GBP PUKES ON RATE HIKE

Well last week was eagerly anticipated. One of the questions being asked is did we get good value for the FED and BOE announcements.

WTF is the answer to the question.

Just one note here to give you a flavour on where I sit vis-à-vis the FED.

This happy go lucky guy (above) FED Chair about town, stated in his Press Conference that despite raising rates, despite inflation increasing he expected the job rate to remain at 3.5% for this year through to 2023. The U.S. economy is moving now BUT are there not headwinds facing the main FED mandate of Full Employment?

I just cannot see the job rate NOT moving with the challenges and uncertainties ahead.

I will look at the BOE in the open area of the blog via the SOAPBOX and with regards to the FED this will be looked at, with my slant on things in Section 2 of the blog.

Moving on...

With regards to my trading activity, I am still reducing my overall exposure (RISK) but it is taking a few course corrections along the way. There are great BUY THE DIP FX opportunities available and I have been trying to establish positions. These entries, however, are based upon my levels to enter, so many are not triggering.

So, in summary, I am trying to be as disciplined as possible and at ALL times I am remaining cognisant of the fact we remain in a headline news driven market where the algorithms are driving some moves too far based on fact less, baseless data.

Moving on...

At the end of last week, THE WEEKLY FX PREMIUM 2022 current position was as follows: -

MARCH 2022 to date:
Total net pips = +1,848 pips

YEAR TO DATE 2022:
Total net pips = +4,429 pips
2022 pip objective = +14,920 pips
(29.68% of 2022 objective achieved)

1: THE SOAPBOX:

GBP PUKES ON RATE HIKE

A DOVISH hike and a cautious approach = a PUKE REACTION.

Basically, since the last meeting on February 3^rd several fundamental events have happened: -

The Russian invasion of Ukraine
The Energy crisis has intensified
Supply Chain issues are compounding
Fuel and Food Inflation is rocketing
UK Inflation could be over 8% in the next month or so
Household disposable income is being eradicated or has been eradicated

Compare this overview to last month. On February 4, members of the BOE MPC voting committee wanted a 0.50% increase in rates instead of the 0.25% that was applied. This time there was an uber dove dissenter voter in the MPC, Jon Cunliffe, who wanted rates to remain unchanged at 0.50%. Now the UK Bank Rate sits at 0.75% back to the pre-pandemic level.

However, as usual one needs to check the guidance in the statement and there was a little change in the wording.

This time:
“Some modest further tightening in Monetary Policy may be appropriate”

Last time it was:
“Some modest further tightening in Monetary Policy likely to be appropriate”

The GBP nose-dived (PUKED) on the Monetary Policy statement release. The GBP/USD shed just over 100 pips.

So, the markets reacted...

Whether it was the words above or was more to do with the slowdown in economic growth that is on the horizon in the UK I am not sure. In addition, the fact that the vote this time was 0.25% or nothing rather than 0.25% or 0.50% I do not think that the markets liked that as the chances of a 0.50% hike looks off the table for the foreseeable future.

Moving on...

As you can see and read from my notes on the chart, I expect the cable to be rangebound, 1.2800 through to 1.3400.

Look, I am a DIP BUYER. I am a longer-term position trader that views the cable to have a fair value beyond the current price levels. This is relative mainly to the EUROZONE and therefore I expect the EUR/GBP to play a significant move in GBP demand.

Many believe that the recent EUR/GBP move lower to 0.8200 to be “the bottom”, but I see a longer-term move through to 0.8100, maybe 0.8040 as being where a longer-term bottom will actually be formed. I have been playing a BEAR FLAG move since August 2021 and my (CORE) short trade has been in play from over a year earlier. My WEEKLY FX PREMIUM subscribers know all about the EUR/GBP.

The markets need to digest all the data from the Monetary Policy Statement.

So, in addition to my fair value beliefs why else am I a DIP BUYER?

The BOE forecast of 8% is well beyond previous indications and forecasts. The BOE has acted and think about this, if the inflation rate goes even higher than 8%, the BOE would act stronger moving forward.The fact that the ECB is raising rates gives it complete divergence over the ECB.
Last November, Andrew Bailey, Governor, dithered over raising rates and knows fully what the backlash from markets would be again if he held back.I get the uncertainties. I understand the issues but, 8% inflation = tough action required. The HAWKISH sentiment from the BOE is just a breath away.
What happens if there is peace, a truce or even a deal in the RUSSIA / UKRAINE war?This could affect USD sentiment.

Lots of “ifs and buts”, I know but under-pinning it all is “Fair Value and Central Bank Divergence”.

Time will tell....

Finally...

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

2: THE EDGE
(This section of the blog is exclusive for WEEKLY FX PREMIUM subscribers. It is combination of Charts, News, Central Bank oddities, Clarification points and general issues we face as FX Traders).

2.1: THE FEDRAL RESERVE (FED) – MONETARY POLICY STATEMENT:

2.2: THE CENTRAL BANK DIVERGENCE TRADE - UPDATE:

2.3: TRADE PLAN 2022 thru 2024 - REVIEW OF THE AUD:

2.4: UKRAINE:

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)

The Ukraine / Russia conflict now into its fourth week and despite headline news at times to the contrary, it looks like it could be a long war, or as Putin would say an extensive military manoeuvre.

It is very difficult to predict moves as we are swinging one way then another based on a mixture of geopolitical news, war headline news, sanctions against Russia headlines and finally the favourite of Financial markets what is the current story vis-à-vis interest rate hikes.

In this environment, FX has reacted strongly in favour of the flight to safety currencies; USD, JPY and CHF are all beneficiaries. Although last week we started to see some price and to some extent momentum shifts as the markets are starting to react to an extended conflict.

Financially, despite still a lot of talk, sometimes to the contrary 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...

I am looking at both STAGFLATION and RECCESSION being the issues that Central Banks and governments are potentially going to have to deal with moving forward. Both Russia and Ukraine are important to the supply of commodities into Europe (there are miles upon miles of pipelines running underground through Ukraine). Then also look at foodstuffs like Grains and I believe I read 30% of the worlds sunflower oil production... time to stock up!!

There are an increasing number of factors to consider.

Despite the fact it appears that most countries have increasing health controls, we STILL have a Global Health Pandemic. It has NOT yet completely disappeared into the distance when looking through the rearview mirror, despite all political unwinding.
There will be more mutations, as we enter what the politicians maybe naively 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 RUSSIA/ UKRAINE conflict has severe ramifications for European energy costs etc. This cannot be underestimated.
RUSSIAN sanctions have gone down a path that isolates Putin and his policies. They are now affecting day-to-day activities with the Russian population. Unfortunately, Putin is only interested in Putin. It will be interesting to see does the backlash against Putin’s policies grow as time moves forward.
The world DEBT burden is huge. We face RECCESSION conditions ahead as we are taxed to high heaven to steady a very rocky ship.
Do not lose sight of CHINA / TAIWAN. The South China Sea issue and the continual military “cat and dog” maneuvers between China and the S., I believe will only intensify.
Timing is everything... do NOT rule out CHINA being another piece in the jigsaw.

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.

I am trading but at about 50% of my normal trading activity. The RISKS associated with trading in a headline news environment do NOT align with my trading principles.

4: HEAD and RISK MANAGEMENT:

This section will return in a few weeks’ time.

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.

5.2: THE FINAL CUT:

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: @weeklyfxpremium (Restricted feed - FX PREMIUM Trade Information)
Twitter: @theanalogtrader (Restricted feed - FX PREMIUM Market Commentaries & Views)
Twitter: @thepipaccumulator (Open feed)
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BLOG VERSION: #448 FREE NEWSLETTER
DATE: 20^th March 2022