Off we go again.
One aspect of trading Forex, that I really like, is that in a normal trading year 80% of the time there is always intrigue of one sort or another to deal with and try and get behind, and, for the other 20% that remains, this time tends to be around the holiday periods during the summer months and around the Christmas / New Year celebrations.
We have the markets once again at a crossroads and in this week’s SOAPBOX I will give you the “Scott take”, as always some will agree, and some won’t. This is what makes a two-way market. As always, I love the feedback.
My Q3 2021 ZOOM presentation of THE WEEKLY FX PREMIUM performance has now been added to my YouTube account (link below) “THE WEEKLY FX DRIVE THRU”. It is free without passwords to view and it’s just over 45 minutes duration.
And on again...
I am still adding pips via THE WEEKLY FX PREMIUM and bearing this week’s SOAPBOX piece in mind, I have been reducing RISK exposure. I have just 10 live trades in play, with the number of open positions lowered in comparison to last weekend.
OCTOBER 2021 to date:
Total net pips = +732 pips
YEAR TO DATE 2021:
Total net pips = +14,735 pips
(95.19% of my 2021 objective)
1: THE SOAPBOX
USD BEARS CAN STILL RETAIN CONVICTION WITH TAPERING
In the run up to last Friday’s Non-Farm Payrolls data, I was watching BLOOMBERG as usual, listening to the usual parade of investment and bank analysists playing the monthly lottery game of guess the NFP number. The range was from zero through to 750,000.
The overall feeling was that as long as NFP produced a positive number, there would be no delay to FED TAPERING. Basically, we already knew from Jerome Powell, Fed chair, that the FED would stop stopping buying bonds and TAPER later this year and complete TAPERING by mid 2022. The bigger question is the FED funds rate for me, but when and how the FED deals with that is another issue for another blog.
- The September gain in jobs was 194,000 (The median expected was 500,000)
- The August number was revised up from 235,000 to 366,000
- The headline number was for two months on the spin short of estimates
- The labour participation rate was lower at 61.6%
(I see this as the “BIG” number to monitor as it shows that the overall jobs recovery remains long)
- Wages hit estimates at 0.6% for the month, but the annual growth after revisions was lower at 4.6%
(The increase in monthly wages can be understood on the basis that there are now fewer lower paid hospitality jobs in the calculations)
Some other issues away from NFP in the news in the last 24 hours:
- The Senate kicked the “debt ceiling” can down the road until December
- Russia promised to help the “energy price crisis” by promising more gas to Europe
- There is a summit planned between the U.S. and CHINA
All of these other issues may not be finalised but for now sentiment should remain RISK ON for the short to medium-term.
I have written many times that equity traders are the last to come to the sentiment party. Bond, Commodity, and FX traders all smell the change in RISK SENTIMENT well before the traders on Wall Street.
As an FX trader my question to answer at the moment is that of is TAPERING baked into equity prices? I actually believe it has to be baked in by now, yes, I expect a short-term response to an actual announcement which should be nothing more than a buying or selling opportunity. The U.S. economy is robust, although the employment data, participation rate in particular, does require focus moving forward, as indicated earlier at 61.6% this shows that the FED has a long road ahead of them to get back to full employment.
Nevertheless I am viewing FED TAPERING as a DOVISH TAPER event.
From a trading perspective therefore, I expect the USD to move lower. Nothing ever moves in a straight line, and we may test key resistance first at 94.70
I do not want to sound like a broken record BUT, the Central Bank divergence trade remains intact. I do NOT see the FED making any rash moves on interest rate normalisation once TAPERING is completed. The FED will lag several other G7 Central Banks who will be more hawkish than the FED. With the FED continually having to operate behind the curve with regards to full employment and having to allow for increasing pandemic issues this provides trading opportunities. With this as a backdrop, there are several FX trades that make sense in this environment.
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.
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 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 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.
WATCHING OUT FOR FOMO
(Fear of Missing Out)
Over the past couple of years, FOMO is a specific feeling that has received a great deal of media attention and the acronym fits perfectly into the trading mindset. In the basic of terms, it’s FEAR OF REGRET.
Whenever we see a tweet of a trading success, a screenshot of someone’s incredible trade or return, there is a natural urge to jump in. To think about leaping into a trade is a natural thought, who wouldn’t want to replicate those successes?
However, that’s extremely irrational and can end up costing you money from your broker account balance. The result that we see with the success of others is enticing, but it’s only a partial picture. We have no idea of the RISK they took on, no idea of the how they came to the idea to invest in what they did, and how much of their success is due to skill and preparation and finally, how much of the trade was down simply because of chance... luck!
Look, as I see it....
If you are chasing after others, you are already too late to the party. The fear of missing out leads traders to enter at bad entry prices, and it causes traders to abandon RISK and TRADE MANAGEMENT principles and analysis.
In fact, from my perspective, it is simply professional to trade with a TRADE PLAN, leaping in and out of trades without such a plan jeopardizes one’s trading longevity, which in my opinion is crucial to one’s success as a trader, who intends to be successful in the long term.
If you give in to FOMO, you are not being proactive you are being reactive... If you are being reactive, the gains ($$$) that were made from the trade have already been achieved and its already too late to replicate the success of whoever you’re fixating on.
So, how should you deal with FOMO?
- Trade with a TRADE PLAN
- Do NOT make exceptions because of hype
- Do NOT exceed your RISK TOLERANCE
- STICK to the rules you have set for yourself
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: #426 FREE NEWSLETTER
DATE: 10th October 2021