A ROCK AND A HARD PLACE

Back into the routine now.

January was an extreme month for head-on news, driven by high beta fundamentals served at rapid pace straight down the throat. I have no doubt that there will be more of the same ahead as we progress through 2021, although possibly not at the same intensity.

I thought that it would be a good idea to define from experience, my perspective of what FX Traders require of themselves in 2021.

1. FX Trading is lonely.
2. You are on your own – no-one is coming to save you if you make an error.
3. You have to execute your own trades.
4. The FX Market is NOT a level playing field.
5. The FX Market does NOT care whether you survive or fail.

Let me convert the above into a sporting analogy.

You are a cricketer, an opening batsman. When I was learning the game at a very early age, the following was drilled into me: -

1. Cricket is all about NOT losing.
2. Winning or drawing is a bonus.
3. It is down to the opposing team to bowl you out as a team.
4. Not one wicket is worth sacrificing.
5. You hold the crease as long as you can and defend with all your might.
6. You wait, be patient and exercise great mental agility.
7. You only play the bad deliveries.

Trading FX is all about: -

1. RISK Management
2. TRADE Management
3. HEAD Management (Trading Psychology)
4. You move forward with a TRADE PLAN
5. You BUY DIPS and SELL RIPS
6. You plan your trades, and you TRADE YOUR PLAN

Key Goals:

1. Trading Longevity
2. Capital Preservation

The above is how I see FX Trading. In my opinion, it is the pathway to personal success.

I often talk about PRECEPTION versus REALITY. Let me use this in regard to FX in Social Media. I have been trading in the Forex market for over 10 years. I am now in year 7 of my Subscription Service and year on year I have beaten my positive net pip objectives.

People come and go on Twitter etc. They flatter with appealing posts claiming they are in the “Garden of Eden”, everything is just “Peachy and Rosy” where they are, and they entice you come on over where the “Grass is Greener”.

They last a couple of years or so and then they disappear as quickly as they appeared.

They are NOT sitting on a beach with a Supermodel or Chippendale serving them Margaritas and attending to their every need, living on a super yacht, driving DB11’s, AMG SL65’s or Ferrari’s...

The REALITY is FX trading is hard.
The PERCEPTION is that it is easy.

If you do NOT treat FX trading as a battle; just decide how much money you are prepared to RISK, give an FX Broker your credit card number and save yourself wasted time pratting about.

I do NOT pretend to have all the answers, but I am GROUNDED.

Moving on...

I wrote on December 6th, 2020 in this blog about THE “OLD” NORMAL SHOULD BE BACK IN 2021. I still believe that this is going to happen and believe me I am manifesting normal once again. Placing this in context to where we are now, I believe we are on the road back to normal although there is still some crazy stuff in the U.S. to get past... TRUMP IMPEACHMENT, THE “BIDEN” USD$1.9T STIMULUS BILL and obviously the PANDEMIC VACCINE ROLLOUT.

As I have noted so many times, patience is a key requisite to trading. In FX being in cash $$$$, is taking a position. Yes, we can trade, but let’s be clever.... Until we have the 100% RISK known, in my opinion, we trade smaller positions and widen the stops to accommodate short-term “noise”.

Finally, in this section I have added a tweet below that made me smile from last week as soon as it was announced that ex ECB President, Mario Draghi had agreed to form the next Italian Government.

1. THE SOAPBOX:

A ROCK AND A HARD PLACE

FX is once again at a crossroads.

The most liquid FX pair the EUR/USD has broken lower through 1.2000. The question now is will it remain lower and head lower and if so, how far will it drop?

Let me be clear; if I confidently knew the answer to the above, I would NOT be writing this blog today, I would be managing my own winery somewhere debating the fineries of the liquid in my glass.

We all have opinions, and we all have buttholes, here are my thoughts vis-à-vis the EUR/USD. This may be the most liquid pair in FX, but one other pair highly influences how the EUR/USD moves and that pair is the EUR/GBP. In my opinion, this pair like the EUR/JPY should be classed as majors and the NZD/USD and USD/CHF relegated in favour of these two crosses.

In the past 10 days we have witnessed in equities the GAMESTOP, AMC Robinhood / Reddit short squeeze and the sell off. We have also seen a disastrous EUROPEAN UNION vaccine rollout, which if the current rate is maintained it means that by the end of the Summer 2020, the percentage of all adults by country in the EUROPEAN UNION vaccinated would read: -

Compared to the UK = 99%

IRELAND = 28%
ITALY = 20%
SPAIN = 19%
FRANCE = 18%
GERMANY = 17%
(Data courtesy of Politico Europe)

These two items alone plus RECESSION talk and political unrest in ITALY placed pressure on the single currency.

The single currency was caught between A ROCK AND A HARD PLACE between basically domestic news events and a potential huge structural shock to world markets and a massive stimulus package in the U.S.

The DAILY chart below shows that the upward BULL CHANNEL was under threat as the latest period of consolidation in its move higher came under threat at 1.2000 – 1.2010 as the pair fell on poor fundamentals. Ex. ECB President, Mario Draghi appearing to have a positive response in leading an ITALIAN government plus a weaker U.S. NFP data release pushed markets to expect a full USD$1.9T in Covid-19 stimulus package and the USD sold off across the board. RISK-ON was back in the markets with complete gusto. How the U.S. funds this medium to long term is of no concern.

On the chart below you can see the strong (GREEN) daily candle reversal wiping out the prior days deep (RED) candle highlighted in the ellipse. As you can see, we are checking the underside of the resistance trend line from the BULL CHANNEL at c.1.2040-1.2050.

We closed the week at 1.2049. As we know FX has a habit of closing at key levels for the major pairs. The $64,000 question is where next?

Below I also include the DAILY CHARTS for the EUR/GBP and EUR/JPY.

EUR/GBP; below you can see that we saw a massive sell-off in line with cable appreciation and a break lower out of a descending wedge. (this wedge can be drawn several ways). From my perspective this pair remains bearish and any move higher towards 0.8860 will find sellers, if we move that far.

EUR/JPY; the BEAR FLAG pattern did not play out and we bounced higher. WE broke higher through the December 2014 trend line. We saw a trend line re-test last Thursday and then a very powerful move higher to end the week.

We are consolidating in my opinion between 126.00 and 127.50.

With this I am neutral for now until we see a range break.

Therefore, the EUR is at the moment stuck between A ROCK AND A HARD PLACE.

1. The EUR/USD closed the week at the underside of the BULL CHANNEL trend line at 1.2049.
2. The EUR/GBP looks very bearish despite the spike off the 0.8740 lows. I acknowledge the DESCENDING WEDGE and I am also aware of the potential false breakdown.
3. The EUR/JPY is consolidating in my opinion between 126.00 and 127.50.
4. Across all 3 pairs we saw bullish moves last Friday on the back of poor U.S. Jobs Data (NFP), with the market wanting the BIDEN stimulus of USD$1.9T as soon as possible to add some consumer spending amongst other things.
5. Apart from the EUR/JPY we are bearish with regards to the EUR/USD and EUR/GBP the recent directional trends have NOT altered yet.
6. It’s all about will the bears resume control or will the bulls on the back of stimulus beliefs resume control.

From my perspective: -

1. EUR/USD sell into strength. Maybe the 38.2% Fibonacci retracement off last week’s lows at 1.2100 is a possible area. Shorting here at the trend line resistance with a stop above 1.2100 is also an option that I may consider.The clever money will wait and see what happens at the open this week or around the European Session open.
2. EUR/GBP is as a longer-term trader a SELL RIPS trade. As long as we are below 0.8860.
3. EUR/JPY, I am looking towards range highs if I am to try a short.

The one that I can guarantee is that the EUR/USD will lead the FX market this coming week based upon its present correlation with the stock market movements.

We have very little by way of “RED” headline economic data this week so it will be equities that lead FX. Be really careful getting IN TOO DEEP with trades as we will remain headline news driven to a large extent.

 

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5. CLOSING THOUGHTS:

Firstly, before finally...

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Why not get positioned at the front of the line!

Finally,

Always remember longevity in Forex trading can only be achieved through trading with good RISK, TRADE and HEAD MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility. Trade with a TRADE PLAN, basically, plan your trades and Trade your Plan.

Mental toughness is key, and this is all about emotional control. Your mind can do amazing things, but only when it wants to, threat and alert will get your mind’s attention.

“Everyone has ability. It always comes down to mind games. Whoever is more mentally strong, wins” – Mohammed Ali.

Finally, be GRATEFUL for your wins and COUNT THEM. Keep a POSITIVE MINDSET in play at all times, regardless of the market conditions.

Stay safe and wear a mask.

 

Scott Pickering
The Pip Accumulator
Twitter: @weeklyfxpremium
https://weeklyfxdrivethru.com/disclaimer/
BLOG VERSION: #400 FREE NEWSLETTER
DATE: 7th February 2021