No one could have predicted what has just happened in Q1.
Initially, we were fully engaged in Central Bank talk about how many hikes and when, observing the major banks and financial analysts trying to outdo each other with the most extreme number of rate increases and by what size. It was all quite amusing, then of course we had RUSSIA invade UKRAINE.
In the U.S., the initial market reactions were predictable but like we have seen previously, even with a global health scare, a pandemic, to a large extent the U.S. markets seem to shrug off bad news, or, if you don’t accept that description, how about the U.S. markets reacted with a high level of complacency. Whichever side of the bread you have your butter on, the end result was the same.... a large amount of head scratching trying to understand market moves.
In Europe, it was a different reaction completely. Given the geographical proximity to the conflict and the reliance on energy from Russia, European equity markets were hit hard, especially the DAX in Germany. Energy and food inflation is spiraling across all European countries. The uncertainties of the energy supply are a constant threat.
Below, I include a .png file showing Gas Pipelines and LNG Carriers into the European Union. Not quite sure I understand it all and I cannot recall where I found it. Having said that it gives a clear indication of the reliance and complexities involved.
To a large extent FX was relatively quiet to begin with, apart from the expected RISK OFF hit, but it was mainly focussed on European currencies. As time passed the FX reaction, especially with the EUR, when the fundamentals had not altered was difficult to comprehend.
Headline news from Europe vis-à-vis the war in UKRAINE was largely FAKE NEWS deliberately released and the algorithms had a field day. With the trust of a child, the markets flew one way then the other.
For the last three or four weeks on the back of dreadful news from the war in UKRAINE, headline inflation data in Europe and the U.S. has continued to move higher and the call for monetary tightening at a faster pace has increased bringing most Central Banks to the conclusion that with STAGFLATION probably already in situ, they will have no alternative but to sacrifice their respective economies and raise interest rates faster creating RECESSION.
From my perspective it seems like until there is a HUGE SHOCK from the UKRAINE situation, the markets have largely moved on to INFLATION, RECESSION and inter-market rotations from consumer sensitive stocks to bonds, in the search of yield.
Just think weeks ago the market focus was:
- GLOBAL DEBT
- NEW COVID-10 VARIANTS TO SPUR THE PANDEMIC
- SUPPLY CHAIN ISSUES
now we tag on...
- ECONOMIC SANCTIONS AGAINST RUSSIA and THE OLIGARCHS
- ENERGY & FOOD INFLATION ROCKETING
- FUEL SUPPLY ISSUES SPUR PRICE RISES
- OIL PRICING ABOVE USD$100.00
- WAR IN UKRAINE
- CHINA PORTS LOCK DOWN TO SPUR SUPPLY CHAIN ISSUES
- CHINA ZERO POLICY LOCKDOWNS DUE TO COVID
- COVID CASE LOADS RISING IN EUROPE & THE U.S.
- (FUTURE) HUMANITARIUM CRISIS IN EUROPE
The above is some list to take in. There is a huge amount for Politicians, Finance Ministers, and Central Bankers to absorb and plan a way through over the coming years. Make no mistake, we will all be paying for this list for years, if not decades. The list of uncertainties to grapple with never gets smaller but it does get more and more complicated.
I have one question that no-one can answer for me as an FX trader.
“How come the EUR/USD did not collapse thru 1.0800 and trade closer to parity given all the EUROZONE negative news?”
Here is the March performance of the WEEKLY FX PREMIUM.
Total net pips = +2,756 pips.
YEAR TO DATE 2022:
Total net pips = +5,337 pips
(35.77% of my 2022 objective of +14,920 net pips)
Moving on once more...
This will be the last blog for a few weeks as I re-charge my batteries over the Easter break. The DRIVE THRU blog will return on May 1st, 2022.
For those who may be interested in getting “on-board” and joining the WEEKLY FX PREMIUM, I am offering a Spring Promotion, details of which can be found in Section 6 of this blog and on my website under the home page tab titled Subscription Options. Scroll down to Promtions and to Subscribe hit the Subscribe sub-tab.
1: THE WEEKLY FX PREMIUM – MARCH 2022 PERFORMANCE:
1.1: MONTHLY TRADE STYLE PERFORMANCE:
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, Mini 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.
Therefore, on the spreadsheet using the highlighted reference points: -:
A: - This represents at USD$1.00 (Mini Lots) per trade a USD$ income of $2,756.00 which, correlates to my reporting of net pips for the month of +2,756 pips.
B: - Costs trade reflects the fact that 76 Mini lot trades in total were undertaken at a cost of 76 x USD1.00 = USD$76.00.
C: - When subtracting B from A this gives a net income total based on trading just single Mini lot trades of USD$2,680.00.
1.2: MY THOUGHTS ON THE MONTH (THAT WAS):
Obviously, when you first look at the monthly returns, March was a great month for pips. Combining the January and February total of pips together equates to +2,581 pips and the March return was +2,756 pips. One has to be happy and grateful, which of course I am.
However, in the month I gave 970 pips in losses to my brokers. When I run a quick analysis my EUR/USD short position accounted for most (35%) of this.
RADAR TRADE: EUR/USD
TRADE SUMMARY, REVIEW and CHART ANALYSIS:
Trade Direction: Short
Overall Position Size: 85%
RAD291 Entered 29th March at 1.1095 – Stop was at 1.1140 Loss = 45 pips
RAD292 Entered 29th March at 1.1115 – Stop was at 1.1140 Loss = 25 pips
RAD307 Entered 28th March at 1.0950 – Stop was at 1.1140 Loss = 190 pips
RAD311 Entered 29th March at 1.1060 – Stop was at 1.1140 Loss = 80 pips
Stopped out 30th March 2022
Total Loss on trade = 340 pips
Below I have charted the trade to give a visual appreciation of why the trade was entered.
Look, I do not dwell too much on failed trades. No attachment and move on is the best policy, but obviously, after journaling my trades, which I highly recommend as a discipline to adopt if you do NOT currently do so, I want to do a quick review.
- Did I follow my TRADE PLAN?
- Would I take the trade again with the same circumstances?
- Was I too emotional over the trade?
Those are my usual questions that I challenge myself with.
- I did follow my TRADE PLAN.
- Technically the trade stood up. To place a stop at a higher level was an increasing RISK based upon the potential for a short squeeze, into which, I did NOT want to participate. In addition, in a headline driven market with a backdrop of a potential ceasefire in UKRAINE at the time, my STOP had to be firm.
- My RISK was firm based on the fundamentals.
- The trade stood up and the RISK / REWARD was good.
- I also had a strong conviction over the trade without being too emotional.
At the end of the day, it was just one of those trades, a typical losing trade in a headline driven market which happens, pick yourself up and get on with it.
However, some of you will be asking how do I react when we closed last week closer to 1.1000 than 1.1100?
The answer I have given myself was as follows: The trade was on the limit of my guidelines for a Radar trade. If I had a greater conviction, it should have been a (CORE) Position trade and right now it would still be LIVE and positive rather than the loss I posted.
I know this sounds blasé, but I move on....
Looking at the positive trades, I took well over 300 pips on positive EUR/USD trades, almost 200 pips on EUR/CAD trades during March, but the stand out for me was the consistency with my (CORE) Position trades with over +2,650 pips in the month. This was really a good performance given the backdrop.
My pips generated for completed Position trades were:
42 completed trades
+2,652 pips generated
= +63 pips per completed trade
Overall including Flash and Radar trades the pips per completed drops lower:
76 completed trades
= +36.26 pips per completed trade
My objective is 40 pips per completed trade.
The performance ratio on positive / negative trades was 82% / 18%, which is above my objective of 80% / 20%.
1.3: MONTHLY TRADE BY TRADE REVIEW:
2: THE WEEKLY FX PREMIUM – YEAR TO DATE 2022 PERFORMANCE:
2.1: YEAR TO DATE TRADE STYLE PERFORMANCE
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$5,337.00. 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 +5,337 pips.
E: - Costs to trade reflects the fact that 147 Mini lot trades in total have completed so far this year at a cost of 147 x USD1.00 = USD$147.00.
F: - When subtracting B from A this gives a net income total based on single Mini lot trades of USD$5,190.00.
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$3,990.00 based off trading just single Mini lot trades.
With regards to my other objectives: -
Overall pips per completed trade:
147 completed trades
= +36.31 pips per completed trade
My objective is 40 pips per completed trade.
The performance ratio on positive / negative trades was 86% / 14%, which is above my objective of 80% / 20%.
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”.
3: THE SOAPBOX:
“AN UP RALLY IN A BEAR MOVE”
“The markets are complacent”.
There is absolutely no question in my mind that the above statement is 100% on point. Can I blame anyone for the complacency? not really but, I do blame the FED for a lot of the fundamentals that we are having to deal with today.
I think it was about 2 maybe 3 years ago, I wrote a blog with the title “THE CHICKENS WILL EVENTUALLY COME HOME TO ROOST”. Guess what we are there, and the chickens have arrived!
In my day-to-day activities whether in FX TRADING or PERSONAL GROWTH, I often refer to common sense being required when assessing situations. From a FX perspective, this is probably why I prefer longer-term trading in the sense that one can take a broader view, a wider perspective to obtain a clarity and a robust conviction to move forward.
Why do I blame the FED?
From my point of view, the FED under Bernanke introduced a level of market manipulation, copied around the G7 called Quantitative Easing (QE).
Very briefly, with Central Banks buying up all debt in the bond markets the inter-market equilibriums were skewed. Markets at a stroke were manipulated by the FED and because many Central Bankers do NOT have an original thought in their brains like lambs to the slaughter, we have manipulated markets worldwide.
Investment companies starved of a balanced approach in search of yields for clients were in reality forced to look away from bonds. Cryptocurrencies despite all the hype are NOT a reliable store of value, 30% swings in price per day have been seen and this put pay to that. Hedge Funds take a little different view, they will include some crypto currencies in their portfolios as they will take on more RISK. However, the mainstream investment companies and pension funds to date, are not really interested, which means equities remain the sole focus.
So, in the hunt for yield there was only one place to hunt... equities.
Please remember, to ignore what we were told by TRUMP.... the S&P is not representative of the current state of the economy. Many would like this to be the case, but it is NOT and complacency steps in when you start to lose focus and believe some of the commentaries on CNBC, FOX and BLOOMBERG.
Below is the daily chart of the SPX, the S&P500.
Look, I get it, I have highlighted it on the chart, we have higher lows and higher highs (BLUE Horizontal rays) is this not a BULLISH move. The RED dotted line shows the path the S&P has traced since basically the beginning of the year.
Some may say its marginal, but for me this is a BEARISH move and recently we have only seen AN UP RALLY IN A BEAR MOVE.
Here is my question for those who look at the chart and say it’s not a BEAR move. What fundamental event created a move higher of c.500 S&P points?
There are so many uncertainties hanging over this market, not just in the U.S. but also in Europe and the European markets have largely been taken to the woodshed.
Here's one reason for the move higher.
Investment and fund managers are looking straight at TINA. There is no alternative, these people need to produce yield for investors, otherwise they will see will see clients request redemptions from the funds they manage or if they are pension fund managers they will be graded against the competition and they fall below their jobs are in jeopardy.
Can you possibly imagine what it must be like for fund managers having to take positions against their better judgements?
Last week, I wrote about ARMAGEDDON and ARMAGEDDON trade set ups for FX and I joked with my wife as soon as the blog was posted watch for the rally.... she was NOT disappointed!
This is the normal, the new routine that we to deal with.
- Bad news markets fall
- They remain lower initially based on fundamentals
- Then we get the move higher if there is no more bad news
- The markets assume the bad news will be worked through and out
- We only go lower again if the bad news level is raised significantly over the initial level.
Basically, I saw something like the following earlier last week on Twitter, I cannot remember from who to give them credit, but it goes something like the following: -
- Buy the war
- Buy the peace
- Buy the interest rate cuts
- Buy the interest rate hikes
- Buy the expansion
- Buy the recession
- Buy the deflation
- Buy the stagflation
- Buy the inflation
This is the new normal. Do not be fooled by what you think you see. I am NOT saying become a long-term trader to ignore the noise. What I am saying though is be aware that ALL is NOT what it seems and trade accordingly. What I mean by that is smaller position sizes with a little wider stop loss BUT always trade within your TRADE PLAN. If you do NOT have a TRADE PLAN, write one up! If you have a long-term view about being active in the markets, you owe it to yourself. If you participate for a bit of fun and a flutter, how is that working out for you?
You can make money from trading but you need resilience, a plan and above all else a discipline that is cast in stone.
If you cannot meet these attributes, I suggest you try something else because eventually the markets will catch up with you. No matter how nice a person you are the markets could not give a shit, the markets are clinical.
If you resonate with my thoughts and approach 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: 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.
MY SPRING BREAK:
4.1: CENTRAL BANKS LAST WEEK:
4.1.2: NORGES BANK:
4.1.3: THE FED:
4.2: THE EUROZONE:
4.2.1: INFLATION (GERMANY, FRANCE, ITALY, BELGIUM & SPAIN):
4.2.2: EUROZONE UNEMPLOYMENT:
4.3: REST OF EUROPE (INCLUDING THE UK):
4.3.1: POLAND INFLATION:
4.4: ASIAN MARKETS:
4.4.1: CHINA PMi:
4.4.2: JAPAN BOND BUYING INTO THE FISCAL YEAR END:
4.5: NORTH AMERICA:
4.5.1: U.S. STRATEGIC OIL RESERVE TAPPED:
4.5.2: U.S. HOUSING:
5: 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.
The Ukraine / Russia conflict is now into its fifth week and it looks like it could be a long war. Lots of FAKE NEWS being released to try and gain an advantage on the field of battle to try and distract attention.
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 especially as we entered the JAPAN fiscal year end.
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, the U.S. 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 when outdoors never mind in shops and restaurants even though restrictions are winding down.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 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.
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
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: MY SPRING PROMOTION:
The details of my SPRING PROMOTION are detailed on the excel sheet below. More information about me, how I trade etc., can be found on my website under the various tabs on my home page.
6.3: 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
Twitter: @weeklyfxpremium (Restricted feed - FX PREMIUM Trade Information)
Twitter: @theanalogtrader (Restricted feed - FX PREMIUM Market Commentaries & Views)
Twitter: @thepipaccumulator (Open feed)
BLOG VERSION: #450 FREE NEWSLETTER
DATE: 3rd April 2022