Timing in trading FX is important. Your trade exits and entries need to be timed as best you can to maximise profits or minimize losses. A couple of weeks ago, I had to diary “a visit to the dentist for a root canal treatment” and decided last week was the best time given it was NFP (U.S. Non-Farm Payrolls) week as I usually “cool off” with trading ahead of the NFP data release.
You know where I could be going here!
Obviously, at the start of last week one had to think about the FX volatility in the market and all the headlines about Covid-19 hanging over the markets like the Sword of Damocles. Earlier in the morning of my visit to my Dentist there was a G7 emergency video conference meeting with a rather limp communique released. It was low on content, a rather weak document containing promises of wait and see... the “Do what it takes”, “We stand ready” sort of communication.
Anyway, regardless, into the chair and under the knife, so to speak I went! Just as it was all about to start at 11AM AST. Boom there was a FED Emergency rate cut of 0.50%.
My immediate thoughts were: -
- How in God’s name would this cure the Coronavirus?
- How does a rate cut, at this stage, fix a broken supply chain?
- Has the FED caved into Political Pressure?
The last time the FED carried out an impromptu emergency cut was back in October 2008, when a 0.50% cut was carried on the back of the Lehman Brothers crisis. Are we in this much of a crisis now?
We are continually being told that the U.S. economy is fundamentally strong. We see a stock market pullback by 15% (at that time) and then we get a 0.50% interest rate cut.
FED chair Powell, says that the U.S. economy remains strong and then an emergency cut of 0.50% is presented to the markets. If this was in a private company these moves based on the narrative from management would result in sanity checks and ritual sackings. The day of a 0.50% interest rate cut the stock markets decline even further: -
DOW30 -785.91 (-2.94%)
S&P500 -86.86 (- 2.81%)
NASDAQ - 268.08 (-2.99%)
In the three days that followed, the roller coaster that is now the equity markets continued. Up 3%-4%, then down 3%-4%, then into the weekend we had another big sell-off as you can imagine nobody would really want to be long RISK into the weekend.
So, after a few wild days what are my thoughts now?
In my opinion, the key role and responsibility of Central Banks is to maintain “PRICE STABILITY”. I think it would be fair to say that despite a coordinated action this key goal was NOT achieved.
The markets, irrespective of whether it's the Equity, Bond, Futures, Commodities or FX they live and thrive on FEAR and GREED.
Central Banks live, breathe and survive on CREDIBILITY.
Without doubt FEAR is in control and we are in capitulation moves and I still await confirmation that we have a BLACK SWAN event, it is only the 8th of March but are we experiencing MARCH MADNESS... THESE MARKETS ARE SURREAL.
I want to justify the above statement of “SURREAL” by stating that after the roller coaster up and down week with DOW30 up over 1,000 points and lower by 1,000 point moves... never the intra-day volatility of over 1,000 point swings; we ended the 5 day trading period UP, for all three indices DOW, S&P and NASDAQ quite bizarre. Now, 10-year Treasuries hit all-time lows, OIL plunged lower and the markets now want another 0.75% interest rate cut at the FED meeting later this month. It’s not over yet.
Moving back on point...
The FED was caught between a rock and a hard place all things considered.
Even though FUNDAMENTALLY I cannot get my head around how a coordinated Central Bank easing approach will fix a market supply chain issue; it certainly won’t provide a cure for the Coronavirus.
What this has done in U.S. is help TRUMP.
Both TRUMP and KUDLOW were unconvincing on LIVE TV and basically, they applied the rules of economic SPIN to a health crisis. Huge fundamental basic error.
This approach only created confusion, which is usual for this President and although a pain in the ass it is now seen as acceptable vis-à-vis economics, but this confusion shows weakness, uncertainty and lacks leadership when people see lives at stake. The U.S. population are only just getting over the fact that TRUMP lied about U.S. troops being injured on the IRAN missile attack in IRAQ.
TRUMP is out of depth. There was time to plan for the effects of the Coronavirus in the U.S. Instead he took Melania on a “Jolly Boy’s Outing” to India.
Leaving TRUMP’S ineptness to one side...
The equity markets are in crisis. They are selling off based on FEAR and as the FEAR moves into the U.S. the moves are just being exacerbated.
The Central Banks are back in focus as the initial round of interest rate cuts in G7 from the FED, BOJ, RBA and BOC has not worked. The calls in the U.S. are for another 0.50% interest rate cut at the March 18th FED meeting. The BOE, RBNZ and SNB have yet to join the party with actions, but in reality, it’s all about the FED.
Apart from interest rates, what tools do the Central Banks have, given the fact many of the G7 are close to zero or already have negative rates?
The biggest tool that Central Bank leaders have is their “Voice”. Their ability to “Jaw-bone” effectively is it. Forward guidance is quite frankly pie in the sky, my dog Ozzy has more of a clue.
Up to now, there has been a lot of “wait and see” from Central Bank leaders, this is primarily due to the fact they are running out of ammunition to boost markets.
Has this been a demonstration of complacency? it could be, BUT the fact that they are running short on tools is probably the reason. Plus, they simply do not know what to do except flood the markets with additional stimulus.
I am NOT convinced Central Banks know how to calm markets. I believe there needs to be fiscal intervention as well.
Let me try and balance this.
Most countries have failed to grasp the intensity of this virus and the concerns people have. Over 70 countries are now infected and the numbers of cases are increasing at a dramatic rate.
The issue is the c.14-day incubation period. People moving around have no idea that they may be infected or may be a carrier.
The virus intensity still has weeks, if not months, to go yet before it tops out.
It is not over then, as we then have to sit through the “regaining confidence” period of at least 6-9 months.
Vaccines are 15 months away after the human trials are completed and full analysis completed.
Whilst the U.S. has, in my opinion failed to recognize the human effects, they are NOT alone. However, other countries without the same resources have managed and planned with a strategy much better.
Sadly, I feel that 2020 will the Coronavirus Year. Timescales with an infection of this magnitude worldwide are very, very extended.
I am NOT convinced that zero or negative rates will work. Negative rates have shown that they are ineffective. Fiscal support is required to support both employers and employees, a tax holiday for example would be instant and direct.
If people are NOT spending and the supply chain is NOT fixed, we will see inflation if people are tempted to buy as shortages prevail. The hope will be that there is transient inflation and that people may choose to wait to buy and remain sidelined! It is like a typical supply circle, with price being the key determining factor.
Supply lines can be re-instated over time, but consumer confidence takes months to return, especially for long distance travel. Businesses associated with travel, either Business or Leisure will remain in trouble for 2020 and will probably not see “normal” conditions until well into 2021.
It’s all about confidence. The FED can go so far, but, public confidence in the U.S. is poor. The Government was just NOT ready. It had to prepare but when people hear the medical facilities are not equipped or ready to test, in my opinion, more than the FED cutting interest rates is required. TRUMP needs to step up, lead, manage and above all communicate without trying to score points. He needs to move away from BULLY mode.
I only trade FX, no metals, no indices and no cryptocurrencies. I think since 2013, when the WEEKLY FX DRIVE THRU blog started this is only the second or third time that I have written cryptocurrencies in my blog. If you are interested in crypto buy the Monopoly board game that has the same value in real terms.
This year, I moved 100% to focus on longer-term trading via the following trade styles, INVESTOR and BREXIT trades, even my SWING trades are really focused into 3 to 4-day trades as a minimum if possible.
We have volatility at last.
- The USD/JPY has once again become the main player in the flight to safety. (In section 2.7, I show you what I am looking at when a currency pair has a range extended move and is in oversold conditions).
- The EUR/USD has truly become the “carry trade” (S&P down long EUR/USD, S&P up short EUR/USD).
- Being short commodity currencies should work, we have some hiccups with this approach.
- EUR/CAD has been an explosive pair to trade this past week or so. The carry trade plus CAD weakness following the BOC interest rate cut has been a double whammy.
- USD/MXN is the very gauge vis-à-vis RISK SENTIMENT. Some of its moves have been stellar. It has been a great hedge against S&P moves.
- AUD/JPY has been heavily correlated to the S&P.
We have trading opportunities. However, from my own perspective, after an excellent January and February performance, this month has started poorly for me. I suffered losses on the first weekend of March through NOT sticking to PLAN A. I wrote to my FX PREMIUM subscribers, laid out my plan and then decided to ignore it and I was clobbered. Then add to that loss, the FED Emergency interest rate cut., where my short commodity trades had their stops taken. All in all; a loss of c.450 pips...argh!!
I am now in recovery mode, moving back once again. The moral of this story.... STICK TO THE FECKING PLAN....
I am pleased to say that despite the initial setback I am back in the pips again!
NOTE: It’s NOT about how you fall it’s all about how you get back up.
I have over the past two to three weeks taken a hiatus from Social Media. Whilst, it is a proven generator of new subscribers to THE WEEKLY FX PREMIUM, it is also depressing at times and every now and then a break is good to maintain one’s POSITIVE MINDSET.
FX - FORWARDS, BACKWARDS & SIDEWAYS:
1: - USD INDEX (DXY) TRADE CHART and MY THOUGHTS:
(The Daily DXY chart is below and my thoughts, ideas and comments regarding the DXY are contained on the chart)
MY SHORT-TERM BIAS: Bearish
MY LONGER-TERM BIAS: Neutral
2: - USD MAJORS - TRADING CHARTS and MY THOUGHTS:
MY SHORT-TERM BIAS: Bullish
MY LONGER-TERM BIAS: Neutral
14 DAY SMA: 1.0991
200 DAY SMA: 1.1352
The EUR/USD is breaking higher as equities fall.
The big question is how far can it go? The answer is obvious it depends on the fall in equities. This is hard to answer. At some point BOTTOM PICKERS will attempt to step in and try to establish a bottom. At the moment we are headline driven, economic data is secondary. Equities are leading prices in FX.
This pair is straightforward to trade given its “carry trade” status.
S&P down – buy
S&P up - sell
I believe we could continue to squeeze higher as long as the panic selling of equities continues. We are not yet seeing Market Capitulation moves, but we are NOT far away in my opinion.
MY SHORT-TERM BIAS: Long
MY LONGER-TERM BIAS: Long
14 DAY SMA: 1.2904
200 DAY SMA: 1.2700
We have broken out of the triangle.
There is lots of bad news that could affect the rise in cable, but technically the chart looks bullish.
As long as you trade this pair in the full knowledge that BREXIT headlines could sent the pair crashing lower, or spiking higher at any time without warning, you will be OK.
My suggestion would be to trade smaller position sizes with wider stops to accommodate the volatility.
MY SHORT-TERM BIAS: Short
MY LONGER-TERM BIAS: Neutral
14 DAY SMA: 0.6603
200 DAY SMA: 0.6831
This pair has been trading really heavy of late, primarily on the back of the CHINA data and the Coronavirus concerns.
I have this week included a MONTHLY CHART.
As you can see, we have a BEAR CHANNEL. The rectangle (BLACK) outlines the range of 0.6000 to 0.6950. Entry and exit strategies should be based off smaller time framed charts, with this chart pattern in mind.
Be careful though we are oversold in places, however having said that spikes are opportunities to short.
This is a “SELL THE RIPS” pair in my opinion.
MY SHORT-TERM BIAS: Neutral
MY LONGER-TERM BIAS: Short
14 DAY SMA: 0.6317
200 DAY SMA: 0.6482
0.6190 thru to 0.6400, the rectangle (PURPLE) is the range on the chart below.
The RBNZ has yet to participate in the coordinated Central Bank action and therefore I view this pair as a “SELL THE RIPS” opportunity. I expect RBNZ Governor, Adrian Orr to cut by 0.50%.
We are currently seeing a nice pullback off the lows following the recent Head and Shoulders pattern completing.
Let is move higher before shorting. I tried a short at 0.6300 and failed, I was stopped out.... argh!! Too soon, I will be looking again c.0.6400
MY SHORT-TERM BIAS: Long
MY LONGER-TERM BIAS: Long
14 DAY SMA: 1.3200
200 DAY SMA: 1.3087
We have broken out and on the back of OIL we move nicely higher towards my initial objective of 1.3570. The BOC has helped with a 0.50% cut and should the FED cut again, I believe that the BOC will match and follow.
If you are uncomfortable trading this pair. Try the EUR/CAD cross-rate, it has exploded higher on the back of the EUR “carry” and the CAD weakness, which I expect to continue.
MY SHORT-TERM BIAS: Long
MY LONGER-TERM BIAS: Neutral
14 DAY SMA: 0.9728
200 DAY SMA: 0.9844
I am currently long this pair with two positions under the water combined by c.150 pips.
It is one of my CORE POSITIONS moving forward and I am using this drop in price to build my total long position.
It is a HUGE RED CANDLE on the WEEKLY CHART below which does scare me a little, but I am looking very long term with my trade and I am currently well inside my TRADE PLAN guidelines.
The EUR/CHF level is of great interest to the SNB. I am long again the EUR/CHF and GBP/CHF with the USD/CHF as well. The EUR/CHF is hovering at round number support at 1.0600, which was a level below the recent low. This always has me thinking that the SNB could intervene, as they are committed not to have a strong CHF currency.
Do they (The SNB) care about being called out as a currency manipulator by TRUMP? I doubt it. TRUMP is full of wind and now an expert of walking in reverse.
Should the EUR/CHF dip below 1.0600, as a result of being pulled lower via the EUR/USD, the SNB may feel inclined to step in. This would be USD/CHF positive. I am NOT trading this pair with this potential intervention in mind as the inverse EUR/USD relationship is strong at the moment, but it is something to note and be aware of.
MY SHORT-TERM BIAS: Bearish
MY LONGER-TERM BIAS: Bearish
14 DAY SMA: 109.04
200 DAY SMA: 109.69
Two huge BEAR candles on the spin.
This pair looks destined to move lower as it is correlating directly with yields on U.S. Treasuries.
I have included two USD/JPY chart this week.
The initial chart is the WEEKLY CHART, which shows the bigger picture that I look at. This is done with all pairs regardless, but this week I have added a second chart, which is a 60-minute chart.
Why would a longer-term POSITION / INVESTOR trade trader look at a chart with such a small-time frame?
What a great question....
The chart below is a 60-minute chart.
I look at these from time to time when price has extended dramatically in a trading session(s).
What I am I specifically looking at, or looking for?
I have split this chart into 2 ranges.
This was the later Asian session into the European session last Friday (6th March 2020). As you can see 105.76 – 106.33 about a 60-pip range, which held until the early European session as we crossed into the overlay of markets and more participants joined.
The range was tested in the early European session via a SPINNING TOP candle (The one sitting by itself between RANGE 1 and RANGE 2.
Look as the pair fell to the round number level of 105.00. Support (buyers) sat waiting but also look at the seller conviction.
Many candles had long wick extensions below the body of the candles. This indicates to me a lack of seller conviction. This would have been supported by good NFP (Non-Farm Payroll) numbers.
As buyers stepped in to save 105.00, we can see Bullish (GREEN) candles in play.
What does this tell me?
This is where FX traders have a mix of opinions. I am a firm believer that FX checks prices and confirms levels. The breakdown point of 105.75-15.85 in my opinion should be re-tested and then the pair should move back in the trend direction which, in this case is lower.
Will it – won’t it?
3: - THE WEEKLY FX PREMIUM:
3.1: FX PREMIUM MONTHLY PERFORMANCE:
March 2020 so far:
Investor Trades (INV): +560 net profitable pips.
Swing Trades (SWG): - (330) net profitable pips.
Brexit Trades (BRX): +260 net profitable pips.
March Total so far: +490 net profitable pips.
2020 Year to Date:
Investor Trades (INV): +2,585 net profitable pips.
Swing Trades (SWG): + 863 net profitable pips.
Brexit Trades (BRX): +1,942 net profitable pips.
YTD Total so far: + 5,390 net profitable pips.
2020 Annual pip target: +15,200 net profitable pips.
Performance: = 35% of 2020 Target.
3.2: WEEKLY FX PREMIUM SUBSCRIPTION INFORMATION:
The WEEKLY FX PREMIUM is my subscriber 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 https://www.weeklyfxdrivethru.com you will see more information about the WEEKLY FX PREMIUM.
Lots of information about the way I do things, plus, previous reports about my trades, my trade styles and my trade projections for the year are located on my home page by selecting the appropriate tab located at the top of my home page.
In addition, details about how to subscribe to the WEEKLY FX PREMIUM is also located the top of my welcome page under the “SUBSCRIBE” tab.
4: - WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
4.1: TRADING REVIEW:
4.2: LOOKING AHEAD FROM A FUNDAMENTAL / MACRO VIEW:
4.2: OPEN TRADES – THOUGHTS:
5: - THE FINAL SHOT:
5.1: LOOKING AHEAD – THIS WEEK’S ECONOMIC DATA & MY THOUGHTS:
Quite a slow week on the horizon when looking at the high beta news events. Having said that the focus will be on Coronavirus headlines.
The news items that take my fancy are: -
- EUR: ECB Monetary Policy Statement and Press Conference.
Obviously an important news item to see how the ECB reacts to the Central Bank coordinated action to assist liquidity vis-à-vis the Coronavirus uncertainties.
5.2: CLOSING THOUGHTS:
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.
Finally, Be GRATEFUL for your wins and COUNT THEM. Be positive, keep a POSITIVE MINDSET in play at all times, regardless of the market conditions.
The Pip Accumulator
BLOG VERSION: #359 FREE NEWSLETTER
DATE: 8th March 2020