Over the past few weeks I have focussed on USD bulls and bears, FED tapering, supply chain issues, stagflation, is the USD in consolidation, is it the start of a new BEAR market, inflation concerns and the effect on upcoming potential Central Bank changes in Monetary Policy and interest rate increases, and my favourite topic of the moment THE CENTRAL BANK DIVERGENCE trade, which I have been talking about since before the summer of 2021.
None of the above have in my mind been settled by any stretch. In fact, this Molotov cocktail of issues, is just growing in intensity as the markets faced with huge uncertainty swing one way then the other without a clear direction as we are in unchartered waters. It will therefore come as no surprise that the SOAPBOX this weekend cuts across most of the subject matter raised above in one form or another, with a slight variation on the theme. I hope that you enjoy my view on things.
How are you guys getting on with FX trading at the moment?
I feel like I am in Las Vegas, it’s all gambling at the moment. Will it, won’t it moves are mostly the order of the day. I would hate to be a stock market trader, a commodities trader, bond trader or dealing in futures, nothing seems to be moving on sentiment or value. Inter-market relationships and moves are just not matching up
With regards to FX, I don’t know about the regular traders who read this blog, but apart from the JPY moves, last week was boring, boring, and just to make my point BORING. Gardening and painting two chores I suck at appeared more interesting than looking at my abundance of trading screens. My blog last week was titled, START OF A NEW BEAR MARKET OR CONSOLIDATION? well I am now of the opinion its consolidation ahead of the FED, which announces on the 3rd of November.
Having written that, we have some important news events prior to the FED, namely Monetary Policy decisions from the ECB, The Bank of Japan, and Bank of Canada along with Canadian GDP to follow, plus Australian CPi (inflation data) with the RBA having its Monetary Policy announcement just ahead of the FED the week after this one and we have U.S. GDP and PCE data (see below).
(Above Data: Courtesy of Forex Factory)
Back to being bored...
I added a few and closed a few trades last week; in the end not much of a difference week on week, just an additional net +95 pips in a week heading into the month end next weekend. I am grateful to add additional pips.
At the moment, I am building size in a couple of (core) positions, which I feel will come good over time, based on solid fundamentals but at the moment they are under water, it’s not a brilliant backdrop after last week. The markets including FX are just boring and lack conviction. FX in particular is NOT really moving, what we see flatters reality.
I told my WEEKLY FX PREMIUM subscribers last weekend that my medium-term trades were on hold pending the FED announcement, as I did not want too many live positions going into this news event. I believe right now, it’s more important than ever to wait for your trade entry levels to be hit. The timing of entries pre FOMC is paramount.
I am still adding pips via THE WEEKLY FX PREMIUM, as mentioned already and as I have indicated, I have been reducing my RISK exposure. I have just 11 live trades in play.
OCTOBER 2021 to date:
Total net pips = +1,792 pips
YEAR TO DATE 2021:
Total net pips = +15,795pips
(102.03% of my 2021 objective)
1: THE SOAPBOX
ARE THE MARKETS TRYING TO DICTATE CENTRAL BANK MONETARY POLICY?
THE FED and the USD:
It’s normal to hear analysts’ opinions on financial media offering up opinions... trading their books for us all to hear, or maybe throwing out poor calls to hopefully help their positions that are under water.
We are however, a new state of play now.
At the last FOMC Press Conference on September 22nd, 2021, Jerome Powell amongst other things referred to the infamous dot plot for potential intertest rate increases that were noted as the opinions of the FED voting panel.
FED officials back in September were evenly split on whether or not the path to interest normalisation would start in 2022. The median projection indicated no rate increases until 2023 (see chart below)
The markets and commentary on financial media are calling for two interest rate hikes in 2022. Obviously, the inflation backdrop is charging this message BUT the FED in my opinion will push back.
Lower for longer...
Once a DOVE always a DOVE...
This is what makes a market. So many people, people I respect are openly stating that the FED is HAWKISH. based on what? The fact that we know a TAPER announcement is due. I believe that the FED TAPER is now almost 100% baked into the market.
As a result, it’s like the story of the “Fish that got away” or “The Emperor’s new clothes”. I have seen nothing or not read anything from Powell that indicates a major, fundamental policy shift other than TAPER TALK.
THE BOE and the GBP:
Last weekend, Andrew Bailey, Governor of the Bank of England, reacting to the fact that UK inflation is moving higher, and the Bank will need to react (During last week we heard a figure of 5% by middle 2022).
The market reaction was immediate. 0.15% at the November 4th meeting to bring the BOE rate off emergency levels of 0.10% to 0.25% and then another 0.25% in December on the December 16th meeting. Plus, another one increase in 2022, two if there is no move in December 2021. Basically, the markets are calling for a BOE interest rate of at least 0.75% by the end of 2022.
Is this possible?
Anything is possible. Is it a route that the BOE would like to take?
Below, I include a spreadsheet produced by Vanda Research that I pulled from my Twitter feed. When you examine the spreadsheet the BOE rate hike is far from a done deal.
I could go on for paragraphs on this subject of the market getting way ahead of itself.
Look; I get it, there will always be speculation and opinions but today the HYPE (which is my subject matter in the TRADING PSYCHOLOGY section later in this blog), can get a grip on your MINDSET.
As you may have gathered, I am huge into Personal Development. MINDSET is everything, especially in your day-to-day life and in Trading as well.
Do NOT get caught up in the HYPE.
In my humble opinion, listen to Jerome Powell, the FED chair and Andrew Bailey, Governor of the Bank of England, listen to what they say, they are the decision delivers, they are the organ grinders not the monkeys so to speak.
As you know from recent blogs, my trade for Q3 and Q4 2021 and through into H1 2022, is the Central Bank Divergence trade.
Can you just imagine if the FED hold through 2023 what opportunities we have as FX traders?
WHAT DO WE KNOW AT THE MOMENT?
We already know that the NORGES BANK, The Reserve Bank of New Zealand (RBNZ) and the Bank of Canada (BOC) are HAWKISH.
We also know that the Reserve Bank of Australia (RBA), The Bank of Japan (BOJ) and the Swiss National Bank (SNB) remain DOVISH.
I would also add the European Central Bank (ECB) to the DOVES, despite reading that they intend to increase rates by 0.10%. Jesus, Mary and Joseph and their wee donkey, I nearly fell of the chair when I read that... give me a break.
Below is a spread sheet detailing the major Central Bank meeting dates through to the end of this year.
As you can see below, ALL the Central Banks report and by the year end we should have a complete jigsaw regarding the HAWKS and DOVES. This gives the Central Bank Divergence trade full beans for 2022.
I give some clues in this blog BUT to be honest with you my trading groups and subscribers to THE WEEKLY FX PREMIUM receive the “Full Monty” on what I am thinking and when I am pulling the trigger on trades.
If you want to be part of a group that could generate over +10,000 net pips in 2022 go to my website and subscribe https://www.weeklyfxdrivethru.com
Get ready now to hit the ground running next year.
2: THE EDGE
(This section of the blog is exclusive for WEEKLY FX PREMIUM subscribers)
3: THE MACRO / FUNDAMENTAL VIEW
This short section of the blog looks forward. I share my macro / fundamental thoughts and views for the coming 3-6 months on factors to consider from my Macro, Fundamental and Geo-Political perspective.
Below are a list of bullet points, that are as relevant today as they were a week ago.
- Supply Chain issues
- Shortages risks
- Inflation risks
- Energy Crisis
- Zero Growth
- Credit Default risks
- Debt issues
- Unemployment / Jobs
- Pandemic cases numbers rising
- Pandemic death rates
- ICU Beds in shorter supply
- The Chinese Property Market looks screwed....
I am 100% of the opinion that THE CENTRAL BANK DIVERGENCE TRADE is the way forward for me as a long-term trader. Central Banks give me focus for my trading conviction and offer me direction from which to concentrate and consider. The differentials that exist between the G7 Central Banks on Monetary Policy, I believe could run in some instances right through most of 2022 and in a couple of cases beyond.
INFLATION and STAGFLATION are possibly the two most popular words along with ENERGY CRISIS and SUPPLY CHAINS throughout business media at the moment. Whilst these are also key considerations for me, they play second fiddle to Central Bank Monetary Policy Statements.
Inflation is a real concern as the supply and demand economic curves are proven to be as relevant today as in the past. Right now, though, we have supply led inflation rather than the usual demand led inflation. This is inflation of a more permanent NOT transitory situation.
Job vacancies are at all-time highs around the globe as social changes take effect, lower paid jobs which are in particular are harder to fill, especially in the hospitality industry. To attract workers’ wages offered have been increased. This is wage inflation at the base level and wage inflation is NOT transitory.
If you resonate with my long-term MACRO THOUGHTS and want to get into the trades with me as I develop positions, you will need to subscribe to the WEEKLY FX PREMIUM at https://www.weeklyfxdrivethru.com
4: 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.
GETTING ONBOARD WITH HYPE
HYPE has always existed in one form or another, but with the advent of social media and obviously the Internet, it has taken on a completely different form.
HYPE spreads like wildfire, it can appear in an instant, making it impossible to predict. But when it does occur, it will reach you, it will seek you out, at least it feels like that sometimes. When it does reach you, you will inevitably feel the urge to join in with HYPE.
This feeling is caught up in the crosshairs of GREED and FOMO. You will want to make the big returns that people have already made, and you don’t want to miss out on what looks like a once-in-a-lifetime opportunity.
Look, there is money to be made from a HYPE. Recently we had the GAMESTOP (GME) short squeeze hype for equity traders. Thankfully FX HYPES are not as frequent but to be honest all HYPES should be avoided and there are good reasons why.
HYPE is fickle. I often write about the markets being fickle. Being fickle brings huge volatility to the table, but it is too unpredictable, and in my opinion, the risks are too great for most traders, although usually they don’t see this, or they simply do not consider it as they get completely consumed by the HYPE.
Trading success is not guaranteed with HYPE. There is nothing to say that you aren’t already late to join the party and that your trades won’t end up costing you money. At some point in time, the price that is wildly fluctuating will correct itself and hoping that you will be rational enough to exit a position that you entered because of irrationality is a losing bet.
Beyond that HYPE is unreliable. Even if you jump in at the right time, this won’t make you are successful trader.
As I repeat every week.
Only TRADING DISCIPLINE through, TRADE MANAGEMENT, ACCOUNT MANAGEMENT and HEAD MANAGEMENT, trading with a TRADE PLAN with time in front of your trading screens, giving you both knowledge and experience, can allow you to get to the point where you are making reliable, steady profits from trading.
Do not give into HYPE.
I wanted to quickly find an example of HYPE and potential pitfalls through NOT having full knowledge of the facts or some background data to support the headline narrative.
I could not find in the time I had available an example that moved the FX markets. However, here is an example that I found on my Twitter feed last Friday.
The tweet below based upon first reading gives you a “Shock Headline”.
What was the first thing I thought after reading the headline?
I found it credible given the fact I believe he is now no more than a lame duck President. The Democrat Party shows all the signs of imploding and there is no cross-party support in Washington anymore.
But I decided to look behind the numbers and do a little due diligence.
- Biden Popularity slumps to just 37%.
- Survey completed by Quinnipiac University.
- Only 1,326 adults eligible to vote were surveyed.
- The U.S. Voting population as at November 2020 was 213,799.467 people.
- The survey was based on 0.00062% of the voting population.
- There is no mention of what states people were called.
- There is no age breakdown.
- There is no ethnic breakdown.
Now, call me whatever you want but is that a representative sample?
Does the media not have a responsibility regardless of party-political persuasion to provide unbiased narrative? Absolutely NOT. The media wants to sell, shock and the truth and context are not even on their agenda.
HYPE is dangerous and at times we can be as good as lambs to the slaughter.
5: CLOSING THOUGHTS
5.1: THE WEEKLY FX PREMIUM – SUBSCRIPTION INFORMATION
If you like my approach to the market and are wondering what my trades are like from, a live perspective and what is the WEEKLY FX PREMIUM all about, check out my website https://wwww.weeklyfxdrivethru.com
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 via Twitter, TwitLonger and ZOOM.
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.
5.2: THE LAST DROP
Always remember longevity in Forex trading can only be achieved through trading with a good MINDSET, 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: #428 FREE NEWSLETTER
DATE: 24th October 2021