2022 is well underway and it is very noticeable that we now have some two-way trading opportunities back in play.
Without doubt INFLATION has been a game changer for Central Bank leaders as they have come to grips with and manage what they so recently desperately wanted but could NOT get... now they have it they are struggling on the best way to deal with INFLATION with the backdrop of market expectations.
Last week we saw the Reserve Bank of Australia (RBA), The Bank of England (BOE), and The European Central Bank (ECB) all meet and communicate changes with their Monetary Policy outlook.
- The RBA stopped Quantitative Easing immediately, it was previously AUD$4billion per month. Philip Lowe, RBA Governor is still not confirming rate increases in 2022, but the prior not until 2024 looks a little crazy now.
- The BOE raised overnight rates by 0.25%. Back-to-back rate hikes. The vote to move rates higher was 5-4 from the committee. Very interestingly was that the “4” wanted 0.50%.Quantitative Tightening (QT) is also in play as the BOE want to reduce the size of its Balance Sheet.Andrew Bailey, BOE Governor, talked back the frequency of future hikes during the Press Conference that followed the announcement. However, given that 4 out of 9 committee members wanted a 0.50% hike, it seems a little crazy not to think that at the next meeting due 17th March that a further 0.25% hike will NOT be on the cards.
- The ECB kept everything vis-à-vis regarding initiatives and interest rates etc., however it was the commentary by Christine Lagarde that surprised. She came across more HAWKISH than expected in her language.It all centred around her refusal to re-iterate her earlier statement when she stated that “It is very unlikely that we raise interest rates in the year 2022”. She was pushed a couple of times about this, but she bullshitted around the earlier statement.It was a little confusing to get the narrative correct. Lagarde did a copy and paste at times from earlier Press Conferences, BUT we have moved on quite a bit since then. Lagarde’s comments on energy, growth, inflation, and wage inflation seemed a little muddled and it was hard NOT to walk away with confusion.At one point I thought with what she stated on growth and inflation she was going to say that the projections showed that the EU target inflation would back inside 2% by the end of 2022. It was a struggle for me.No surprise...In the usual ECB way of communication, after the Press Conference it was announced that the ECB Governing Council is to undertake what amounts to a strategic review prior to the next Monetary Policy meeting and Press Conference which is due March 10th, 2022.
The market reaction via EUR/USD, EUR/GBP and other cross rates was in my opinion overplayed. I just did NOT get clarity. Nevertheless, the moves with EUR crosses were just incredible and prices pushed previous resistance levels.
At the March meeting we will see a clatter of new projections, which timewise is only about 4 weeks away. In the interim it looks like we will be in very volatile times in FX.
Looking at month one 2022 performance of the WEEKLY FX PREMIUM.
JANUARY and YEAR TO DATE 2022:
Total net pips = +1,856 pips
(12.44% of my 2022 objective of +14,920 net pips)
1: THE WEEKLY FX PREMIUM – YEAR TO DATE 2022 PERFORMANCE:
1.1: YEAR TO DATE TRADE STYLE PERFORMANCE
(including the net WEEKLY FX PREMIUM returns):
Basically, referring to the spreadsheet above, this reports on potential income for single-lot trades and for simplicity I have valued Micro lots at USD$0.10 per trade, Micro lots at USD$1.00 per trade and finally Standard lots at USD$10.00 per trade.
Obviously, you trade your position size to the levels you can comfortably trade your broker account without creating margin calls etc.
Referring to the year-to-date spreadsheet above and using the highlighted reference points: -
D: - The gross year to date income from all three trade styles is USD$1,856.00. This is based upon single Mini lot trades valued at USD$1.00 which, correlates with my reporting of net pips year to date of +1,856 pips.
E: - Costs trade reflects the fact that 42 Mini lot trades in total have completed so far this year at a cost of 42 x USD1.00 = USD$42.00.
F: - When subtracting B from A this gives a net income total based on single Mini lot trades of USD$1,814.00.
G: - An annual WEEKLY FX PREMIUM subscription costs CAD$1,500.00, which is approximately USD$1,200.00.
H: - After the annual subscription cost is deducted, the net income after all costs is USD$614.00 based off trading just single Mini lot trades.
An interesting point here is that had you taken all the trades I had taken and exited at the same time as me, as either a single Standard Lot or a single Mini lot traders your annual WEEKLY FX PREMIUM subscription would already be paid for, and you would be in profit for the year after just one month.
This was a great start to 2022.
In every area of the overall performance it was strong. The only blot on the landscape was being caught on the wrong side of my EUR/NZD short trade. I decided to take the pain of a loss across my open positions, and I booked a total of a 620-pip loss.
I was profitable across all three trade styles which is also very pleasing.
Looking at the other areas upon which I measure myself: -
Pips per completed trade: Objective = 40 pips
January performance = 44.19 pips per completed trade.
Profitable / Loss making trades ratio: Objective = 80% / 20%
January performance = 95% / 5%.
Overall, I am very grateful for this performance and start of 2022.
1.2: MONTHLY TRADE BY TRADE REVIEW:
There is a huge amount of additional monthly and year to date trading information and reports available on my website https://www.weeklyfxdrivethru.com This can be found on my home / landing page under the tab at the top of the page titled HISTORY / PERFORMANCE, scroll down to “This year’s Performance”.
2: THE SOAPBOX:
BE CAREFUL WHAT YOU WISH FOR...
Since the GFC, Central Bank Presidents and Governors have been fighting with the fact they could NOT get inflation into and through their respective economies.
The ECB has for meeting after meeting for years and years been talking up inflation, claiming that policies would bring inflation up to the target area circa 2%.
Enter a global pandemic, with supply chain issues and an energy crisis to boot and the ECB finally gets what it has wanted for so long.
BE CAREFUL WHAT YOU WISH FOR... last week’s ECB Press Conference was an absolute disaster from a messaging / forward guidance perspective.
For months the ECB via Christine Lagarde, President of the Governing Council had been sticking to the story that they believed inflation to be TRANSITORY and that towards the latter end of 2022 they expected via their forecasts that inflation would subside in line with better supply chains and energy prices stabilizing.
Last week, Thursday to be precise, the ECB pivoted.
Lagarde would no longer stand behind her previous guidance last December that the ECB did not see interest rates moving higher in 2022, in fact the word unchanged was used.
The Press Conference was so poor on messaging that within an hour or so of its completion, the ECB rushed out a communique stating that a special meeting would take place of the Governing Council as it wanted to “gear up” for a Policy Announcement in March, March 10th to be exact the next ECB meeting when it is now widely expected that a statement stating that a rate hike in 2022 cannot now be ruled out.
Dovish forward guidance has now gone, as one would expect the markets are NOW pricing in multiple interest rate hikes in 2022.
Therefore, I am now looking at a shift of policy myself as the (ECB-FED) CENTRAL BANK DIVERGENCE TRADE appears no longer to be as cut and dried as before. It seems crazy to say this as both the FED and ECB are still buying billions under their Quantitative Easing (QE) programs.
However, I cannot grab the concept of multiple interest rate increases from the ECB, looking from where we are currently. Having said that, there are several actions that can be taken by the ECB to show a shift in policy, namely removing the negative 0.50% inter-bank deposit facility and exit the Asset Purchase Program. This is tightening even though there are no “REAL” interest rate hikes.
Look, EUROZONE inflation hit a record of 5.1% in January. The pressure to act has been growing on the ECB.
The general rise in the cost of living, energy inflation, maybe a subdued wage inflation compared to the UK and the U.S. BUT nevertheless going into their meeting last week they knew what the FED and BOE thought and what their actions were given similar circumstances.
Lagarde tried to paint a different set of fundamentals on EU inflation pressures versus other economies, you can put lipstick on a pig, but it’s still a pig!
Hence the market reaction to what looks like a Central bank way, way behind the curve. Now that the FX markets have reacted, EUR/USD, EUR/GBP, EUR/CAD, EUR/AUD, and EUR/NZD have all moved higher, you have to ask the question over-cooked or not (To exacerbate the position we also had U.S. Non-Farm Payrolls following the ECB Press Conference 24 hours later)?
Am I eating humble pie?
Over recent weeks when talking about ECB interest rate hikes I have showed a .png file of pink flying pigs and making references to Hell Freezing Over.
As I see it, unless I am wrong, nothing has been done yet. It’s all been jawboning and NOT good jawboning at that. Yes, I have ended two (CORE) trades that were linked to EUR Central Bank Divergence, but I think that that is good TRADE MANAGEMENT. I took losses, painful as that was, I move on.
Look... the period of Policy Accommodation from ECB is probably over.
Moving on, let’s look at EUR/USD rates...
I think that we can call the recent moves lower “BOTTOMS” and we are now following an explosive move higher in a new range of 1.1300 thru 1.1500.
Can we move higher?
My thoughts are on the EUR/USD chart below.
Look, it’s fair to say that the ECB were backed into a corner, of their own doing I would add with regards their take on basically INFLATION and whether it was TRANSITORY or not.
Lagarde’s Press Conference was neither one thing nor another, other than confusion... maybe that was goal?
What the Press Conference did highlight which is really concerning was that there is no agreement on a plan beyond an accommodative policy. The pathway forward looks like its being made up on the spur of the moment based upon the questions asked by the assembled press. A hastily arranged strategic review backs this thought up. Surely if there was a plan she would have referred all and sundry to the strategy review meeting at the outset of the Press Conference before fumbling through.
If this was in the private sector the words and phrases such as incompetence performance review, and re-assignment or let go would be uttered.
The famous Corporate America TLA from the past... DCM (Don’t come Monday). I thought Lagarde was that poor.
3: THE EDGE: (SOME OF WHAT’S ON THE OTHER SIDE)
(This section of the blog is exclusive for WEEKLY FX PREMIUM subscribers)
3.1: WEEKLY FX PREMIUM – NEW EXCLUSIVE TWITTER FEED UPDATE:
3.2: THE CENTRAL BANK DIVERGENCE TRADE:
3.3: MANAGING THE MARKETS NARRATIVE RE INTEREST RATE HIKES:
3.4: THE WEEK AHEAD:
4: 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)
We are in a huge period of uncertainty once again as both the Markets and Central Banks come to terms with what’s next.
INFLATION, which almost every country wanted and fought to try and achieve is now here in what appears a stubborn level egged on by wage inflation, which is permanent.
The lesson here is: BE CAREFUL WHAT YOU WISH FOR...
We now have the ludicrous situation where Major Bank analysts, Hedge Fund managers, Pension Fund managers and other large Institutional analysts are caught in a frenzy of what is basically a lottery without a ticket, trying to second guess what Central Bank Governors, Presidents and similar should do to counter INFLATION.
We saw the opinions from the Reserve Bank of Australia (RBA), The Bank of England (BOE) and the European Central Bank (ECB), confuse rather than provide clarity. The result is... more uncertainty and increasing speculation, which frankly is NOT what we want.
In my opinion, we will have to deal with this nonsense throughout Q1 2022.
Do NOT lose sight of the bigger picture.
- We STILL have a Global Health Pandemic. It has NOT yet disappeared into the distance when looking through the rearview mirror.There will be more mutations, as we enter what the politicians call the home straight.
- There are STILL SUPPLY CHAIN issues and despite what Central Bank officials think they are, they have ZERO influence in connection with supply chains.In fact, their actions can create more INFLATION (The Assassin of Hope).
- The world DEBT burden is huge. We face RECCESSION conditions ahead as we are taxed to high heaven to steady a very rocky ship.
There are other pieces in the BIG PICTURE jigsaw moving forward to slot into position. There will be plenty of trading opportunities this year as Politician’s dither and fumble their way forward aided by Central Bank leaders who frankly are trying to navigate unchartered waters, that most if not all would say, they did NOT sign up for.
Do NOT forget what is going on near to and at the border of Ukraine and Russia.
I think at this point, it would make sense to post here what I consider to be the KEY DRIVERS in 2022.
My KEY DRIVERS for 2022 are: -
- CENTRAL BANK POLICIES:
Divergence (The Central Bank Divergence Trade)
- INFLATION / DEBT ISSUES / CREDIT DEFAULTS:
Inflation is a game changer versus the past
Emergence of new Variants
Market Reaction re RISK ON / RISK OFF
Learning how to live with the Pandemic.
- SUPPLY CHAIN ISSUES:
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
5: TRADING PSYCHOLOGY:
FEAR OF MISSING OUT (FOMO):
I touched on this subject recently when I was writing a weekly piece in this section of the blog explaining from my perspective the key areas and aspects of TRADING PSYCHOLOGY.
Over the last few weeks, I have welcomed into the WEEKLY FX PREMIUM either as individuals or as part of a trading group several traders who are fascinated by this topic. In recent conversations the subject of FOMO resonated so frequently, I thought it worthy of a revisit.
Look, there’s comfort in the HERD. The HERD MENTALITY gives many people ease of acceptance and there is NO requirement to stand out, in fact, the whole purpose of the HERD is to keep you in THE HERD.
Now I am NOT saying that from a Trading perspective we should all be contrarian in our trading approach to ensure we stand out and be recognized as something special.
I know a very well respected trader in the FX market who constantly looks for reassurance of being a great trader by taking contrarian trades. His associates say bugger all when 80% of the trades fail but when the other 20% turn out to be inspired, they are all over him like rash. Does he make money, I don’t honestly know, but in FX there is more bullshit than you will find at the Texan abattoir.
Well known billionaire Hedge Fund manager, Paul Tudor Jones says that he makes his biggest money at market turning points so maybe there is something to be said for being contrarian.
What I will say is that when you are using your own money you must in my opinion play the percentage game and be clever about it.
As I see it, it’s great to pick up short trades at the highs and conversely a long trade at the bottom, it is a great feeling and when the trade confirms on a daily close there is a major sense of achievement.
BUYING DIPS and SELLING RIPS is what Forex Trading is all about, however there are times we miss an opportunity, for whatever the reason is and then this is a typical time when FOMO can creep into our mind, especially if we see traders, we recognize shouting from the rooftops how wonderful they are.
“Fear and Greed”, The Herd Mentality, the abstract belief that this trade “Is the One!”, the “One” not to miss.... FOMO hits us all in different ways, but a similar thought felt by most of us at some stage is “FFS, how did I miss that one”
How we react to this situation, is what separates the Traders from the Gamblers.
I came across a piece a long time ago titled 7 THINGS a FOMO trader says.... Let me add a few of them here and see if any of this resonates with you.
“THEY’RE ALL DOING IT, SO IT CAN’T BE THAT BAD”
A herd mentality can lead to irresponsible trade decisions.
“JUST THINK HOW MUCH MONEY I COULD MAKE”
A trade approach governed by greed often end badly
“HMMMMM, AH GO ON I’LL GIVE IT A GO”
Indecision never a good sign. Procrastination a bad starting place to trade from
“I SHOULD HAVE KNOWN THAT WOULD HAPPEN”
Hindsight is just a wonderful thing.
It only skews perspective and makes you dwell on the past
“I’M SCARED I’LL MISS OUT ON THIS GREAT OPPORTUNITY”
FOMO at its most fundamental.
There is a market every day.
There will be plenty of other opportunities.
The above examples of FOMO are all relevant and at some stage of our trading journey, we will touch upon one or more of these FOMO thoughts.
I believe in TRADING PSYCHOLOGY; I believe in the fact that at times the best way to trade is to do absolutely nothing. Take in the bigger picture. Sit back and wait, let the dust settle and see with what has just happened how does it affect your TRADING PLANS with individual currency pairs and your overall TRADE PLAN.
FOMO can be an account killer if you cannot control your HEAD MANAGEMENT. Once this discipline is mastered, it gives you the greatest chance of all to have trading longevity. Failure.... well, eventually it will all catch up one day.
At the end of the day, are you in a 100-metre dash or a marathon?
6: CLOSING THOUGHTS:
6.1: 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.
6.2: THE LAST DROP
Very sad news to announce here is the passing of Bob Proctor the Master of Paradigms on 2nd February 2022. He had a positive influence on my life, although I never met him, his courses were insightful and so influential. His narrative was inspirational and his ability to communicate and inspire an absolute gift. A true leader within the Personal Development and Wealth Creation industry RIP Bob.
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: #442 FREE NEWSLETTER
DATE: 6th February 2022