START OF A NEW BEAR MARKET OR CONSOLIDATION?

Possibly, a rather unambiguous title for the SOAPBOX section of this week’s blog. Last week a few called the blog title confusing or mis-leading. Believe me, I was NOT looking for a headline grabber it was just all the “Negative waves”. Every time I write this it takes me straight to the Donald Sutherland character Sgt. Oddball from the movie Kelly’s Heroes...

Everywhere I turn it’s quite depressing really: -

Supply Chain issues
Shortages risks
Inflation risks
Stagflation
Energy Crisis
Zero Growth
Credit Default risks
Debt issues
Unemployment / Jobs
Pandemic cases numbers rising
Pandemic death rates
ICU Beds in shorter supply
and
The Chinese Property Market looks screwed....

Are we at the beginning of a new BEAR market or are we consolidating once again? Yes, in FX, we are witnessing huge flows of cash out of the JPY, the amount of money being moved here is huge.

One has to expect some strange market behaviour, do not forget for the past 12 / 13 years we have trading mostly in a one-way market, with equity markets basically just trending upwards, given the massive liquidity and accommodative monetary policies provided by Central Banks.

Look at the moves through the USD/JPY, EUR/JPY, and CAD/JPY daily charts below. These moves are incredible, I tried to enter the CAD/JPY ahead of JPY flows based upon a Central Bank Divergence trade and I missed the move as my entry level was NOT triggered.

On a positive note...

No shortage of topics to write about.

Thankfully, taking a longer-term perspective has me looking at the opportunities that are available from trading this doomsday scenario, Armageddon style headline driven media that is before us and filling us up with fear related news.

What is very noticeable is one day we are DOOM and GLOOM and the next day we have a BUY THE DIP mentality everything is just fine approach. The markets are just schizophrenic and if the markets were human, we would say that they suffer from multiple personality disorders.

Moving on...

My Q3 2021 ZOOM presentation of THE WEEKLY FX PREMIUM performance was added to my YouTube account (link below) “THE WEEKLY FX DRIVE THRU”, last weekend. It is free to view without passwords and it’s just over 45 minutes duration. If you have time, it may be of interest to you.

https://bit.ly/FXPREMIUMQ32021

And on again...

I am still adding pips via THE WEEKLY FX PREMIUM, and as I have indicated recently, I have been reducing my RISK exposure. I have just 10 live trades in play, with the number of open positions once again reduced in comparison to last weekend.

OCTOBER 2021 to date:
Total net pips = +1,697 pips

YEAR TO DATE 2021:
Total net pips = +15,700pips
(101.42% of my 2021 objective)

Target achieved......

1: THE SOAPBOX

START OF A NEW BEAR MARKET OR CONSOLIDATION?
MORE DOOM and GLOOM AHEAD?

As mentioned in my introduction this week, there are huge numbers of negative headlines across media outlets almost everywhere in the world concerning a plethora of issues emanating from supply chain and employment issues.

Take a look at the following I pulled from my inbox last week: -

If the contents of the articles noted above (both courtesy of The Morning Brew), were not enough to contend with, both markets and governments are trying to deal with truck driver shortages which perpetuate the supply chain issues further and then of course the left ball from all the issues was the astonishing headline from the U.S. Labour Department that stated over 4.3 American Workers quit their jobs in August. This number equates to 3% of the workforce, quite an astounding number. It is a similar picture on lower numbers in the UK.

I think its plain to see for all that the fallout from the global pandemic is going to stick with us for years to come. We are in unchartered waters living from headline to headline with very little leadership.

We live in a strange world. The coronavirus originated in CHINA, who never alerted the world to the fact of a deadly virus until it was too late. This negligence was exacerbated by a then sitting U.S. President (DONALD TRUMP) who lied and misled NOT just the U.S. but the rest of the world as to what the world was having to deal with. One typical example was when he repeatedly claimed that inbound CHINA flights were banned from landing in the U.S., however, over 100,000 Chinese nationals landed after his announcement! FFS from the source of the pandemic... totally negligent and an act of zero due care given his position.

There was no co-ordinated response via the WHO (World Health Organisation), or, through the United Nations to co-ordinate a response, not just to CHINA but how countries should move forward collectively. Instead, TRUMP astonishingly in the middle of a worldwide global pandemic pulled the U.S. out of the WHO. TRUMP was just incapable of seeing the bigger picture.

So, with that as a brief backdrop is it any wonder we are, where we are today?

I think we have to realise the reality of where we are. Inflation is NOT transitory by the definition of the word transitory. Wage inflation is real, and we need to smell the coffee. Supply chain issues will get better BUT we are in a dangerous place.

I look at it like this: -

The world trades on expectations.
If GROWTH and INFLATION are matched; all is OK.
If they are NOT matched, for me it’s simple we have STAGFLATION.

It looks like Halloween will go ahead... but Christmas is cancelled, no or very limited Turkeys in the UK and everyone will need to wear coats as heating supplies will be challenged! As for Black Friday, the shelves will be minimalist...

Hey... there is nothing like having something to look forward to!

Moving on...

Look, I am not a grinch!

There are great opportunities for FX trading, although I believe one has to be careful and plan well.

So, where do these opportunities lie?

In this blog, I will give high level views and opinions, but the actual detail will only be supplied via THE WEEKLY FX PREMIUM to my paying subscribers.

I take the view, you either trade with the USD or you trade around the USD via cross-rates. Obviously, the USD majors have more stability, better funded, better liquidity but, we still have a lot of uncertainty with the FED. Yes, I know that Jerome Powell, FED Chair, has indicated that TAPERING will start soon and complete possibly faster than we think, or the markets expect. This is a known and I struggle to find any dissenters saying that continued QE (Quantitative Easing), Bond purchases via the FED does anything positive for the U.S. economy.

The issue is interest rate normalisation. This is NOT as clear. This is the area of my focus and to be frank, it has been for some time. Not wanting to sound like a stuck in the groove broken record, but “Central Bank Divergence Trades” are the way forward for me into the end of 2021 and for at least H1 thru Q3 2022.

Two Central Banks above all others stand out as 100% totally DOVISH with no intention at the moment and for the foreseeable future being in the position to talk about raising interest rates, they are the European Central Bank (ECB) and The Bank of Japan (BOJ). Of the remaining G10 Central Banks the Reserve bank of New Zealand (RBNZ) and Bank of Canada (BOC) are HAWKISH, you can also add Norway’s Norges Bank to the HAWKS and possibly the Bank of England (BOE). The rest including the FED are to coin a phrase “Blowin’ in the wind”.

Because the USD dominates the FX market directly or indirectly, the clever way forward using Central Bank divergence in my opinion is to limit RISK and avoiding some noise by trading away from the USD.

Over the past two / three months I have had some great success with the part one period of the “divergence trade”. To some extent that was the easy money as a greater structural approach will be required for the part two strategy as Central Bank QE policies are reduced and removed, as they attempt to structure a policy through to policy normalisation once again.

Ideally, I would like to see some short-term market sentiment change to give me pullbacks, basically re-sets with some currency pairs like EUR/CAD and EUR/NOK. I exited my EUR/NZD short trade last Thursday after some great successes, but like the aforementioned pairs, a nice 300-400 pip correction would be gratefully received and viewed as a gift!

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.

Let me re-list the items listed in my introduction this week. Along with what was written last week, these are all the issues as a longer-term trader we need to consider for our trade positioning process.

Supply Chain issues
Shortages risks
Inflation risks
Stagflation
Energy Crisis
Zero Growth
Credit Default risks
Debt issues
Unemployment / Jobs
Pandemic cases numbers rising
Pandemic death rates
ICU Beds in shorter supply
and
The Chinese Property Market looks screwed....

Below has not altered from last week.

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.

This week for example, the ECB is looking to launch another bond buying program to follow PEPP (Pandemic Emergency Purchase Program), which concludes at the end of this year. How long will the ECB have a ZIRP (Zero Interest Rate Policy) in place? I think for a long, long, long, long time. This offers great trading opportunities.

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.

Whilst there are other issues that require attention, most of these are nothing more than noise for smaller time-framed traders to deal with.

The push to get back to normal, is simply taking longer than usual. A global pandemic in the 21^st 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 appear over time as the virus mutates and vaccine efficacies will be tested to the limit.

The pandemic has had and is still having a choking 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.

Inflation is a real concern as the supply and demand economic curves are proven to be as relevant today as in the past. Job vacancies are at all time highs around the globe as social changes take effect, lower paid jobs 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.

I could add in a Climate Crisis as well as a concern. With many governments up for change and electorates clearly disappointed with many governments handling of the pandemic, traditional parties share of the popular vote is being threatened by alternatives such as the “Greens”.

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.

SUCCESSFUL TRADING DOES NOT REQUIRE GREED

GREED is the other side of the same coin that contains FEAR. Although it functions in a different way, it is no less dangerous, and in fact, it might be even more dangerous.

Normally, we don’t consider GREED to be a huge problem when trading, after all, we trade for money $$$$. But there is a difference between a healthy, ambitious appetite for profit and an unreasonable approach that is based on emotions.

GREED is partially based on being euphoric, when things go well and we’d all like to believe they will stay that way forever. But that simply just does not happen., even the most impressive positive trends supported by excellent fundamental analysis turn around sooner or later.

Holding a position too long in an attempt to extract every penny of profit is foolish. At one point, all the potential gains you may have realized will be erased, and you might end up losing money!

GREED is tricky. It plays strongly to our natural tendencies as traders. This is why it is one of the most insidious problems that market psychology deals with. Countering it requires an impressive level of self-discipline.

It’s easy to get swept up in the overconfidence that ensues after a few good trades. It is really important to stay rational and have patience and most of all NOT to deviate from your TRADE PLAN strategies.

This will all help keep you in a rational mindset and it serves well for good practice for resisting other emotional impulses as well.

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

Finally,

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.

Scott Pickering
The Pip Accumulator
Twitter: @pipaccumulator
https://weeklyfxdrivethru.com/disclaimer/
BLOG VERSION: #427 FREE NEWSLETTER
DATE: 17th October 2021