Just in case you have been hiding in a cave for the past few months, or like several fund managers, hiding under your desk on prescribed “Prozac”, let me tell you, the FX market is totally unpredictable.
Day after day we have seen little to no volatility when economic data releases would have usually provoked a good move, but the market remained in very tight ranges, whether the market was described as “RISK ON or RISK OFF”, Then on a day (last Wednesday) with no front-line economic data published.... whoosh... off we go.
If you ever felt that you needed to be in front of your screens 24 x 5 to capture moves, last week’s unexpected move only solidified that viewpoint. Do you feel like a prisoner of the charts?
Last week was when all is said and done dominated by the same geopolitical events that I listed last weekend;
Here is last week’s list: -
- THERESA MAY – the final days, but what / who is next?
- NIGEL FARAGE the EUROPEAN UNION PARLIAMENT, BREXIT and the shift to FAR-RIGHT PARTIES IN EUROPE
- THE EUROZONE (ITALY, SPAIN, GERMANY ECONOMICS & THE EUROPEAN PARLIAMENTARY ELECTIONS)
- TRUMP and the TARIFFS
- CHINA and the TARIFFS
- IRAN WAR THREAT and OIL
- FX MARKET TRADING CONDITIONS
- TRADING PSYCHOLOGY in today’s FX market
This week, I have to look at and write my spin on the Theresa May resignation and the UK moving forward, spending a little time looking at the potential outcomes trading the GBP.
GOING, GOING, NOT QUITE YET... BUT SOON!
Be prepared - lots of graphics this week.
Theresa May announced her resignation last Friday morning UK time due to take place on June 7th. The race for her replacement which has been going on quietly in the background for the past two weeks now extends its pace.
There are, believe it or not, for what I personally believe is the toughest job in world politics at the moment, plenty of candidates to put themselves in the firing line. The chart below highlights the front runners.
So, it is basically the “usual subjects” in the running, with yer man Boris Johnson as the favourite to replace Theresa May.
Be prepared we could end up with a Rose Garden press conference with some great hair style photo opportunities. Now could be the time in invest in hair care grooming products!
There is a serious side to the role of UK Prime Minister, trying to unite not just the Conservative Party, but the House of Commons and a very split country of voters. The job is huge. The chart below from how the UK electorate voted in the June 2016 referendum shows the enormity of the job with the House of Commons, which is predominantly a REMAIN rather than BREXIT parliament.
I tweeted quite a lot last week about the fact that there are so many “MAY OUT” contributors who believe that a change in leader will solve everything. This is simply not the case. The same issues that faced Theresa May will face a new Conservative Party leader and Prime Minister.
- The new PM has a minority government.
- The political geography has NOT changed. The EU will still be as intransigent moving forward as they were before.
- The Conservative government governs on a tenuous relationship with the Northern Ireland DUP; who are anti-BREXIT.
Without DUP support the Conservatives do NOT operate with a majority in parliament.
- The UK electorate wanted BREXIT. A tight result but BREXIT won out.
- The House of Commons politicians feel they know better than the voting electorate and are ignoring the electorate and want to REMAIN in the EU.
- The REMAINERS will sign up to a BREXIT deal, but in “name only”, they want to keep very close ties to the EUROPEAN UNION, via such areas as the Customs Union.
- It is widely accepted that to simply leave the EU on 31stOctober 2019 without a deal, which is the new exit date, would be an economic disaster.
Hard line BREXITEERS state glibly we will leave on WTO (World Trade Organization) terms. There is a huge amount of naivety here vis-à-vis ongoing and fresh trade relationships.
- It is thought that the new Prime Minister would travel to Brussels to try to negotiate an improved deal, probably around the “IRISH BACKSTOP”, using the threat of a “NO DEAL” BREXIT which allegedly the EU does not want.
- If a trip to Brussels is fruitless, then a “NO DEAL” hard BREXIT is the remaining option.
The charts below show the options available to the new Prime Minister. The first chart shows the options available and the second chart highlights the options for both a straightforward HARD BREXIT or,an attempted re-negotiated settlement deal.
As a BRIT living in Canada, I have strong feelings about BREXIT. I have complete distain for the UK politicians, they have literally done what I never believed possible. That was throw democracy out of the window. The vast majority of them have simply dishonored the privilege of serving one’s country.
The UK is already paying the price for a political system at war with the electorate over BREXIT. The UK was always a great place to do business, it was a hard-earned reputation which is now in tatters. For three years the government has been diverted from key goals such as health, education, improving the skill set of the country’s workforce and infrastructure.
The Conservative Party is responsible, but they are NOT alone and should not be allocated 100% of the blame. The UK political system is at risk. The opposition Labour Party led by Jeremy Corbyn, should given, the trials of the Tory party be really strong, instead they are shambolic. The Labour Party has as many fragmented parts as the Conservative Party.
So “BREXIT MEANS BREXIT” and “STRONG AND STABLE”, two of Theresa May’s battle cries are now gone. I am in favour of a phrase of waring “BE CAREFUL WHAT YOU WISH FOR”. They way forward, is no picnic, for whoever replaces Theresa May.
The next six weeks or so whilst the new leader process takes place offers up more of the same for the GBP.... more and more uncertainty and RIPS will be sold into I suspect. Long-term the GBP will be a really strong buy, but the layers of uncertainty need to be removed first and this process will take a great deal of time.
We now have from say the middle of July through to Halloween for market moving events to take place.
I do think the new Prime Minister will make one final attempt with Brussels and if that is fruitless, the UK leaves on Halloween with a HARD BREXIT.
The “doom and gloomers” have been wheeled out on CNBC and BLOOMBERG with where does cable go on a HARD BREXIT question?
Levels of 1.2000 have been quoted by several strategists and some as low as 1.1000 if the exit is very disorderly. Who knows?
One important point to think about.
The FX market is a future pricing mechanism. I believe that the markets are taking the view that regardless of who becomes Prime Minister it will not be plain sailing and that the possibility of a second referendum or maybe even a general election are possibilities. The thoughts of a Corbyn led Labour government let in through the back door is a scare one too many to contemplate.
With regards to the GBP.
I have my BREXIT TRADES in place and over the past couple of days I have been revising my TRADE PLAN, which has been very successful so far through 2018 to date, but it is now under increased pressure, following the last few days events.
My position sizes are small, but I hold several positions that I need to address. For my subscribers I have in this blog an extensive review, with reasons for my revised BREXIT trades TRADE PLAN moving forward.
Without doubt, the GBP and its crosses will be under increased pressure moving forward. The GBP cross-rates will be under increasing pressure if the USD weakens. When the USD was strengthening, moving up, the moves lower with GBP cross rates were not as strong, but with across the board USD weakness the GBP crosses should come under increased pressure.
I have my full re-evaluation later in the blog.
On a more general note...
It is a tough route forward as a SWING / POSITION trader.
The markets of late have not been supportive of my trade style, but nevertheless I am having my most successful first half of year trading since I started my subscription service in 2014.
I am not trading much at the moment, my activity has slowed right down. I am NOT procrastinating just taking stock and planning where I go next.
I firmly believe as a trader you need to have a plan. Being a longer-term trader having the correct BIAS is more important than the entry. As traders we all try to achieve a “spot on” entry. I am no different, I use pivot points, Fibonacci Levels, and chart patterns to establish what I call “high probability trade set ups”, using longer-term charts as a reference, my entries cannot be as exact as using 30 – 60 minute charts, and flexibility is required once a trade is triggered.
What I am saying here is that to be a FX trader in 2019, even more tolerance, patience and flexibility is required. FX is not an exact science, you require a certain personality to survive, and a positive mindset that can accept change and visualize.
Even with these qualities, it looks like 2019 will be hard. What I will say though is there will be light at the end of the tunnel as the FX market is cyclical and todays range bound marketplace will disappear.
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:
The DAILY chart below shows a number of key points to note.
- We are still in a pattern of lower highs and lower lows (SHORT PURPLE TREND LINES).
- In a down sloping bearish channel.
- We bounced strongly off 1.1100 support last Thursday.
Is this the opportunity to SELL RIPS – SELL into strength, or is it a reversal in the USD following huge uncertainty over TRUMPS tactics on the U.S. / CHINA trade deal?
FUNDAMENTAL news from the EUROZONE remains poor.
My BIAS for now remains short, but I do want to take stock of the EUR response to the European Parliamentary Elections.
A break above 1.1265 changes my thoughts a little, not totally, but until that happens, I do not understand the bottom pickers on twitter and the like.
Theresa May leaves office following her resignation on the 7thJune. It will be mid-July before we know who her successor will be.
That is only part of the story.
Uncertainty levels are now raised. The same issues will face the new Prime Minister. There is no magic rabbit to pull from the hat.
Cable will be under increased scrutiny moving forward and will react to news about BREXIT and to a large extent the BOE and Economic Data will play second fiddle.
The big question is where is the bottom? Where will the buyer’s step in?
Big round numbers always play a part now when uncertainty rules. So, levels of 1.2500, then 1.2000. WE also have the 30thDecember 2018 low at 1.2425 to consider.
Longer-term I am bullish this pair and I believe any upside move will be strong and swift. But I cannot see that happening until ALL the risks regarding BREXIT have been removed.
Having reached oversold conditions, we are seeing some consolidation with this pair. Interesting to note however, highlighted by the RED ellipse on the chart below we have broken higher through a down sloping trend line.
I am neutral for now with this pair. I seek more clarity.
We are breaking out through the longer-term down sloping trend line.
This is a bullish move, and as the USD weakens, although not in the DXY (basket of currencies), the NZD and AUD will move in line with the other USD majors that are in calculated into the DXY moves.
How large a move could we see?
It looked very squeezy last Friday, I removed a short trade for a loss of 9 pips just to get out of a potential squeeze move, that never materialized... argh!!
Longer-term my BIAS is short, but I am now thinking I could be able to short from maybe 100-150 pips higher if am lucky by selling into strength. The 61.8% retracement around 0.6625 looks an interesting level.
1.3527 is STILL capping any moves higher.
No change in my views from last week...
I am still in my “Not sure what to do” mode with this pair. OIL issues over IRAN and the Straits of Hormuz are not helping. The chances of a military incident are increasing and the fact that the IRANIAN regime and TRUMP are both extremes with regards rhetoric does not bode well looking ahead.
I write this knowing that TRUMP has said he does NOT want a military conflict. I have learned that what TRUMP says and what TRUMP does are two different things.
I am remaining sidelined this pair for now.
I made a huge screw up with this pair last week.
I posted a short limit order trade and then cancelled it. The Trade would have triggered and now the trade would be positive by +50 pips or so.
I was trying to be clever shorting the pair until my target long entry price came into play. Instead I was spooked by price action and I cancelled the set up.
On the attached chart I show what I want to happen.
I am short this pair but disappointed with the fact it is not delivering a bigger directional move. There are so many geopolitical potential incidents on the edge around the globe I am happy to be short as long as the pair remains sub 110.40.
I expect a dive lower to 108.40, then hopefully to 106.50. The longer this does not happen the greater the chances for another spiked move higher.
I am waiting patiently for my move lower!
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
May 2019 so far: +1,644 net profitable pips.
2019 year to date: +7,856 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.
THE WEEKLY FX PREMIUM - 2019 PROMOTION:
I add below a copy of the 2019 FX PREMIUM PROMOTION.
I have not had a promotion this year yet and once this one completes that will be it for 2019.
This PROMOTION offers a great opportunity through to the end of the year for a really special subscription deal.
3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
3.1: TRADING REVIEW:
3.2: BREXIT TRADES and TRADE PLAN:
3.2.1: EXISTING BREXIT TRADE PLAN:
3.2.2: MANAGING EXISTING RISK:
3.2.3: MANAGING FUTURE RISK:
3.2.4: REVISIONS TO STOP LOSSES:
3.2.5: REVISION TO 2019 WEEKLY FX PREMIUM PROJECTION:
3.3: LOOKING AHEAD - IDEAS FOR THE COMING WEEK:
3.4: FUNDAMENTAL: THOUGHTS AND VIEWS:
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: #323 FREE NEWSLETTER
DATE: 26th May 2019