THE UNCERTAINTIES TAKING ROOT

The uncertainties for the markets to get to grips with continue, and what appears to be daily rotations out of bonds to equities to metals and to cryptos and all places back and in between again continue as different fund managers want a different mix in their portfolios for what lies ahead potentially.

If only I knew what that was... we can all dream. If ever you wanted to have a superpower this would be it. Mark my words, it will all end in tears for some people and there will be winners. I can guarantee however, that anyone (after its all said and done) who appears as a guest on CNBC would be a winner, they never lose a penny and they always seem to know what was going to happen ahead of the event that pushes the “markets over the cliff”.

This happened after the GFC, and it will happen again. Financial TV especially in the U.S. can only work on good news NOT reality. If you say something negative as a guest you are out, never to be seen again. CNBC only want BULLS; it never has a continued debate about how poor the market fundamentals are. It may talk about a specific stock issue or problem, however, for the markets BUY THE DIP was trademarked for CNBC. Just my opinion but there you go.

Moving on...

It's NOT easy looking at the Putin approach to Ukraine. Never mind trading FX. Putin holds more nuclear weapons that the U.S., more chemical weapons, and he has NO moral accountabilities at all. He has used chemical weapons in the UK and gave them to Assad in Syria to use on innocent civilians. To put it another way, he couldn’t give a shit. The west treats him like he cares. Putin only cares about Putin. If Putin had an incurable disease, then he really couldn’t give a shit. The macro perspective from any angle is NOT good.

Leading on from the pleasantries....

I decided to take on a bit more RISK last week, after some really detailed chart work. It paid off with +c.900 pips added last week to my March totals.

My (CORE) POSITION trades continued to deliver 50-60 pips here and there and several RADAR trades came through nicely.

EUR/NOK and USD/NOK shorts into the NORGES BANK rate announcement.
EUR/CAD shorts on the back of Central Bank Divergence.
AUD/CHF longs on the back of AUD strength.

Very grateful for adding pips on the back of trades last week, including those highlighted above.

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

MARCH 2022 to date:
Total net pips = +2,729 pips

YEAR TO DATE 2022:
Total net pips = +5,310 pips
2022 pip objective = +14,920 pips
(35.59% of 2022 objective achieved)

1: THE SOAPBOX:

THE UNCERTAINTIES TAKING ROOT
(IT’S THE END OF THE WORLD AS WE KNOW IT)

We are now entering week five of the Russian invasion of Ukraine. The markets have yo-yoed, financial institutions are now busy rotating from one market to another to not only search for yield but also get prepared for what could be Armageddon. Most situations like this tend to have a BLACK SWAN event in the markets to signify its end and the start of something new.

That said, I want to look at FX.

What would an Armageddon move look like across some of the majors?

Over recent years, events that immediately spring to my mind to cause havoc in FX were: -

The Great Financial Crash (2008-9)
The EUR/CHF PEG removed (January 2015)
The Coronavirus (Covid-19) lows (March 2020)

What could cause an Armageddon style BLACK SWAN event vis-à-vis Ukraine?

Chemical Attack?
Nuclear Attack?
Rogue bomb landing in a NATO country?
Belarus entering the war?
Putin looking to invade more than just Ukraine?
China openly supporting Russia expansionist policy and supporting Russia with weapons in exchange for OIL?
(It is already widely rumoured that China is buying Russian OIL deeply discounted in return for Foreign Currencies for Russia’s Central Bank reserves)
NATO enters the conflict to support Ukraine?
A NATO managed “No -fly” zone over Ukraine is created and managed?

There are many, many scenarios; those above are just the first eight that spring to mind.

Whilst these scenarios may today appear way “off point” and look “extreme” in another six weeks of conflict will they STILL remain in the “off point” and “extreme” categories?

Yes, like everyone else I have more questions than answers.

What I can guarantee everyone reading this article is that after Ukraine no matter how it ends, IT’S THE END OF THE WORLD AS WE KNOW IT, and as Michael Stripe of REM sings to end the line in the song “whether you feel fine” will be a matter of some opinion.

Look following a Global Pandemic, things will change. Add an invasion of a sovereign state and we have, in my opinion, lots of changes coming, market fundamentals will be re-aligned.

Global Trade, Supply chains, Manufacturing process, location and distribution of what will be re-defined as essential Business for national security will become the norm. This is not for today, but it will be something that I return to in the future.

Moving on...

It is the extent of the potential moves higher and lower that brings me to advise you why I call the following an “ARMAGEDDON MOVE”.

For the Covid-19 “lockdowns” pandemic move from March 2020, moves varied in FX, when looking just at the USD majors ranged from a 5% through to a 10% correction. Armageddon = Armageddon and I think that those moves can be doubled.

What follows is hypothetical at this stage BUT... never say never.

Let me give you a flavour of a potential Armageddon from my perspective in FX should we have a BLACK SWAN event to rock the markets. Some of these are very obvious.

GOLD would rally.
The flight to safety in FX would be manifested in an instant. The USD index would rocket higher. The USD would strengthen
The JPY would move lower in correlation with equities. I do NOT see a flight to safety move, initially anyhow.
I think against the grain BUT commodity currencies would strengthen across the board. However, initially they will fall with equities as I think that this relationship in a BLACK SWAN event remains intact.The move higher in commodity currencies would be a “Freight Train” move and one to definitely get on board with.
Commodities in general would rally BUT they will fall instantly before a strong, bold recovery.
In addition to GOLD the other Metals together with OIL would rally.
The Bond and Equity markets would be decimated.
(Tongue in Cheek) CNBC would schedule a “MARKETS IN TURMOIL” programming change for 7PM EST.

OK... It’s very easy to sit at my desk, in the cold light of day, and make statements and predictions such as these. It’s all hypothetical as I have said BUT the idea here is to NOT spread fear, it is to make us think about where we are with potential outcomes.

Just because equity traders are complacent, we should NOT be. In FX moves are really costly if they go against us. We are at the tail-end, hopefully, of a global pandemic and we have a war in Ukraine that could spread across 100% of Europe upon the press of one wrong button. That is the reality.

Just shouting sanctions does NOT hurt Putin...

He has little respect for life, he only cares about himself and it looks like he is prepared to crush his own people and the Russian economy with his plans. A madman... anything could happen.

Moving on...

Below are some charts with my thoughts contained on the charts in addition to what I have written about here.

S&P500:

USD DOLLAR INDEX (DXY):

EUR/USD:

USD/JPY:

AUD/USD:

USD/CAD:

Look, these are just my thoughts, an opinion. As it is often said, “If I knew what was going to happen” I would NOT be here writing this blog!

In real terms, this is impossible to trade. The bottom line is, if things start to turn nasty the only thing we can do as retail FX traders is to close out of everything. This type of event should it happen are account breaking for retail traders never mind the wider spectrum of possible outcomes for the broader impact.

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 a combination of charts, news, Central Bank oddities, clarification points and general issues we face as FX Traders. Basically, it contains issues, thoughts and news items that are bubbling under the main market focus points, BUT they are in my opinion worthy of note.

2.1: CENTRAL BANKS LAST WEEK:

2.1.1: NORGES BANK:

2.1.2: THE SWISS NATIONAL BANK (SNB):

2.2: THE EUROZONE:

2.1.1: CONSUMER CONFIDENCE:

2.1.2: PMi POSITIVE BUT WHAT’S UNDER THE HOOD:

2.1.3: GERMAN IFO COLLAPSED:

2.1.4: GERMAN INFLATION:

2.3: U.S. HOUSING:

2.4: QUANTITATIVE EASING (AN EXPLANATION):

3: THE BIGGER PICTURE:

MY 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.

Moving on...

The Ukraine / Russia conflict now into its fifth week and it looks like it could be a long war.

It is widely reported that that Russians underestimated how long it would take to take over 100% control of Ukraine. In fact, even if Russia did take control, what type of control would it be. The Ukrainian resistance, in my opinion, would be a continual thorn in the side.

It is very difficult to predict the FX market moves vis-à-vis this conflict as we are swinging one way then another based on a mixture of geopolitical news, war headline news, and sanctions against Russia headlines. Add to this backdrop a continual barrage of headlines about potential interest rate hikes, energy crisis headlines, a resurgent Covid-19 infection rate and one would think continual RISK OFF given all the uncertainties but, we have swings of RISK ON as markets try to move on from headlines in the search for yield.

In addition, we have the “Great Rotation” in place as fund managers move from equities, to bonds, to metals, to cash, to commodities and back around the circle once again. In this environment, FX has reacted strongly in favour of the flight to safety currencies; USD, JPY and CHF are all beneficiaries. Given the recent moves in the Bond market the highly correlated USD/JPY pair in particular has been moving higher and many believe 125.00 is a case of when not if in the coming weeks.

Looking further ahead...

What is next?

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 removed covid restrictions on distancing and mask mandates, we STILL have a Global Health Pandemic. We are now witnessing in CHINA, HONG KONG and throughout EUROPE increasing infection rates.
Politicians in the main have moved on... infection rates appear higher than ever, death rates remain elevated. Most people here in Nova Scotia, STILL wear a mask.CHINA has introduced a zero covid policy which is starting to bear fruit, albeit slowly. HONG KONG is ready to open borders up again on a limited basis.Look; Covid-19 It has NOT yet completely disappeared into the distance when looking through the rearview mirror, despite all the political unwinding.
There are STILL SUPPLY CHAIN issues. CHINA closing ports will trickle through 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, not that we need more headlines on INFLATION as it looks like the UK will top 10% later in 2022.
The RUSSIA/ UKRAINE conflict has had economic and social hardships for the European population on the back of energy costs etc. This cannot be underestimated. The long-term ramifications of this cannot be underestimated.RUSSIAN sanctions have gone down a path that isolates Putin and his policies. They affect the day-to-day activities with the Russian population. It will be interesting to see does the backlash against Putin’s policies grow as time moves forward.Remember; Putin is only interested in Putin.
He has used chemical warfare in the UK and provided it for use in SYRIA. The ethics are NOT those of the west and his military mirror his position.

Whilst talks continue between RUSSIA and UKRAINE these are largely time-wasting and only serve media outlets with content based upon baseless facts.
The world DEBT burden is huge and just growing daily.We face RECCESSION conditions ahead in many G7 countries as Central Banks are quite prepared to sacrifice economies to manage INFLATION. Unemployment will rise as a result.
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.

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 50-60%% 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: #449 FREE NEWSLETTER
DATE: 27^th March 2022