ANOTHER BRICK IN THE WALL

Last week was a great week for me from both a personal and trading perspective. Always count your wins. Everything is about MINDSET.

Are we starting to see the cracks in the World Central Bank Master Plan now gaping wider showing in equities due to increasing bond yields? From a Forex perspective, equities selling off equates to a stronger USD and the correlation between bonds and the USD/JPY in particular, could not be tighter.

I can’t be in all trades; the JPY moves have passed me by. My focus has been commodity currency based and I am happy with my TRADE PLAN and strategy approach.... so far!

I am NOT perfect, and as usual I have exited trades too early.

Specifically, the USD/MXN being the glaring example last week.

RADAR TRADE:
RAD048
Long 20.6100
I took +2,000 pips at 20.8100.
Based off a 5% value of an MXN pip the real profit is (2,000/100*5) = 100 pips.
On Friday morning pre-NFP it was at 21.2000.

There was only a shallow pullback following my exit. Had I remained long this trade profits Friday morning would have been at +250 net pips. C’est la vie; we move on.

The moral of this trade, in the bigger picture is DO NOT whine about taking profits. ... count your wins.

1. THE SOAPBOX:

ANOTHER BRICK IN THE WALL

Are we getting very close to THE MOMENT OF TRUTH?

I have written about many market FUNDAMENTALS over the past few months that because of the pandemic have been largely ignored. Maybe now the chickens are coming home to roost and we have NOT just a MOMENT OF TRUTH but a MOMENT OF TRUTHS lining up before us. Was Powell’s “Head in the Sand” dismissive approach last week just ANOTHER BRICK IN THE WALL.

One thing that I have learned over 10 years of FX trading is that market moving events never happen on their own, there are always consequences, and ramifications observed in other markets. Some describe this as a PERFECT STORM, maybe a BLACK SWAN event if the event is closer to a catastrophic move. I like the phrase DOMINO EFFECT as this for me represents the compound effect of such a catastrophic move. I can visualize the move and effects, maybe not to any potential extremes first off, but visualization can help tremendously with your strategy and give you greater clarity.

So, what am I thinking... what’s new?

Keeping the DOMINO EFFECT very much in mind, I decided yesterday to write down and name my DOMINO’S as followed: -

FED POLICY
BIDEN: USD$1.9T STIMULUS PLAN - will it be at this level?
NFP DATA: Too Good for Market Fundamentals?
BOND YIELDS: (US10Y: GS now 1.9% and TD 2% by year end)
INFLATION
INTEREST RATES: (MARKET THINKS Q4 2022, FED SUGGESTS 2024)
TAPERING ASSET PURCHASES
DXY
OIL (OPEC): +$65
CRYPTO CURRENCIES: REGULATIONS
COVID-19 PANDEMIC
INVESTMENT CLIMATE: CHANGING
THE REFLATION TRADE: GATHERING TRACTION
CHINA
HONG KONG
TAIWAN
SAUDI ARABIA
IRAN
TRUMP: 2024?
EMERGING MARKETS USD PRESSURE
G10 CENTRAL BANK REACTIONS: YIELDS / QE
ECB REACTIONS TO BOND YIELDS
EUROZONE: Vaccine rollout disasters.
ITALY: VACCINE DISTRIBUTION BLOCKAGES
UK / EU: FINANCIAL CENTRE (REGULATIONS) / NI PROTOCOLS
FRANCE: BANKRUPTCY INTERVENTION POLICY

All of the above are news items that caught my attention last week, obviously to varying degrees.

And then....

On the top of all of the DOMINOES listed above I have the overview of 13 years of the FED manipulating markets since the 2008 GFC.

I hear the calls from analysts talking about the FED should be looking to introduce Yield Curve Control. FFS; yield curve control is nothing more than increased QE (Quantitative Easing) from a FED perspective.

The FED buying bonds has created the fragility. Yield Curve Control is what the FED has been doing already for years!

Should the Fed make a general announcement about Yield Curves all the market will hear is more QE and off we go to another leg higher in equities.

So, let’s take the view.

Who cares about debt levels?

The market and the Institutions who operate in the rigged market are solely motivated by GREED. The market already knows that the FED will backstop any dramatic volatile moves.

We already witnessed the RBA in the face of increasing 5 and 10-year yields in Australia, double down on more bond purchases to keep market liquidity high.

The issue facing the general market at the moment though, is NOT about liquidity. This is about inflation.

Low interest rates means that the cost to repay debt created by the Pandemic by Governments can be repaid cheaply. With inflationary pressures the Central Banks are screwed. In fact, we are all screwed. Taxes whether direct, indirect or stealth will move higher.

There we have it GREED and latterly FEAR.

The two market components in action.

Let’s look at a few charts: -

US10YR (Bond Yields)
DXY (The USD Index)
AUD/USD
EUR/USD

My thoughts are written on the charts, clicking on them will expand the size. The comments are post NFP (Non-Farm payrolls) last Friday and reflect my thoughts moving forward regarding the bigger picture from my perspective.

Without doubt we will (should) know more this week. The ECB meets this week, with the Christine Lagarde Press Conference on Thursday. This should give us an ECB perspective. Lagarde and council members must be sleeping easier given the EUR/USD decline through 1.2000. Bond yields rising, and I still maintain all this started in Europe and was first seen via a reaction in the DAX a couple of weeks ago.

As for Powell and the FED...

Well, the head in a bucket of sand will NOT last long if the markets can smell blood. Last Friday’s spike in equities I feel will be seen as a blip...

BIDEN will do exceptionally well to get his Stimulus Bill passed at USD$1.9T. As stated earlier, many feel the economy is more resilient, why throw so much money at it. If the bill ends up passing stimulus of say USD$1.3T. Given so much is allegedly priced in, will Wall Street sell off?

Many questions...

Not enough answers!

Yet.

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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: @pipaccumulator
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BLOG VERSION: #404 FREE NEWSLETTER
DATE: 7th March 2021