After the week before last week with its non-stop fun (my ex. work buddies would now be on the floor pissing themselves laughing at that opening remark), we had a rather more sedated look to the markets the week just gone. It was a holiday week in both Canada and the US, with the Independence Day holiday in many cases being extended by an extra day’s holiday being taken to make it a very long weekend for some traders. Thus, it was really a three-day week for near normal, bear in mind that it is also the summer, market participation.
From my own trading perspective with a vacation and house move well in the rear-view mirror over 600 pips were added to the PREMIUM SERVICE total for 2017 in the three days on closed trades.
I will always tell it how it is. Trying to focus on trading when in the middle of a house move and then setting up in a house plus a vacation around the same time, is practically impossible and I count myself as well disciplined.
I am now settled into my new environment and the fruits of this are starting to come through in my set up and trades undertaken. I have never doubted my abilities to generate $$$ and pips and I am now fully engaged in playing catch up to meet my 10,000-pip objective for 2017. It is a tall order given the start to 2017, but I am 100% focused on the requirements ahead.
As I wrote to PREMIUM SERVICE subscribers last week, I trade for the long haul and I will NOT take on trades just for the sake of trades. Whilst I have an ambitious target to meet, I will not sacrifice my TRADING DISCIPLINES outlined in my TRADE PLAN. These I hold dear as they provide longevity in trading which is paramount to trading success in my opinion.
- LAST WEEK – MY TAKE ON SOME KEY EVENTS:
Despite a shortened week from my perspective there were still a few takeaways of note.
In no particular order, here is what floated my boat last week.
- AUD (RBA):Philip Lowe delivered a very interesting statement, which to some extent caught some of the market off guard.From the prior week’s “Rock Star” adulation that followed Draghi, Poloz and Carney after they all turned hawkish, I think many pundits expected the same from Philip Lowe.The RBA remained neutral and the AUD weakened across the board. The takeaways that stood out for me were: -
Policy is consistent with: -
Growth and inflation targets
Indicators of Labour Demand remain mixed.
Employment Growth has been stronger over recent months.
Signs that the housing market is starting to cool.
Housing Debt has outpaced the slow growth in incomes.
A rising AUD$ would complicate the economic adjustment.
Basically, it was a do not “Rock the Boat” approach.
Australian exports are not going to argue with the approach as the appreciating AUD$ is a pain.
- GBP (PMi, Industrial and Manufacturing Output data plus Mark Carney):All three PMi figures were misses on consensus expectations (Manufacturing (54.3), Construction (54.8) and Services (53.4)).Now, I am not shouting from the rooftops saying that the UK economy is about to fall off a cliff, but I am so damn close to doing so. It was a crap week for UK economic data.The PMI data was all well above the “50 level” but maybe now just over a year after the referendum vote was taken, the concerns are starting to creep in.
The Industrial (0.1% versus 0.4% expected) and Manufacturing (0.2% versus 0.5% expected) data released on Friday last week were just poor. Whilst they are by no means top tier data releases the simple fact is so much UK data is poor it should have an impact. (It’s had an impact on my thoughts!).
After the BREXIT vote in June 2016 the UK economy looked positive in fact quite resilient but 2017 is the opposite. The BREXIT uncertainty has come through in most aspects of the economy.
I realise that the recent MPC vote was 5-3 and not 7-1 as expected. Carney was dovish in his Mansion House breakfast speech and then a week later in Sintra, Portugal he was hawkish vis-à-vis the BOE need to look at interest rates rising soon…. really.
When is soon? For me it’s anything from a week or so to a few months. For my boy Labrador, Ozzy, soon equals now, in fact in his language it means yesterday!
I just don’t get Carney. His forward guidance pre-BREXIT was shite to put it mildly and frankly he just digs huge holes for himself to fall into. He will probably flip-flop again against the backdrop of this week’s data.
I am looking at pressure on wages, household spending, retail sales, consumer confidence and housing in the UK as well as last week’s data and I am NOT getting a warm fuzzy feeling at all. Carney’s flip-flopping made feck all sense to me. It looked like a childish “TRUMPLIKE” action because at the ECB Economic Forum both Draghi (ECB) and Poloz (BOC) were both very hawkish about the future.
I just cannot see the BOE raising rates this year and probably not well into 2018. There are just too many BREXIT uncertainties combined with poor economic data. Never mind Haldane’s economists view on inflation.
I think that it is quite simple. There is just too much to risk with BREXIT.
Was it David Bloom (Global Head FX Strategy) HSBC who predicted cable back at 1.2000 and EUR/GBP at parity a few weeks ago?
Hmmn… good calls maybe!
- USD (FOMC Meeting Minutes, PMi data, ADP and NFP):Indecision… indecision.Personally in my opinion it’s obvious that the FED cannot agree on peripheral policy moving forward.Balance sheet tapering is the new buzz phrase now.
Frankly, I believe the FED are going to continue moving forward relentlessly in their normalization policy to ensure that they have tools in the box to use as we head into another global worldwide recession. With this move in play who gives a f**k about Balance Sheet tapering.
The TRUMP administration has been bogged down by a dysfunctional party line divided Washington D.C. not helped by the fact that TRUMP himself continues to score own goals with his twitter feed in the name of keeping his core support informed.
The “ART OF THE DEAL” has been beaten by career politicians who couldn’t give a shit. The draining of the swamp was not as straightforward as he thought and he has been largely ineffective. The Washington machine has won but at what cost?
PMi data was good last week with consensus levels being beaten with both Manufacturing (57.8) and Non-Manufacturing (57.4) data. This shows life in the economy. However, Autos, Housing, Retail Sales and Confidence drives the “Ultimate Consumer society” and these are very mixed to say the least.
ADP employment was a miss 158k versus 185k expected.
NFP data was 222k versus 179k expected, once again the ADP and NFP numbers show no consistency and leading up to NFP U.S. data was NOT supportive of a beat! It was the average Hourly Rate that caused concern for the markets as the data was released. It remained at a constant 0.2%, the markets were expecting growth to 0.3%.
The market reaction was in my own opinion very minimal to the data. Without doubt the “hourlies” stunted the market reaction.
I find it very hard with U.S. labour statistics as they are always being revised. They should buy a computer like mine and get a guy in from “O and M” to sort out a reporting system that works properly the first time. It is just a bloody nonsense that these numbers are never accurate. Here’s an idea… report the data in week two of the month rather than week one!! Try to give yourselves some credibility.
- BREXIT:The negotiations have started in Brussels. Nothing much at all is being leaked. This surprises me, or maybe they are still agreeing on what pens to use on what size of paper?
- BOJ (Kuroda and Central Bank comments on Bond Purchases):Bucking the trend of other high profile Central Bank governors, the BOJ re-asserted its commitment at all costs to continue with its BOND purchasing program. The BOJ remains DOVISH.
- OIL:The helter-skelter price action continues. First bearish, then bullish and into the close of last week reversing the bullish move to move bearish once again.All this with a backdrop of conflict, mis-trust and tension in the middle east.
Saudi Arabia – Qatar, Saudi Arabia – Iran, Saudi Arabia – Yemen and Egypt – Libya.Even myself; the most bearish OIL person on the planet, because of simple supply and demand economic theory, would concede that maybe a spike higher given the tension could be argued in favour of price action towards $55-$60 a barrel.
What a strange world we live in.
- THE WEEKLY FX DRIVE THRU – LIVE WEBINAR:
There is a summer break with my LIVE WEBINARS they will return in the fall / autumn.
- THE FX MARKET PLACE:
THIS WEEK’S ECONOMIC DATA RELEASES:
MY THOUGHTS ON THE ECONOMIC DATA EVENTS THIS WEEK:
- BOC: This is the pick of the week for me based upon the recent hawkish sentiment change from Stephen Poloz (Governor BOC).The big question is of course, is he ready to sanction a rate increase this week?Analysts believe so, and a 0.25% increase to 0.75% has been predicted.Can you imagine what would happen to the CAD pairs should he not raise rates? Since his deputy announced a couple of weeks ago that the dovish approach could be ending, the USD/CAD has fallen from 1.3600 to sub 1.3000.
If the rate hike happens, is there more left to fall? Dead right there is; I think that 1.2760 is an obvious target.
However, should he not hike now, what would happen?
In my opinion I think we could see a fast retrace to around 1.3250, but this could be tempered by the accompanying commentary and again with the press conference 75 minutes later.
I think that the ramifications of not raising rates would be incredible and although I am not positioned short USD/CAD etc. at the moment, I hope to have positions in profit with stop losses at break-even just in case… you just never know.
Many Central Bank governors appear to suffer from “premature verbage”. It is quite a targeted disease.
- JANET YELLEN – Semi-annual Monetary Policy Report:I hate writing this but we are back on a “will she / won’t she” raise rates again this year news cycle.Just a word of caution her prepared speech is released to the markets 90 minutes prior to her taking her seat to deliver it and then ask questions.
- USD (Producer and Consumer prices / Retail Sales):Thursday’s and Friday’s data will be interesting to follow.
These will be crucial to the markets re the hike or no further hike scenarios, however I feel the FED is raising regardless one more time this year, probably in December.
Time will tell.
USD MAJORS – SUPPORT & RESISTANCE LEVELS TO NOTE THIS WEEK:
The charts below contain commentary (my thoughts and views), these are the USD major charts that are reflected in the spreadsheet above.
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PREMIUM SERVICE PERFORMANCE YEAR TO DATE:
So; if nothing else, I tell it how it is. I am currently about 50% of my target for this time of the year. I had a poor start to the year and I am now following a vacation and house move in recovery mode.
In 2014, 2015 and 2016 I beat my 10,000 pip per annum objective. There is nothing stopping me doing the same this year as my house move and vacation are both behind me. I will be trading pretty much full time from now on through to the end of 2017.
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- THE SOAPBOX:
ARE WE APPROACHING THE TIPPING POINT?
Since returning from vacation in New Zealand and Australia, my SOAPBOX titles have been: -
ARE THE GAME KEEPERS NOW POACHERS?
GBP – IS IT A LONG OR SHORT TRADE?
IS THE CENTRAL BANK DIVERGENCE TRADE FINALLY IN PLAY?
All three items have generated a lot of likes and a few comments as usual, most nice but a few not so nice.
Now; either I have lost the plot, which could be the case, or economically things are really motoring along and policies are changing so fast that unease is being created in the marketplace?
Almost as soon as I wrote about “The Divergence trade” Draghi, Poloz and Carney all came out HAWKISH.
I analyzed the cable and its cross-rates and within a week or so we have Carney “flip-flop”.
Finally, the Central banks except BOC, walked back hawkish comments in the aftermath of the reaction to the change in sentiment. This shows to me the dilemma the central banks are in on the basis that they want to alert the markets of potential policy changes in the pipeline, but do not want the currency fluctuations that go with any announcement, which I can understand.
Now I am not raising the issue that as soon as I write in the DRIVE THRU the market sentiment reverses because I have raised an issue. I am writing stating that as a FUNDAMENTAL trader the fundamentals that I am working with are now changing, and that, I believe we are approaching the TIPPING POINT for sentiment / momentum / central bank policy and reactions to economic data shifting. These items alone won’t bring us over the edge but in conjunction with a major geopolitical event… dare I even say it BLACK SWAN event.
Just based on recent factors we have noticed attitudes and reactions are changing. In the past, we would have seen big moves on geopolitical events now the markets are largely muted. This is complacency in my opinion. Trying to place my thoughts logically for this section was a bit challenging, I hope you can follow without too many re-reads.
Let me elaborate a bit, bear with me: -
There are many examples of this primarily with the BOE through the “flip flopper” and the ECB through Mario Draghi and his hangers on (Wiedmann and Nowotny) over a potential taper tantrum and interest rate policy in the medium–term amongst other issues.
However, I prefer to use Janet Yellen and the FED/FOMC as my example, otherwise I will have pages and pages of stuff.
Go back in time to Ben Bernanke, then add on Yellen’s tenure up to the TRUMP presidential victory in 2016. I think that it would be safe to say that the FED telegraphed every move to the markets… absolutely no surprises. Every piece of data was analyzed and reviewed over and over vis-à-vis context and the impact on the market was scrutinized left, right and centre.
With Janet Yellen this policy of total transparency continued up to the FED press conference in December 2016.
Based upon the backdrop of a Pseudo republican victory via “THE DONALD” it all changed.
The markets got bulled up about tax cuts, infrastructure spending, less controls on medical costs as it was a policy to repeal Obamacare (The Affordable Care Act). Regulation on Wall Street would be reduced and monies owned by multi-national US companies lodged outside of the US would be repatriated back under a tax incentive scheme. Companies would be encouraged through lower taxation to retain a U.S. presence instead of moving outside of the U.S. because of high local taxes and cheaper labour costs elsewhere.
I think that I am correct in saying 6 months in and “THE DONALD” has achieved zero on that list.
However, was the FED also bulled up and wanting to get ahead of the curve that it had been so many times criticized of being behind on?
Without doubt this year with a backdrop of very mixed, sometimes poor U.S. economic data the FED has marched on with rate increases regardless.
It is out of character for Janet Yellen, who frankly sounds DOVISH even when she is delivering HAWKISH sentiment.
Has this complete change of policy by the FED lit a fire under other central banks?
I think that The FED’s outright disregard for data dependency of late has created a sea change. However, notably, the BOJ under Kuroda has signaled that the support to the market through bond purchasing will continue. The backdrop to this very recent BOJ announcement was that Kuroda has no fresh ideas and should be replaced. The RBA under relatively new governor, Philip Lowe left policy neutral last week when many were calling for a more hawkish tone.
Is it now a case of, the FED is changing policy regardless of data so we should all change?
I would have thought most central banks could get away with a lag in timing hence my piece about CENTRAL BANK DIVERGENCE four weeks ago. After all the divergence for as long as possible should help home exporters and dis-advantage the U.S. exporters at the same time. A little bit of that can’t be bad… I would have thought.
Looking at the macro level it looks like a sea change is in effect and we are about to change fundamentally.
Whilst I talk in the present… the now; do not forget we are still dealing with culture and a central bank’s monetary policies are slow to turn around, we are in 2017 there will be communications and a gentle feed into any changes. The wham-bam-thank-you-mam approach of especially Mario Draghi will be re-thought and a more leisurely delivery in bite sized chunks will be adopted, I am certain of this.
So; how does it translate into forex trading?
FX is noted as being a future pricing instrument. As we know, the markets react, then re-think and correct if required.
The FED with its present approach in normal circumstances from my perspective tell you that the USD will strengthen and challenge 100.00 once again with US $ index (DXY). In fact, the USD cannot get out of its own way… why?
The single currency was hit so hard but is so resilient it never hit parity, never mind sub parity as some banks were calling. Economically the EUROZONE was so poor (it still is in some countries) it was beaten up so bad, it has the greatest opportunity given the TRUMP administration ineffectiveness to bounce back. In 2017, the markets decided that at some stage the ECB will turn hawkish so the single currency has been generally supported at the expense of the DXY moving back to 100.00 once again.
The result of all this putting the shenanigans to one side is wide trading ranges. If you look across most currency pairs especially with the USD majors we are in trading ranges: -
EUR/USD: 1.1200 – 1.1450
GBP/USD: 1.2600 – 1.3050
AUD/USD: 0.7300 – 0.7750
NZD/USD: 0.6820 - 0.7350
USD/CHF: 0.9550 – 1.0150
USD/JPY: 108.00 – 114.50
These ranges can be described as large ranges but you can also mark off mini-ranges within these levels that contain the price action. I know, we are in the summer doldrums of trading and ranges within ranges are commonplace. I agree with this but there’s more going on in the peripheral and reactions to potential disturbing geopolitical events are muted to say the least.
Therefore, what I see is that the TIPPING POINT will be a bit of a domino event triggered by a geopolitical event, the bigger than normal central bank policy decision, or, a governmental policy decision that shakes the market so much that even these broad trading ranges noted above are broken with the result being a major shift in policy both for governments and central banks. This creates a market panic.
So let me drill this thought down a little more. Triggers starting this domino effect could be such as the following: -
NORTH KOREA nuclear flexing.
MIDDLE EASTERN tensions over spilling into OIL supplies grinding to a halt.
A NEW WORLD ECONOMIC SLOWDOWN leading to recession.
I am sure you can think of a few more items for the list, but I hope you get my point. There is so much uncertainty and lack of clarity dotted about, I believe we are prime for a big move.
- CLOSING THOUGHTS:
Nothing more to add here, I have said enough except,
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
The Pip Accumulator
BLOG VERSION: #244 FREE NEWSLETTER VERSION
DATE: 9th July 2017.