Last week was all about the FOMC statement.
From a trading perspective I added pips to the annual PREMIUM SERVICE tally and overall it was a good trading week. Just over +1,800 net pips this month so far with one trading day left, I am not expecting a total of over 2,000 pips for the month but you just never know!
My thought process starting this week is unfortunately that we will probably revert to the usual summer range trading environment. The FOMC was the last big new event in my opinion pre-The Jackson Hole Symposium. Having just written that I do realise that this week has some major and important news events listed on the economic calendar.
Next week is the last “DRIVE THRU” blog for four weeks. I will be on my summer break. I will still be trading but not with the same intensity. PREMIUM SERVICE subscribers will still know that I am around, I will not disappear completely off the grid.
- LAST WEEK – MY TAKE ON SOME KEY EVENTS:
In no order, here is what floated my boat last week.
- USD: FOMC Rate Statement.
This item dominated the news last week for several reasons.
Firstly, it was the first communication since Janet Yellen announced in her senate testimony a couple of weeks ago that the FED would be looking to taper its balance sheet by selling off the gazillions of bonds it purchased over the last number of years and that its policy of interest rate normalization would be on hold for the time being due to several economic factors.
Secondly, as we all know Janet Yellen is a Dove. Even when she reads a Hawkish statement it sounds dovish! Would she resume normal service?
Thirdly, what data/ timelines would the markets receive on the tapering schedule?
From my perspective, I thought she was dovish. Although several well-respected analysts have since said it was NOT that much of a dovish statement.
The bond market did not like it and after 15-20 minutes it moved suddenly and the EUR/USD rallied through 1.1700 which, prior to the bond move had held well. After the bond move the EUR/USD was off to the races and it took the FX market with it.
What did Janet Yellen say?
In all honesty, she said nothing new; the news about tapering was that it would start “relatively soon”. She acknowledged that inflation was an issue and that it was below the FED 2% objective. The chance of a September rate hike looks like a “no chance” and this is probably what put the winds into the sails of the bond prices.
It’s all been so well documented what can I add. We really do analyze every word of the prepared Central Bank statements to death.
At the end of the day, how many times a year do the Central Bank’s move their goal posts on GDP, Inflation and Unemployment Rates just to name three items?
The goal posts move which then creates a shift in emphasis and therefore what was previously in place as a target is no longer there anymore and then the cycle starts again.
Without doubt economic fundamentals can change requiring adjustments, but sometimes moving the numbers is a ploy to hide failings and relieve scrutiny of a management approach or style in my opinion.
I am not pointing the finger at any one Central Bank President or Governor, but they all know how to play the game and use the data in their favour.
- CAD: GDP (Beat 0.6% versus 0.2%)
All eyes will now be on Stephen Poloz and the BOC given the fact economic data of late has been more bullish the CAD than bearish and all eyes will be on the BOC to see if they will continue with their policy of raising interest rates.
I think I mentioned this last week or maybe the week before, the move lower in the USD/CAD is now about $0.12 cents which in the good old days was equivalent to about a 1% rate cut all in. Poloz has gotten this move lower of over 1,200 pips for just some jawboning and 0.25%... not too bad.
- THE FX MARKET PLACE:
3.1: THIS WEEK’S ECONOMIC DATA RELEASES:
3.2: MY THOUGHTS ON THIS WEEK’S ECONOMIC DATA:
Obviously, the pick of the week is US Non-Farm Payrolls on Friday, however, before that we have a plethora of data that should provide some volatility.
I am looking forward to this week’s news events.
- AUD: A big week for AUD data. The RBA issues its latest interest rate statement. We will see the latest Trade Balance numbers and an updated RBA Policy Statement will be released as well as at the latest Retail Sales numbers.
Over the past couple of weeks the RBA has gone to great lengths to let the markets know they are quite happy with a neutral interest rate policy and that just because other Central Banks are moving to a policy of normalization it does NOT mean that the RBA will follow suit.
However, I am not so sure that the RBA will be happy with the AUD/USD exchange rate pushing 0.8000. There may be some jawboning this week to try to keep the lid on the currency racing away. I am not sure with jawboning if this would have any effect at all, if that is a course of action that takes place. Let’s see what happens.
- GBP: This is a very, very big week for the UK. PMi data of late has been poor. We have the BOE inflation report and another MPC interest rate vote. Last month, the vote to keep rates unchanged was 5-3, the market was expecting 7-1. This will be interesting to see if the voting members that voted to hike last month have changed their opinions in view of the poor economic data that we have seen lately. Plus, we have a Carney speech.
One can hardly contain one’s excitement!
- NZD: Jobs data in New Zealand is always a market mover. Recent commentary from the RBNZ has basically been along the lines of “We couldn’t give a crap about the NZD/USD at 0.7400, there’s feck all we can do about it anyway”. Enough said, however, … let’s get the “algo’s” to push it to 0.8000 and see what the RBNZ says then!
Algo’s take note!
- CAD: Jobs data. If the CAD beats expectations, the rumour of more rate increases this year will hit fever pitch and the call from a trader buddy of mine saying 1.1500 is possible… could be on.
- USD: Jobs and ISM data are the pick. I am not so sure that the NFP data this week is going to be that important vis-a-vis the FED’s interest rate normalization policy. It will without doubt create “chaos and disorder” on the day but I am not convinced of any greater importance than just seeing what the stats are. The ISM data will be read carefully.
Economic data has been very mixed of late and I think that the consumer has gone into hiding in the U.S. We will get a handle on inflation and this will of course be studied in great detail by the FED.
3.3: USD MAJORS – MY SUPPORT & RESISTANCE LEVELS:
The charts below contain commentary (my thoughts and views), these are the USD major charts that are reflected in the spreadsheet above.
- THE PREMIUM SERVICE:
4.1: WHAT IS THE PREMIUM SERVICE?
The PREMIUM SERVICE is a subscriber based Forex support service offering not just trade set-ups, but a bunch of different support services that I believe differentiates the PREMIUM SERVICE from other providers, my competitors, that operate in the same space.
Full details of the PREMIUM SERVICE and costs to subscribe plus the various trade styles and how suggested trade set-ups are communicated can be found on my website landing page at www.weeklyfxdrivethru.com by selecting THE PREMIUM SERVICE tab.
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4.2: PREMIUM SERVICE PERFORMANCE YEAR TO DATE:
So; if nothing else, I tell it how it is. I am currently about 60% 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 a protracted house move, in “Pip” 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.
If you want to be a part of what I hope will be a storming end to 2017, login at my website and get subscribed. I mean business from here on in.
CURRENT PREMIUM SERVICE PERFORMANCE:
MONTH TO DATE: +1,810 net pips
YEAR TO DATE: +4,215 net pips
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4.4: PREMIUM SERVICE – SUBSCRIBER CONTENT AREA:
(Only SUBSCRIBERS to the PREMIUM SERVICE can view this section of the BLOG)
4.4.1: TRADING REVIEW:
4.4.2: MARKET SENTIMENT:
4.4.3: CORE TRADES:
4.4.4: PREMIUM SERVICE – CURRENT LIVE TRADES & LIMIT ORDERS:
- THE SOAPBOX:
IT’S A BIG WEEK FOR CABLE
It’s super Thursday time once again.
This Thursday we get the following GBP data and a speech by Mark “Flip-flopper” Carney, governor of the Bank of England: -
BOE Inflation Report
MPC Official Bank Rate Votes
Monetary Policy Summary
Official Bank Rate
BOE Governor Carney Speaks
It's a week which could see the GBP/USD break higher towards 1.3300/1.3400 or shoot lower once again towards 1.2800.
As always, it’s all about the interpretation of statistics, and then, a consideration of the future uncertainties that surround the potential movements of cable. Forward guidance is not that good from the BOE under Mark Carney so if he starts talking in guidance terms, I for one will not feel the 100% comfortable in the BOE findings and predictions. Then again, Mark Carney is never really held accountable to this commentary, which, changes direction as many times as a wet and windy day in Galway, Ireland.
These days, whilst ultra-important vis-à-vis cable especially with BREXIT in the news practically every day, Carney’s Super Thursdays still lack the gusto of a Mario Draghi (ECB) squirming behind the table talking uncomfortably about a subject he does not believe in, or Janet Yellen (FED) trying to convince us that she is hawkish, whilst all the time she sounds and puts forward her hawkish position in a dove-like manner.
Poor Mark Carney, what does he have in his armory? Bugger all really, he gave up on forward guidance, or was it I that just gave up reading the garbage that was circulated? He has now taken the title “flip-flopper” as he never appears to hold the same strategy from week to week.
I suppose it is the “flip-flopping” that makes these events a kind of “What the feck is he going to say this time”, or, “Which way is the wind blowing today in Threadneedle Street?” At the end of the day, despite the sideshow, which I love by the way, there is a huge importance to attach to the data that is released and in my opinion Carneys words can usually be binned a few hours later.
At the last Super Thursday practically all the attention was focused on the fact that the vote which was predicted come in at 7-1, came in at 5-3. As a result, the cable strengthened and headed higher. The commentaries were along the lines of “the UK is about to raise rates”.
In an attempt to calm and stabilize the markets Carney spoke and said that rates will be low for the foreseeable future. He added, “Now is not the time to raise interest rates”. He quoted uncertainties surrounding BREXIT etc.
One week later as a guest at the ECB forum in Sintra, Portugal, Carney spoke again and said that the UK will probably have to look to raise rates this year.
With this flip-flopper behind the podium what the feck is he going to say this week?
For my own needs and perspective, I tabulate some key data for every several economies to keep my macro FUNDAMENTAL thinking in check. I do not go into huge detail just the key data that I like.
My UK table is below: -
Regular followers of this blog will know that FUNDAMENTALLY I believe that the consumer drives an economy. It is the man and woman on the street that keeps the wheels moving.
My thoughts: -
Inflation fell surprisingly last time around (But still held above the 2% BOE target).
Consumer confidence fell again.
Mortgage applications marginally lower.
The Purchases Index dropped across the board (Manufacturing, Services and Construction).
In addition, wages are not keeping pace with inflation. Wage growth is sluggish. This is causing household pain; household debt is rising and this is a concern.
My thought process is that the BOE will NOT touch interest rates. Data is very mixed but the core data that effects the man and woman on the street should an interest rate rise be put through now, would kill off any chance of increased domestic spending. Tourists can buy goods in stores but they do not do home renovations etc.
When the BREXIT vote was counted Carney stated that he would keep ample liquidity in the marketplace. I know a huge volume of water has flowed under that bridge since that announcement, but the same perils remain regarding the BREXIT uncertainties. I still believe that the market is 100% complacent over BREXIT.
So; what are the possibilities and how do I see it playing out: -
This is a little difficult as we receive the July Services, Construction and Manufacturing PMi data next week ahead of the super Thursday’s decision.
Most people will be focused on the MPC vote. If it remains 5-3: There is a chance that the commentary will include words like “GRADUAL”. Cable will strengthen like crazy towards possibly 1.3400 as the markets will read a 2017 rate move into their plans.
If the vote moves back to 6-2 or even square one at 7-1 and leave in “EXTENDED PERIOD” the cable will weaken dramatically back towards 1.2800.
I see no rate hike and commentary remaining accommodative based upon recent data being mixed. I just cannot see the RISK of raising rates or the slightest mention of raising rates. If cable is allowed to appreciate and then BREXIT negotiations fall apart, the GBP/USD will be at 1.2000 in a heartbeat.
There are so many other uncertainties in the UK. I know that the BOE should not go political, but they must be aware of the effects of another general election this autumn / fall given the tenuous position of power Theresa May has as UK Prime Minister. In addition, the BREXIT negotiations are slow, tedious and not providing any comfort to the markets at the moment. The movement of capital inflows out of the city of London is gathering pace as more and more financial institutions are announcing where they are going to set up shop in 18 months’ time when they exit the UK.
It is a tough decision.
To raise rates would kill off many households in the UK and create a problem probably not worth having as long as inflation remains under say 3.5%. As long as inflation is level or even above 2% it's a problem worth having than trying to fix. To address it will open up a can of worms best kept under lock and key. In this instance, all the accountants and so-called financial brains should be given gardening leave.
As long as Mark Carney delivers a strong message in whatever direction, he must be believable and herein lies a FUNDAMENTAL problem. He is a “flip-flopper”.
I am still in the camp of cable 1.2000 and EUR/GBP close to parity. I will be glued to my desk this Thursday.
- 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: #247 FREE NEWSLETTER
DATE: 30th July 2017