I am now officially back from my break over the summer, reading and raring to get going once again.
Before vacation, it was all TAPER talk and returning, it is still the same. The “EMERGENCY” measures that were put in place after the GFC in 2008, have basically remained in place ever since. My blog “SOAPBOX” item this weekend gives you my thoughts on this subject. Whilst the temptation is to do chapter and verse, it will be short and sweet.
My summer promotion “DOUBLE UP” ends today the 12th of September at 2359 New York time. There is time therefore still available to take advantage of the deal in place, see below.
Moving on again,
I have once again changed the structure of this blog. I have retained the SOAPBOX; I seem to get a nice response from the rants that I sometimes get into. I have now added two new sections to replace those from which there were very little feedback.
Firstly, I am including the MACRO / FUNDAMENTAL view that is intended to give readers the main market influences to acknowledge moving forward. These may NOT change much from week to week.
Secondly, I have added a TRADING PSYCHOLOGY segment into which I intend to add areas of HEAD MANAGEMENT on a weekly basis that I believe are key to trading successfully with longevity.
1. THE SOAPBOX:
EMERGENCY MEASURES – JOB DONE?
We are now in September 2021. I do NOT think that I am being unfair by saying that since the GFC in 2008, Central Banks have more or less continually had “Emergency Measures” in place.
What do I mean by “Emergency Measures?”
- A ZIRP (Zero Interest Rate Policy)and
- Quantitative Easing Policies.Basically, Central Banks have been active in Bond Markets buying longer-term securities to “boost” the economy.
QE expands the money supply and stimulates growth.
Maybe I am being a little unfair by claiming we have gone from 2008 to now with QE in place, yes, there were reductions, but we never normalized interest rate policies. So, from this perspective, I believe that I can claim that “Emergency Measures” have continually been in place.
Progress worldwide away from “Emergency Measures” has been at a snail’s pace and the Coronavirus Covid-19 pandemic basically re-introduced prior QE levels and in some cases greater purchasing than at the time of the GFC in Q1 2020.
For the past two years, in particular, we were told by those on high that the USD would be demolished in 2021... Probably the same people claiming that the EUR/USD would trade sub parity. It’s just NOT happened, far from it in fact (see DXY chart below).
There seems to be a belief in the U.S. promoted extensively by TRUMP that the S&P is be “B” all and end all when it comes to measuring success. I have said it on numerous occasions Wall Street and Main Street have NEVER been further apart. The have’s have more and have not’s have less, and, at the end of the day the Stock Market is NOT the economy... let me write this again the Stock Market is NOT the economy.
My basic question for the Central Bankers around the world at the present time is very simple;
- What do we need TAPERING for, right now?”or,
- “What do we need to see for TAPERING to stop?”
There is no use at all listening to those involved in Wall Street, as they see Central Bank policy as a gravy train, allowing them to operate in full GREED mode knowing that the “BUY THE DIP” scenario works and that the Central Bank is backstopping any potential seismic shifts in stock market prices. In fact, to emphasize this point it has been written that in the case of the FED, if they had to step in the markets once again to support them, they would buy equities along with bonds to prop up markets. Yes, that is a WOW, FFS and WTF moment!
Look; we have inflation, we have job numbers returning lower towards pre pandemic levels, why do we still have QE?
Should we not be in a period of the major Central Banks TAPERING?
Sure, the Bank of Canada (BOC) is there already, the Reserve Bank of New Zealand (RBNZ) is also there. The BOC is looking to raise interest rates in H2 2022, the RBNZ is looking to have at least two hikes into the year end 2021, and so is the NORGES BANK. The Bank of England (BOE) ends it’s QE policy in December this year and interest rate normalization is expected to start to return late 2022.
The two largest Central Banks, the FED and the ECB are both seemingly on a more zig-zag pathway to normalization.
One of my work colleagues from back in the day would in response to that question, say something along the lines of the following “Scared and hiding under their desks in a darkened room pumping on Prozac” Whilst, that's a pretty picture mentally to hold for a few seconds. Both Christine Lagarde (ECB) and Jerome Powell (FED) are seen in public, however, they are as “Dovish and Accommodative” today as their predecessors were back in 2008. They are on the back foot, are they deliberately wanting to be behind the curve?
Last week, Lagarde announced that the ECB PEPP (Pandemic Emergency Purchase Program), would be reviewed in December 2021. Will it end in March 2022 as originally planned? She also did announce that purchase under PEPP would moderate.
Previously, Powell said he wanted more jobs data numbers before initiating a Tapering program.
Both Powell and Lagarde are bullish and full of optimism generally on their domestic economies. Both state inflation which is higher than the 2% goals in both areas are claimed to be transitory and to be honest I now see that as well. Although there are caveats to consider such as, continuing supply chain and pandemic issues. Nevertheless, what benefit does continued TAPERING really bring the ECB and the FED?
Inflated Balance Sheets and dare I mention it potentially a huge stock market “Bubble” initially spring to mind. At some point these issues must be tackled. Procrastination is NOT an effective answer.
Looking specifically at the U.S.,10-YEAR treasuries are not showing us that inflation is going to be an issue. Yields are very firmly anchored well below 1.50%, closer to 1.30%.
Right now, one would have to say that from the “Emergency Measures” perspective job done... let’s move on.
If I was to speculate based upon recent press conferences and the abundance of reports that I had read on FED and ECB policy. My thought process is along the lines of by the end of H1 2022, Tapering will be well under way if not completed by the FED and the ECB will still be dithering possibly taking all of 2022 to wind down asset purchases.
From a trading perspective in the currency markets, I believe that gives great opportunities via the Central Bank Divergence trade.
If you are interested in knowing more about my trading ideas, intentions and seeing the actual trades themselves you will need to subscribe to the WEEKLY FX PREMIUM.
2. THE MACRO / FUNDAMENTAL VIEW:
This short section of the blog looks forward, and I share my macro / fundamental thoughts and views for the coming 3-6 months on factors to consider from a Macro, Fundamental and Geo-Political perspective.
The push to get back to normal, is simply taking longer than usual. A global pandemic in the 21st century has shown very clearly that “A HERD MENTALITY” simply does NOT exist when it comes to vaccines. There are extreme views either side of the those set in the centre.
Vaccine and Mask wearing mandates are getting closer to full scale implementation in several countries. The Covid-19 pandemic has NOT gone away. To be frank it is NEVER going away in the short to medium term. Suck it up and get your head around this fact. More variants will be noted over time as the virus mutates and vaccine efficacies will be tested to the limit.
The pandemic has had and is still having a chocking effect on supply chains of goods shipped around the world. I see this just continuing as infection rates dive lower and then spike back in areas of the world that create local trade and supply issues. It is a full-on domino effect.
I could add in a Climate Crisis as well.
The bottom line is that the issues noted above are here to stay. If the uncertainty exists, the moves by the bigger Central Banks to normalize are just potentially going to be pushed out.
We are potentially going to see very extended timelines to get back to “Normal”.
If we have uncertainty the likes of the FED and ECB will just not update Monetary Policy. During this period, FEAR & GREED prevails in the markets as usual.
It is very clear to me that until the pandemic is controlled or eradicated nothing really changes, we continue to drift in a state of limbo vis-à-vis moving forward. There will always be reasons for remaining cautious. We may see Tapering, but a return to interest rate normalization, at times seems to be somewhat of a dream, the way things appear at the moment.
3. TRADING PSYCHOLOGY:
For me, TRADING PSYCHOLOGY is a very important key aspect of trading that is often misunderstood or just ignored. How we use our conscious and unconscious minds when trading is crucial to our longer-term trading successes.
Over the coming weeks, it is my intention to cover areas and aspects of trading that may be new to many readers. Sometimes things can be right in front of us, and we cannot see it.
HEAD MANAGEMENT and HEAD MANAGEMENT strategies for consistent success in trading is crucial to long-term success.
PERCEPTION versus REALITY:
As you know I am a longer-term trader...
At least I think that I am. When I look through my trading journals, it is obvious that whilst I am moving towards being more effective trading longer-term, my positions are long-term but holding my trades open and not taking profits off the table too soon, I am not so good at.
I trade long-term with multi small trades within each of my core long term position trades and so I claim that my overall position remains intact and that I am just booking profits along the way.
This approach suits me, I am comfortable with it, and it works. No need to change but it is not the traditional longer-term position style trading that one would read in trading guides and books.
I keep asking myself, am I a SWING TRADER that got totally frustrated throughout the TRUMP Presidency and developed out of necessity a new approach that works for me?
My performance year to date using my approach is way beyond the target that I have set myself for 2021.
Looking at the above projection, the areas that relate to my (CORE) POSITION trades are highlighted in yellow.
Basically, the 2021 objective was: -
150 trades to be completed with a goal of 5,250 pips.
This gives a return of +35 pips per completed trade.
My performance through to the end of August 2021 was: -
144 completed trades with a total so far of +8,539 pips.
That gives a return of +59.29 pips per completed trade.
My point here is as follows. Perception versus Reality is something that needs to be considered carefully. Our internal reality versus external realty can be something quite different. How we view ourselves against how others see us can be something quite different.
In trading styles what we believe may actually not be the reality. They key takeaway here is that if it works for you write it down. Create a TRADING PLAN document that becomes for want of a better phrase your TRADING BIBLE for how and when to trigger entries and exits, establish position sizes, and measure and calculate your overall RISK MANAGEMENT.
Sometimes subconsciously because we have ourselves pigeonholed as a specific type of trader, we feel that we need follow that style, when in reality we follow what works.
4. THE WEEKLY FX PREMIUM - PERFORMANCE:
THE WEEKLY FX PREMIUM: MONTHLY PERFORMANCE:
THE 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.
Further information about how to subscribe to the WEEKLY FX PREMIUM is also located at the top of my welcome page at https://www.weeklyfxdrivethru.com under the “SUBSCRIBE” tab.
5. CLOSING THOUGHTS:
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.
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: #423 FREE NEWSLETTER
DATE: 12th September 2021