Finally, the long-awaited signature of President Biden has been placed on the USD$1.9Trillion Covid-19 stimulus package deal. This ensures that those American’s due to receive their USD$1,400.00 cheques who have direct deposits arrangements with the U.S. tax authorities should receive money over this weekend... what’s the bet that Bitcoin will be over $60k by Monday morning!
It’s all good news and to add to this positivity our household taxes were filed and paid last week. Where will all this jolliness end?
Two weeks ago, it was a bumper week for me vis-à-vis trades and everything was coming together nicely. Last week by direct comparison was a yawn. I was sitting, waiting, watching, hoping and sleeping by my machines and screens. Feck all for me last week. I have lots of open trades that I am just sitting in.
Here is an FX trader definition of boredom – “I even took my main PC apart, disconnected everything and gave all the cooling fans a good clean through”. Yes, I was that bored....
1. THE SOAPBOX:
LOOKOUT JOE... Could This Happen?
I am not saying that this will 100% play out but as I describe there are many who think this is a runner. I do not consider myself a gambler, more a RISK ASSESSOR, so from my perspective maybe 50/50, or better. You can never rule anything out and there is history to support the theory.
I mentioned in a TwitLonger earlier last week that given what happened previously with TRUMP cheques one can only imagine that there is about USD$175-225 million on its way to ROBINHOOD and the like to play / flutter / take a poke at the stock market or Cryptocurrencies.
The classic will happen...
Retail will plough in without a care in the world driving tech stocks higher and just as they go back to the well for a second or third time to try their luck, the Institutions will press the sell button. Prices of stocks that have been squeezed will drop like a lead balloon.
Retail will be leveraged out with losses and new debts....
The Institutions will bank profits and buy back what they sold making a tidy profit in a classic stock market FLUSH OUT move.
LOOKOUT JOE: all that stimulus worked so hard for, could be swallowed up by Wall Street and hardly a penny used by Main Street for what you believed it should have been earmarked for. The debt burden of those who can least afford it has shot up.
Additionally, attentions will be turned to repayment of the massive crippling debt that the U.S. now has on its books.
- When will interest rates rise?
- When will taxes go up?
- What taxes will they be?
- What will happen to bond yields?
- How will the USD react?
- Another housing crisis?
- What about jobs?
Just when you think coming out of a pandemic that things could NOT get any worse....
But wait; there’s more...
- Are we coming out of a pandemic in the U.S.?
- How many states (16 so far and counting) are opening up too early, removing mask requirements?
- Is it too early?
Without doubt we have not hit the medical hope that 70% injected twice with vaccines potentially gives the Holy Grail of HERD IMMUNITY. Not a tested theory, just a theory. No science that I can see to support it. The U.S. has NOT yet met that basic initial condition.
- Could we see rampant increases in infections as states open too soon?
- Would this create another series of lockdowns?
At the very least an Economic disaster would be the outcome, never mind the human cost. LOOKOUT JOE; USD$1.9T simply would NOT be enough and the U.S. would be potentially on the brink of another round of stimulus. This outcome of course highlights a flaw in the American Legal system. Does this not highlight the need for a Central National Emergency power to remove the politically infused State Governors from the loop?
Of course, in the U.S. every action to look at change infringes outdated historic rights that pressure groups hang onto as they do NOT want change in any shape or form... only the status quo.
So, what am I saying...
- Potential market moving FLUSH OUT
- Another U.S. setback in the Pandemic fight.
Could the above happen?
The FLUSH OUT seems very doable to me and from a timing perspective a more immediate potential.
If you were an institution right now, you would be saying this is a good a time as any to take profits just before the end of Q1 and reset for Q2. It makes perfect sense to me.
Retail always buys at the high and if they ever do sell they sell at the bottom or at the very least if they stay for the drop, they invariably get out just before the markets turn higher. It is classic Wall Street.
What about FX?
In this scenario, we usually see USD strength. To favour this we will have rising bond yields and stocks falling.
The JOKER in the pack will be “DO LITTLE POWELL”, who will soon be on Prozac hiding under his desk.
Should the above scenario come to pass, what will the FED do?
- Buy more Bonds (QE)?
- Buy equities?
I cannot see the FED raising interest rates anytime soon unless there was a catastrophic event. Are we heading for my often talked about recently, BLACK SWAN event?
I have to say all the dominoes are lined up nicely for a perfect storm.
From an FX perspective the classic RISK OFF currency pairs; USD/CAD, USD/MXN, EUR/AUD and EUR/NZD are all pulling back nicely.
Are they buying opportunities? Well; all I can say is that it is now possibly time to get your lines drawn and levels researched on your trading charts.
Personally, I have been set RISK OFF for a wee while and whilst I have been banking pips, I am holding quite a few trades that are under the water at the moment. Whilst they are all within my TRADE PLAN guidelines, it is still NOT a motivational part of trading to see the negative trades in play.
One phrase I always remember from an experienced trader when I first started was, “Your broker account always looks at its worst just before it turns”.
Never a truer word spoken.
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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!
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.
The Pip Accumulator
BLOG VERSION: FREE NEWSLETTER
DATE: 14th March 2021