BREXIT uncertainty, I see this as more opportunities to establish positions for the future.
Moving on, but I digress just a little...
DID THE EU ITSELF CREATE BREXIT
WAS EU INTRANSIGENCE TO BLAME?
There’s a headline for this opening segment that I was considering.
The following has been plaguing me and it has been rolling around in the grey matter (if that’s what it does) for some time now.
Didn’t David Cameron, UK Prime Minister, at the time go off to an EU country heads meeting suggesting that he wanted to revise the UK’s terms of membership of the EU with migrant quotas being one area he was fighting hard back in blighty?
The EU basically sent Cameron home with a flea in his ear from the EU stating quotas were NOT possible to place unilaterally. Immigration was the biggest issue and if being truthful probably the reason the BREXIT vote carried in favour of leaving the EU.
Isn’t it now true that countries such as ITALY, AUSTRIA, POLAND, HUNGARY etc. have unilaterally placed migrant quotas and border controls in place?
I am just saying....
A week after the initial cabinet meeting at chequers and a day after the TRUMP roadshow.
Theresa May and her Cabinet on 6thJuly agreed at Chequers the government’s policy with regards to the future relationship the UK would have with the EU27. Within 48 hours of the agreement, two high profile cabinet ministers, Boris Johnston and David Davis resigned. Ironically, this I believe has strengthened Theresa May’s position as Prime Minister as both cabinet ministers who resigned were high level, high profit BREXIT leaders. Their replacements are of course “Hand Picked” by Theresa May herself.
The 98 page “White Paper” document was released on Thursday, last week and it will be debated in the UK. In addition, it does of course have to go before the EU for response. I will Ignore the commentary about, what is in it and what it does NOT say, I will leave to you to read up via google.
Instead, I want to focus more on the macro level and how the macro viewpoint could affect the GBP and how we as FX traders can take advantage of the opportunities that potentially lie ahead.
What will be the EU27 response?
Here are a few things that I have thought about vis-à-vis the way the timetable relating to the white paper unfolded. Some of you may think that what follows comes from a very imaginative person, someone very cynical or someone who watches far too many movies.
Here are my thoughts: -
SOFT BREXIT / HARD BREXIT: This is irrelevant to me. The EU is so scared of CONTAGION it will drive a hard negotiation, it just has to.
Theresa May knew this and decided upon a route of a SOFT BREXIT “White paper” that she knew would NOT maintain 100% cabinet support. In fact, she probably wanted Boris Johnson and David Davis to resign on principle in the full knowledge that this would strengthen her position as leader.
She will not have a leadership challenge, who in their right mind would want to take on BREXIT? She may go after all is said and done after BREXIT is completed, but no same person would want to take on such a poisoned chalice before then.
She knew that Boris Johnson would hit the press with this is NOT BREXIT. It is so closely aligned to the EU I had to resign. This starts the message about the white Paper being a soft approach.
I reckon that Theresa May, who visited Angela Merkel 24 hours ahead of the Chequers cabinet meeting, gave Merkel the heads up about the content and what the outcome would probably be, looking for support stating this is about as far as she could go.
I am not saying that Theresa May would take the view of a TAKE IT OR LEAVE IT, but this is NOT too far away from the truth.
TRUMP stating it's a disaster for the UK, despite him walking most of his Sun newspaper headlines back, still delivers a message to the EU27.
All along the way the BREXITEERS have stated it’s NOT a BREXIT White Paper. It is more an alignment with the EU, keeping rules and regulations in place and not UK giving the courts 100% sovereignty.
What I am trying to say here is that the headline messages are SOFT BREXIT, resignations have happened because it’s NOT a HARD BREXIT. It’s more of an alignment.
The EU27 now have a document they can work worth, no matter how weak it may be in places, it is a way forward. I wrote last week, IS A BAD DEAL better than NO DEAL? and having had a week in the interim, I believe the RISK of the EU27 throwing this UK proposal out has diminished.
The risk of a NO DEAL is one that neither party wants to be guilty of creating.
Given these thoughts, what do I think happens next?
I wish I knew, like everyone else, all I can do is guess.
I would NOT underestimate the effect and the reasons for the pre-chequers meeting with Angela Merkel. I think we might hear positive sound-bytes from Michel Barnier, the chief EU BREXIT negotiator, supported by Angela Merkel and this means the other EU leaders will broadly fall into line.
However, initially there will be negative commentary and the GBP will be under immense pressure and volatility. We will see swings in price lower and higher, BULLS and BEARS taken out of the market in a single sessions trading. It will be hard to trade. This is when FUNDAMENTALS will rule the trade.
It will be very hard in my opinion to pick the bottom and I say this to you, given what I believe will be the thousands of pips available through the GBP related currency pairs as the currency strengthens as an agreement is struck, being a hundred or so pips late in entering should not be a concern.
I am asked on many occasions, where do I see the extremes in pricing and I have to say it is by no means an exact science and to a large extent it is holding a finger in the air to see which way the wind is blowing! Having said that, I do believe strongly you should research with your best knowledge to have your trading ideas ready and in position.
I have always had what I call my ARMAGEDDON trades for the GBP close to my screens just in case I need to verify pricing and react.
Below, I have posted my working charts on the GBP/USD and EUR/GBP. You will notice that I have “target ranges” in boxes where I believe there are the best opportunities for picking up trades. The ranges are fairly wide for obvious reasons. How did I arrive at these ranges?
It is all based on how I see the GBP/USD and EUR/GBP performing moving forward.
GBP/USD: Despite the 130-pip rally above 1.3200 after the TRUMP / MAY Press Conference last Friday on the lawn outside chequers, I still see a challenge of 1.3000. In fact, I see the GBP/USD potentially falling lower into the mid 1.20’s before a BREXIT deal is struck.
EUR/GBP: This pair is more difficult to gauge as price action on EUR/USD has itself kept a lid on this pair testing 0.9000. Having re-visited my thoughts, I see this pair at 0.9150 if I see the GBP/USD in the mid 1.20’s.
From these two pairs, I have loaded the cross-rate pairs expectations. However, given TRADE WARS and USD strength across the board at the moment this is also not a simple mathematical equation and hence my potential target ranges are quite wide and in places maybe too pessimistic.
It is after all the reaction of the GBP/USD and EUR/GBP pairs that will drive the cross-rates but, the cross rates will also have influence from their major currency as well.
The bottom line is I have thoughts and ideas and from these my trading plan is formed.
My thoughts are contained on the charts below: -
GBP/USD (WEEKLY CHART):
GBP/USD (DAILY CHART):
EUR/GBP (WEEKLY CHART):
With regards to the cross-rate pairs; GBP/AUD, GBP/CAD, GBP/CHF, GBP/JPY and GBP/NZD, these are a little harder to chart at this stage due to larger ATR’s and greater volatility. As we enter the summer months I am hoping that the ATR levels will lower allowing for narrower entry bands.
For my FX PREMIUM subscribers, as mentioned before, I have a growing series of layered in trades to which I will add more as we move forward. GBP cross-rate pairs are very volatile at the best of times and one should take much smaller position sizes with these pairs because of this. So, whilst I have many trades in “Set Up” mode the stops are wide and position sizes small.
After the TRUMP, chequers press conference with Theresa May the GBP moved up as mentioned earlier by c.130 pips. I expect the upside moves to be limited and pressure to remain to the downside given the ongoing BREXIT uncertainty
1. 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:
As I thought last week just a very shallow move lower to basically the 23.6% retracement before the upside move was resumed.
My thought process now is that we take out the recent highs of 95.54 and then take the BULL FLAG measured move of 96.46.
Should we take out 96.46 then the calls for 98.00 and triple digits will start to gather a pace.
The DXY looks strong and the EUR/USD looks weak with all longer-term charts pointing lower. Things can change very quickly nowadays so I am not counting my chickens yet, but USD strength is back in play and as long as it is in play the moves higher in the DXY cannot be underestimated.
However, with all this BULLISH talk, we are ending the week with a really good-looking SHOOTING STAR candle which is usually a reversal candle. Maybe we will consolidate a little first before resuming the move higher.
1.5. USD MAJORS - TRADING CHARTS and MY THOUGHTS:
My move higher that I thought was odds on to 1.1840-1.1850 never materialized. This did take the markets a little by surprise as many people thought it to be a definite trade. It just goes to show you that there are no definites in FX trading.
We have as you can see a BEAR FLAG pattern on the DAILY chart below which has a measured move target of 1.1000. If this move materializes it would take the FX market by storm.
Should recent lows of 1.1500 be taken then the 1.1000 chatter would increase and no doubt the parity kings and queens would be walked out onto the screens of CNBC and BLOOMBERG.
For the EUR bulls to have any say, in my opinion, this pair needs to close above 1.1850.
With the DAILY chart below I offer another view of this pair. We ended the week with a very long wicked HAMMER candle, which is bullish.
My thoughts are consolidation at this point given the length of the wick and the price reversal that took place last Friday.
Breaking out of the descending wedge, has not so far produced the powerful upside move I had thought may happen.
I am bearish this pair and therefore I am viewing moves higher as opportunities the SELL RIPS. The 200 DAY SMA does not come into play until 1.3585, this would be a fantastic area to short from if we got there in my opinion.
No change in opinion from the last two weeks:
I have talked about “SELL THE RIPS”. We are below trend line resistance and shorting around the trend line resistance of 0.7540 around the 61.8% retracement makes some sense to me looking forward.
Whether we are in a larger corrective move is “STILL” out for debate at the moment in my opinion.
As you can see we have two patterns on the chart below; a down sloping channel and a DOUBLE TOP with a measured move to 0.6520. The DOUBLE TOP does not trigger until we break lower through 0.7320.
We ended the week with pretty much a DOJI candle... complete indecision by the market!
The Head and Shoulders pattern on the chart below with a measured move to 0.6340 is still in play.
I think that this is a SELL THE RIPS trade and from present levels through to 0.6950 the neckline of the Head and Shoulders pattern will offer up several shorting opportunities.
When you look at price action with this pair recently it has been trading very heavy in tight ranges. It is just a matter of time before we have a larger move lower in my opinion.
We are still in break out mode despite two weeks of pulling lower. This week we are moving higher once again. 1.3060 (PALE BLUE LINE) represents the breakout point and this should represent the ideal entry level to enter long, there was chance earlier this week to do so. I am now not so certain that we will get another opportunity, but one can just never tell.
I can see a move to 1.0340 with great support around 0.9980 to 1.0000 to enable late comers to BUY THE DIPS. This pair looks very constructive on the long side.
We are breaking out of the triangle pattern having broken above the multi-year trend line. This is a very bullish occurrence and should not be underestimated when considering the JPY cross rate pairs.
How far can the USD/JPY rise?
The 61.8% retracement is at 115.00 and the 76.4% is at 119.00.
A huge amount depends on BONDS, STOCKS, YIELDS and the USD in general but in real terms a move to 115.00 should not be seen as an impossible initial move.
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. INTRODUCTION...SOMETHING TO CONSIDER:
Trading with me via the FX PREMIUM option is a relative low-cost option to give you some or all of the following: -
Confirmation of what a trader who actually trades his trades, thoughts and ideas is doing and thinking in real time.
I am a long term “POSITION” style trader at heart. I believe in FUNDAMENTALS first. If you are a TECHNICAL trader first this could be a good fit. I have a proven record.
I DO NOT trade if I do NOT see a trade.
I am a disciplined trader. I have my TRADING PLAN, plus my RISK, MONEY and HEAD MANAGEMENT rules that I stick to.
If your trading is NOT as smooth or rewarding as you would like, even if you just captured just 50% of my trades due to geographical location issues, you should still cover the cost of a subscription if you traded single mini lot trades in a year.
I tell it as I see it. I am not interested in bullsh*t.
You can get on board and join my FX PREMIUM subscribers and subscribe to the “10,000 pips a year” group from as little as CAD$10 for the first 10 days and then CAD$150.00 per month, currency conversions for CAD$150 are roughly as follows: -
GBP £90 per month
EUR €100 per month
USD $115 per month
JPY 12,500 per month
AUD $160 per month
NZD $170 per month
CHF 115 per month
Go to my website www.weeklyfxdrivethru.comfor more details under the TAB – “SUBSCRIBE”.
2.2. WEEKLY FX PREMIUM PERFORMANCE HIGHLIGHTS:
July so far: 479 net profitable pips
2018 to date: 8,411 net profitable pips
2.3. WEEKLY FX PREMIUM PERFORMANCE SUMMARY:
(Incorporating the last 5 WEEKLY FX PREMIUM TRADES)
3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
3.1. TRADING REVIEW:
3.2. OPEN TRADES... HOW WILL I TRADE THIS WEEK:
3.3. MYFUNDAMENTAL & MACRO THOUGHTS THRU THE YEAR:
3.4. THE MARKET SENTIMENT CHART:
3.5. LIVE TRADES, LIMIT ORDERS & BREXIT RELATED TRADES:
3.5.1. LIVE TRADES:
3.5.2. LIMIT ORDER TRADES:
3.5.3. BREXIT RELATED TRADES:
3.6. FX BROKER NEWS:
4. 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: #290 FREE NEWSLETTER
DATE: 14th July 2018