I am now 100% back in front of my trading screens. It has been a rather insipid week with no real extensive price action to talk about, I often use the line all the “Flashing Lights” on my broker screens flatter to deceive the viewer.
Following what looked like a break in the range bound deadlock on Friday April 12th, I was on pins and needles the following Monday morning waiting for the get go, by Thursday morning, I felt like lying down in traffic to get some excitement. Even with all the mainstream press “Spin” on the Mueller redacted publication. Words escape me on the subject, apart from let me just say the topline overall thoughts that I have... “What a fecking waste of money!”
It seems like forever that I have been saying we are in really tight range bound conditions. As briefly mentioned already, on Friday April 12th, we saw an almost normal daily range move across the majors, I was spooked and rather annoyingly closed a number of AUD shorts expecting a squeeze that did not happen. I thought that that was rangey conditions over... not on your life... on Monday this week, we were back in the groove of the recent normal.
This led me to ask a question that I have seen dotted around twitter quite a bit over the past several weeks: -
WHY IS THE FX MARKET SO RANGE BOUND?
My problem in answering this question is that I know the answer is probably way above my pay grade. I am just a normal retail trader, with a few skills, but what I can do, is share some of my FUNDAMENTAL thoughts as to why I believe we are having such a “rangey” time as FX traders.
I will start with basically the three words that the market (any market) hates to be confronted with: -
UNCERTAINTY – I will revisit this as to why I believe uncertainty has to my way of thinking locked the FX market.
FEAR and GREED – The FX market runs on FEAR and GREED. Right now, there is so much uncertainty about, the market is like a deer in the headlights. It simply does not know how to react. Chances to offload positions have been severely restricted and rather than look foolish many institutions are sitting “pat” waiting for volatility to act that is simply not there.
I believe that over the last 12 months or so of the TRUMP administration, market makers have become more “savvy” to reacting to the headlines, and what is more than often a TRUMP spin on facts. It has taken a long time, but I think that many were caught with their trousers down and took big losses on some moves in the past that were nothing more than impulsive moves based on little facts.... one could say “FAKE NEWS!”
Greater caution is now being deployed and this has manifested itself of late in the way that FX has reacted, or better put NOT reacted! UNCERTAINTY is a huge factor in trading, if I have learnt one thing in 10 years of trading it is that the FX markets hate uncertainty. Let’s face basic facts, who wants to trade when you are not clear of the outcome? Not many of us, I would suspect.
Over the past 12 months I have read lots about companies buying back stock. You here it $5 million here, $4 million there. I am not an economist nor an accountant, but basically the top line effect of share buy backs is that with reduced shares in the hands of the general public this improves the EPS and keeps investors happy as the value of a company’s stock price increases.
Manipulation, technically, in my mind it is a definite yes!
Is it fraud... no.
What we have despite what TRUMP claims to the contrary, is a historically low interest rate environment and many companies are taking advantage of these low rates to borrow and buy back.
U.S. Corporations are themselves fueling the equity rally. The Tweet below from the FED and Goldman Sacs research shows the extent of this activity annually from 2014 to the end of 2018.
Why isn’t this data being blasted high from the rooftops?
Why is it not fully discussed on CNBC and BLOOMBERG TV?
So, U.S. corporations themselves are leading the equity rally!!
Holy feck, surely in the name of sanity this is big news!
This would make me think hang on a minute, it’s like a house of cards this could collapse at any moment.
Let me add some other factors that I think has market makers holding back in addition to the above “STOCK BUY BACK” effect.
- FED and the other G10 CENTRAL BANKS
- U.S. / CHINA TRADE DEAL
- WORLDWIDE ECONOMIC SLOWDOWN
- THE EUROZONE
- NORTH KOREA
- EMERGING MARKETS
Basically, the way I see it everything, apart from BREXIT is linked to TRUMP. He is in the centre like a Queen ant or a Queen bee.
I would love to blame TRUMP the way that he blames everyone else, but in this instance whilst he has his fingers in most of the pies a lot of it is beyond him.
Nevertheless, all of the above bullet points, in my opinion, represent an uncertainty to consider and factor into a trading decision.
I believe that it would be fair to say that TRUMP is trying to manipulate the FED. Even my girl Labrador Aoife can see this, not so sure about her brother Ozzy!
TRUMP is trying to fill the FED board, with frankly, his “own” people. He even went as far as to nominate Herman Cain to make fellow nominee Stephen Moore look more suitable. My God, such a basic sales ploy. These nominations are 5thtier nominations at best. It’s like trying to attract celebrities to the 20thseason of Dancing with the Stars, we are at well below the “also ran” category.
America deserves better than this. Say what you want the FED has had and should always have clever people in it.
However, TRUMP’s tweets about FED policy has irritated other Central Bank Governors / Presidents so much, it caused Mario Draghi, President of the ECB to comment about Central Bank independence and how crucial it is for them to be removed away from political interference.
This does have an effect. Make no mistake, we can all laugh at TRUMP and his tweets at times, but at the end of the day he does have influence and he is uncontrollable, many would argue a political liability.
U.S. CHINA / TRADE DEAL:
TRUMP claims this is now nearing completion. Last week it was a month away now its nearly there?
It is claimed to be the “BEST COMPREHENSIVE TRADE DEAL” of all times. It will address all issues.
Let’s look at the record so far. NAFTA now re-branded USMCA. Basically, no difference and still not ratified by the U.S. government.
Cynics used to the TRUMP hype think a CHINA trade deal will be nothing but “Huff ’n Puff” addressing little and overall being a letdown falling way short of market expectations.
CHINA’S huge stimulus package is working given the positive economic data produced last week. Both Consumer spending and Manufacturing activity bounced nicely.
CHINA is in a strength position compared to the U.S. economy that is allegedly strong, yet the administration is calling for interest rate cuts. Something does NOT fit.
This must have the markets perplexed, this in itself, the battle between the FED and U.S. administration causes uncertainty.
CHINA can negotiate from a strength position given that the U.S. has disclosed its hand. There is no way China will “bend the knee”.
WORLDWIDE ECONOMIC SLOWDOWN:
Demand for goods and services is slowing. Central Banks are gearing up to “print” and are ready to lower interest rates to stimulate their domestic markets. It’s all bravado really at the moment, we are low on specifics generally, but the markets are on hold waiting.
Just keeps dragging on and on like a broken record. The UK parliament is deadlocked and split. No surprise that cross-party talks have stalled.
It is so hard to state with any conviction that a second referendum would provide a decisive result one way or the other.
The loser with BREXIT is democracy itself. Quite frightening as an ex. BRIT to write this, I never in a million years thought I would.
BREXIT is just another uncertain geopolitical event to add to the list.
It muddles on...
The powerhouse of the region GERMANY is flirting with recession. ITALY is in recession. FRANCE has been having weekly “Yellow Vest” protects across the country’s major cities every weekend for months now. Fresh elections coming up in SPAIN, looks like the far-right extremes are coming to power based on current opinion polls.
Last week’s PMi data releases continue to highlight weakness in the EUROZONE. Flash PMi numbers were47.8 dropping further from 48.1 firmly in contractionary territory.
All is not good. Youth unemployment is still way too high.
I have said this before, and I will write it again... “one size does NOT fit all”. 27 countries all with different cultures, different economic strengths and weaknesses using one cheque-book does NOT work and it will NEVER work.
A tariff war between the EUROZONE and the U.S. appears to be on TRUMPS agenda very soon and this is weighing in on the market expectations never mind the poor economic data.
TRUMP likes to tell the Saudi’s from time to time that the price of oil is too high. I never thought that I would ever write this but probably united by a hate of TRUMP the OPEC coalition has for once stuck to its goals vis-à-vis production limits.
Intervention in the speculative OIL price affects all markets at the drop of a hat. TRUMP is challenging IRAN on output and has a policy of interference. This is causing waves of uncertainty.
President Kim Jong-un is now scheduled for a meeting with Russian President Vladimir Putin. If TRUMP does not watch out the foreign policy balance that has been in place for many years now could be tilting away from the US control. It’s worth noting his administration never really nailed down a series of conditions for Kim to meet to get sanctions against North Korea lifted.
So far TRUMP’s involvement has been nothing but PR for the TV networks.
The Putin involvement in the loop, I doubt that anyone on Capitol Hill would view as anything other than negative.
A third meeting between TRUMP and KIM has been muted, probably pushed forward by the recent visit to Washington by the South Korean President, Moon Jae-in.
However, all this pre-amble the markets have carried for some time. Very recently however two events have taken place to weigh in on market awareness.
- It was reported that North Korea tested short range missiles last week and that more testes were planned.
If this was done, it would be seen to unite people if reports were also true that as a result of sanctions there were food shortages in several areas of the country.
- It was reported that the North Korean Denuclearization negotiators wanted Secretary of State Mike Pompeo removed from the talks on the basis that he is not mature enough and is childish in his approach (He obviously mirrors his boss!).
These factors just increase the level of uncertainty dotted around the globe with the list of geopolitical factors to deal with.
I know it’s a long, long way from Washington, but Japan is close, and JPY moves have a direct impact on both the USD and DXY.
Many large corporations in emerging markets borrow in USD. A worldwide slowdown, a shift in FED policy and a shift in U.S. Government policy, either of these has an immediate effect on Emerging market economies.
Now, the good news here is that with FED policy, to a large extent pulling the strings vis-à-vis the EM marketplace, the fact that the FED is now on hold should help the EM currencies.
However, it is NOT all good news just because the FED is on hold. The economic balance in the EM is at the best of times a thin line. Any uncertainty here, results in switching of investment strategies and movements of large sums of money through exchanges that are not as robust of those in the G10. This adds so much stress to markets, should one fall, it will be like a domino effect.
I am not saying that this will happen, but I would say right now, there are plenty of twitchy anuses around the globe belonging to money market and investment managers, wondering what news they will be pouring out their breakfast bowl of cornflakes to. With the EM being so sensitive this uncertainty in the markets despite the FED being on hold is an issue.
SUMMARY and MY FINAL THOUGHTS:
The above are my thoughts and what is at the back of mind at the moment.
I can hear the questions already....
“If that’s bad why are you even bothering to trade?”
Great question, I suppose, it’s because I really enjoy the challenge it presents.
Having said that, annoying subscribers to the FX PREMIUM or not, I am as disciplined as I can be and do my very best not to trade for the sake of trading. It is really, really hard as subscribers want trade set ups BUT there are times set ups are just pointless.
We have to “Man or Woman Up” and be mature about what markets we are presented with.
Moving on again...
I don't claim to have the exact reason why FX markets have ground to a halt, but I do believe that within the geopolitical factors raised above, the reasons behind a range bound market can be found. It could be we have a combination effect, maybe a negative and positive reaction to a couple of factors causing no movement.
I hate to say this but it looks like it could be an extreme “Black Swan” style of event, such as a stock market crash is required to jolt the FX market into action. Alternatively, I suspect is that we are going to have to see one or two of my factors resolved or progressed to such a point that it triggers a market reaction to free up some moves one way or another.
As FX traders we have to work both technically and fundamentally with what we are given. We have no impact as retail. We cannot create a wave we are simply just not big enough in the grand scheme of things. We just have to have an idea about what is going on and be ready to react, nothing more, nothing less.
In addition, I have no doubt there are other factors that I have not written about here,such as the U.S. Inverted Yield Curve, the uncertainty over the U.S. 2020 elections... the list could be endless.
Is there an end in sight?
As mentioned, the only way that I can see is if a couple of factors get sorted around about the same time. BREXIT and the TRADE DEAL would be enough in my opinion to hit enough currency pairs (USD/JPY, AUD/JPY, AUD/USD, AUD/CAD, NZD/USD, EUR/USD, GBP/USD, EUR/GBP, EUR/JPY USD/CHF, EUR/CHF and GBP/CHF to name a few) to force a move.... I think might do it!
In the meantime, we wait, we remain patient and we try to let trades come to our priced entries rather than chase.
1.FX - FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEK’S ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. BIAS CHART - USD MAJORS SUPPORT and RESISTANCE:
1.3. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
The Daily DXY chart is below and my thoughts, ideas and comments regarding the DXY are contained on the chart.
1.4. USD MAJORS - TRADING CHARTS and MY THOUGHTS:
I looked at the comments that I had made just over a month ago... not much has changed in my opinion.
The Economic data when you remove the “SPIN”, is basically crawling along the bottom. It’s just NOT good. If you think it’s good, that is your opinion, but to me the single currency is prime for a dive sub 1.1000.
Having said that, as you can see on the weekly chart below, we have a nice bearish wedge pattern. These usually in about 70% of cases result in a Bullish outcome. The base of the wedge is circa 1.1000 by coincidence.
My longer-term thoughts are focused on the weekly gap fill at 1.0780.
This is without doubt in my mind a SELL THE RIPS pair.
I think we could take out what must be huge stops starting to build sub 1.1000. I would love a run at 1.0780, in fact people I respect in the industry have their eyes focused around 1.0600.
We will have to patient and wait and see.
Basically, in a 5-week period, no change to my thoughts from mid-March.
In my opinion, there is not a lot to do here with this pair pre-BREXIT withdrawal agreement being signed off.
The safe trade is to wait and see, rather than second guess the UK political scene.
The pair looks to some extent constructive, but it is a very high-risk trade. As you can see from the attached chart, we still an inverted Head and Shoulders pattern in play. Do not rely on this chart pattern as the “B” all and end all”, but it is worth noting.
I used to love trading the AUD.
However, so far trading various AUD related pairs this month alone I have lost more than 250 pips.
I am trying to be too clever. I had told subscribers what my plan was, and I tried to be clever fecker. I hold my hand aloft, I failed to be more intelligent than the markets.
In my opinion, the AUD in all its formats is a nail-on short after the trade deal is done and dusted.
The AUD/USD has struggled with 0.7200. The fact that with great jobs data last week, it could not breakout says it all as far as I am concerned. The RBA has control here, like it or not.
I advised subscribers earlier that the AUD/USD was the King of false breakouts... I should have adhered to my own commentary!
We are in a trading range of 0.7020 to 0.7300 as highlighted by the burgundy box on the chart below.
Very similar to the AUD. The NZD would also be a loser, maybe not quite on the same scale as the AUD, but definitely a loser on any U.S. / CHINA trade deal.
As you can see on the chart below, we are in a trading range and one could use the trend line as part of any short position.
We are approaching the bottom of the range. Bounces have been very minimal in the past week and my thoughts are that Adrian Orr, Governor of the RBNZ wants to see the NZD much lower as time goes forward. I can see a couple of Central Bank interest rate cuts to really push this pair lower as time moves forward this year.
I remain bearish the NZD.
We still have an inverted Head and Shoulders pattern in play and last week like many traders the move lower I believed to be part of a bigger move lower towards 1.3000.
Well, I got that wrong, as the bounce off basically 1.3300 was hard and one to take note of.
What to do now?
I wish I knew. My thoughts are basically to buy dips back to 1.3000.
The CAD economy on the face of it looks like its improving but strip out the cannabis stocks and it is to coin a phrase almost “on its arse”. Do your own research, I am on the button here!
So, we all appear to smoking joints in Canada; laid back approach and all that. However, in the real world of an FX market, the path forward longer-term with the CAD confuses me.
My thoughts from January this year are long, long gone. Stephen Poloz, BOC Governor, has us believing that all will come good, it’s a bit of an “Alice through the Looking Glass” approach, which I can’t see, but I am NOT privy to the detail he sees and I am no “Chicken Little” either, but I am NOT going to wear “Rose Tinted Glasses” when appraising the CAD.
OIL will still dominate and the CAD is still a lead indicator that I trust... I am just not sure long-term what to do with it. I will have to be patient.
I am not playing this currency well at all this year... nothing has changed since I wrote this in mid-March.
As one of my former, go to currency pairs I am embarrassed with myself on how and why I have ignored it for most of Q1 and Q2 so far.
I see this pair higher through this year.
I am so bearish the EUR/USD, I should be bullish this pair.
There is strong support at 0.9970, that would seem a reasonable level to look at entering long.
For now, I am buyer on dips... subscribers get ready my CHF mojo is about to re-appear!
My thoughts longer term are that this pair will be closer to 105.00 at the end of 2019.
Historically, I am a poor JPY trader. I have very mixed success with this pair and the JPY crosses.
Looking at the chart below, around 112.40 looks like a short entry area if I am still with the mindset that this pair is going to move lower.
The only caveat to add here is the CHINA / U.S. trade deal. I expect a spike. Contrary to this I expect a big S&P sell-off this year.... help!!
Short-term it’s a bit of an issue for me but longer-term I think that my thoughts and fundamental views are solid. If I were to enter short now with a monthly ATR as my stop and target 105.00 do I have conviction in my beliefs?
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
April 2019 so far: -109 net profitable pips.
2019 year to date: +5,594 net profitable pips.
The WEEKLY FX PREMIUM is my subscribed based FX support option, which offers, subscribers’ full access to my suggested trade set-ups and my market commentaries.
If you go to my website you will see more information about the WEEKLY FX PREMIUM, including the “SUBSCRIBE” tab at the top of my welcome page.
My website www.weeklyfxdrivethru.comhas full details of my trade projection for 2019 along with reasons why you should consider joining my other subscribers at the WEEKLY FX PREMIUM. You will this information under the “History and Performance “tab
Plus, my website also contains full details of the subscription options available. You will find this under the “Subscriptions” tab.
3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
3.1: TRADING REVIEW:
3.2: THOUGHTS & PROCESS SURROUNDING SET UPS:
3.3: LOOKING AHEAD - IDEAS FOR THE COMING WEEK:
3.4: FUNDAMENTAL: THOUGHTS AND VIEWS:
3.5: RISK MANAGEMENT EXAMPLE - USD/MXN (POS189):
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: #318 FREE NEWSLETTER
DATE: 20thApril 2019