Another spectacular week on rhetoric has completed.
FX is NOT boring but, having said that, it has been at most times of late a fairly pointless excercise. This past week we have been anxiously waiting on big news events to develop as we quickly approached lines in the sand deadline dates provided by politicians. Sadly or should I say typically, rather than the RED lines provided by politicians more often than not at the end of the day they are PINKER than RED.
Boris Johnson’s BREXIT deadline with the EU came and went with nothing more than a “Yup, I thought that would happen, it’s the way all EU deals pan out”.
Then, last week, the PELOSI 48-hour deadline for a U.S. CORONAVIRUS STIMULUS package just fizzled out. I am just NOT sure one will ever get done and as usual lawmakers in D.C. are just so partisan there is NO real desire to move forward. The simple fact was that it was Mitch McConnell, the Senate majority leader who actually was in control of the process. POSTURING and GAMES are just the norm in D.C. and the fact that these lawmakers are there to represent normal everyday Americans appeared lost to them given their shenanigans.
Thank GOD that we have a November 3rd deadline for the U.S. election from which the games should cease and a December 31st deadline on BREXIT so all the uncertainty in Europe over this 4-year issue can be put to bed... hopefully!
In a news driven market most of the time, in fact, it seems like “ALL” of the time, it is painful to trade from a Fundamental perspective. Most news items are ignored unless it is a major Central Bank announcement, or a high beta event like Non-Farm Payrolls. Everything is on a deferral because of the pandemic.
Last week, I listed a few titles for the “SOAPBOX” segment of this blog that I had started and then not completed. It appears that this has rolled over to this week as well. The SOAPBOX length was just too big, I had to break it up.
So, for this week’s blog, I have completed one of those titles saved over recent weeks but I have broken it down to just focus on Europe.
I was severely tempted to run with TRUMP and the U.S., but I have decided to let that train wreck run another week. Let’s see if TRUMP’s leadership can have positive Covid-19 tests above 100,000 per day by then, over the past 24 hours the U.S. reached a new high of over 83,000 cases.
Yes, without doubt, the U.S. to quote Trump “is rounding the corner beautifully”... TRUMP is just full of shit.
1. THE SOAPBOX:
EUROPE: RECESSION DEPRESSION... PO-TAY-TO PO-THA-TO
Last week in the DRIVE THRU ZOOM, I talked about the fact that with the EUROZONE economy suffering under increasing pandemic caseloads of new infections, and regional lockdowns and curfews, across many countries; FRANCE, GERMANY, SPAIN, BELGIUM, THE NETHERLANDS, IRELAND and THE UK to name but a few, that the chances of last week’s PMi data releases being in the contraction area below the “50” was a real possibility, if not a probability.
7 days is a long-time in politics and it seems even longer when a pandemic has most of the world running around like headless chickens. EUROPE is once again the centre for positive daily cases, increasing hospitalization and the death rate is once again starting to rise.
The Five (5) worst performing countries based on per capita infections are all in Europe, CZECH REPUBLIC, BELGIUM, THE NETHERLANDS, SWITZERLAND and FRANCE. In addition, there are record high case counts in GERMANY, ITALY, SPAIN, PORTUGAL, IRELAND and THE UK. Across most of Europe there are regional lockdowns, or as they are now called restrictions in place plus we now have curfews in place in many cities in FRANCE and in SPAIN, Madrid is under really tight controls.
This is a BLACK SWAN event.
Most BLACK SWAN events are defined to a particular day or specific event hence its name, but COVID-19 is a killer living amongst us and we allow it to populate through basic stupidity and long lost crazy conspiracy theories that for some reason a good chunk of the Western World seems to believe. The Science is just not believed, just like Global Warming.
Getting back on track to the PMi data.
Well, EUROZONE economic data did slip back into decline due to the Covid-19 pandemic and now we have the very real prospect of a EUROZONE “Double-Dip” recession.
Services PMi for the EUROZONE dropped from an already retraction level of a poor 48.00 to 46.2. The Manufacturing composite number rose to 54.4 from 53.7, however, moving forward this will come under pressure given the economic downturn in the EUROZONE that is really biting hard now. Do not forget the PMi numbers are very backward looking and do not reflect what is happening today. This itself makes the services number very concerning in the EUROZONE.
However, as most of EUROPE is reliant on services, rather than manufacturing and with continued furlough schemes coupled with the fact that businesses are closing this is only adding fuel to the fire of masking actual real data vis-à-vis employment numbers. Plus, we will see supply issues for the manufacturing sector which this time around will be more dire than previous. Rather than a recession are we heading into a depression and manufacturing numbers will play catch up based solely on supply and distribution issues alone never mind sales dropping!
Before moving on, let me define an ECONOMIC DEPRESSION: “Economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle”.
This begs the question. What is the normal business cycle?
In real terms most would say anything from two to twelve years. Without doubt, the Covid-19 pandemic will be with us from the start (February / March 2020) to end for at least two years. I say this as it will take 6-9 months minimum, probably over a year to have the world population vaccinated.
Now, sticking as much as I can with EUROPE.
One could be really cheeky and ask the question did the EUROZONE actually recover from the GFC in 2008-2009?
Yes, economically we saw green shoots but any economic recovery that we are told did happen did nothing vis-à-vis ECB continual stimulus and interest rates remain at ZIRP (Zero Interest Policy). Am I being too hard?
The chart below shows the typical roll out of a Business Cycle. Whilst using the pure recession definitions the EUROZONE has since the GFC not been in a technical recession but by the same token has not seen periods of continual growth that would afford a change in Central Bank policies.
I do firmly believe that we are heading into FULL LOCKDOWNS once again in EUROPE and in so doing we “TROUGH” and we hit depression status.
The chart below, “The Vicious Cycle” shows the circle that takes an economy lower, falls in income, sales, employment and production. There is NO doubt in mind across Europe many real accurate statistics are being masked by stimulus and that we do NOT have an accurate reflection of a country’s well-being.
The chart below details the “Vicious Cycle”
The EUROZONE passed a €750 billion stimulus plan agreed by the EUROPEAN UNION in July that has still NOT been ratified. Is EUROPE failing? The “one-size” fits all approach of those countries in the EUROZONE is once again just NOT delivering. Even in times of a global health pandemic the EUROZONE block are left at the docks waiting for a plane to land.
Politicians all over the covid-19 infected countries are running around like headless chickens trying to get to grips with a virus that knows no boundaries and remains dormant to fool everyone for a period of time before showing itself. Health warnings from the Health and Scientific communities were paid lip service to, the costs of control and lockdowns were too short earlier this year. We now see a wave 2, the “Second” Wave in Europe as the Northern Hemisphere heads into Autumn and Winter when viruses are at their worst.
European leaders are not trained for this and they are sinking under the pressure. Local populations are in the main poorly communicated with and frankly many see the pandemic as “FAKE”, which sounds bizarre but it's a fact.
For those in EUROPE how bad it is, you can take the following as some comfort,
if Europe is sinking, then America is plain fucked.
Obviously the next question is how long will it take EUROPE to turn around into Expansion, if we are in a DEPRESSION?
Given, I do not see an all clear until late 2021 possibly spring 2022, assuming a vaccine or decent suppressants available to all, I see a depression in EUROPE but we do not yet have the cures available or the leadership qualities on display in the west to give me a clue that expansive economic moves will just happen.
A second lockdown by virtue the first failed needs to be firmer and longer. Do politicians really have the guts for this unilaterally. I think it has to be all or nothing to fix the issue at hand.
A co-ordinated response? Does EUROPE have the head for it?
Tough times ahead.
From an FX perspective; RISK OFF and flight to safety.
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3. THE WEEKLY FX PREMIUM:
3.1: FX PREMIUM MONTHLY PERFORMANCE:
3.2: PERFORMANCE COMPARISON vs “DOUBLE -UP” PROMOTION:
The “DOUBLE UP” promotion has ended but for those who subscribed during the promotional period, here is the performance update against the September 1st thru December 31st target of +3,940 pips.
3.3: WEEKLY FX PREMIUM SUBSCRIPTION INFORMATION:
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4. CLOSING THOUGHTS:
Firstly, before finally...
My “YouTube” channel THE WEEKLY FX DRIVE THRU now has a library of the older DRIVE THRU ZOOM presentations. Check it out and maybe subscribe. My intention is to post other “ZOOMS” there from time to time related to FX Trading.
Why not get positioned at the front of the line!
Finally, as usual…
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. Keep a POSITIVE MINDSET in play at all times, regardless of the market conditions.
The Pip Accumulator
BLOG VERSION: #386 FREE NEWSLETTER
DATE: 25th October 2020