I must admit that although we are in the summer, the summer doldrums trading experiences that we have seen in past years have not arrived yet. We may have thinner trading conditions and much less than usual liquidity in the market, but the moves are very much still out there.
The moves are not all Central Bank initiated, but one could say that the BOC and RBA have had great influences of late in moves surrounding the CAD and AUD. The GBP has BREXIT uncertainties, Theresa May’s tenuous grip on power and we have the BOE “flip-flopping”. The EUR has spiked higher on the news denied twice by the ECB and Draghi that the end of policy accommodation is in sight and that tapering will start and they normalize interest rates.
So all in all there is more than enough to feed a hungry market.
The winner (if there needs to be one) in all of this is the USD. Basically, it has weakened since “THE DONALD” was sworn in (see USD INDEX (DXY) below).
When I talk about winners, I am really referring to exporters and keeping the wheels of industry greased and moving increasing the export nations competitive. From this perspective, the U.S. is winning and the EUROZONE is losing.
Over the past three weeks I have written in the SOAPBOX section of this blog about: -
1. July 15th - FX MARKET RE-ALIGNMENT.
2. July 6th - THE TIPPING POINT.
3. July 1st - Regarding Central Banks, GAME KEEPERS are NOW POACHERS.
All three of these articles from this blog are current factors in the market today. I am not looking for a pat on the back but this information is FREE.
The reason that I bring this up is because of something that occurred during the week. Like many of you, I subscribe to various market opinion sites for raw data, especially the various international banks around the globe. I use most of this data, especially the bank data to give me contrarian ideas moving forward which I pass on to my PREMIUM SERVICE subscribers.
However, a trial period with an independent global research provider had come to an end. The continuation fees were about CAD$14,500.00 per annum. The information provided was not even FX specific, it was mostly opinion based upon fundamentals and I could not by any stretch of the imagination justify such costs for my business. As I explained to my contact, my Fundamentals emanate primarily from Central bank documentation because it is Central Bank Monetary Policy that fundamentally drives the FX market. The days of Greenspan and Trichet are long gone when an interpreter was required to dig deep to find out what they were saying. Nowadays transparency is the buzz word and the documentation available is clearly set out for all.
My fundamental interpretation plus technical set ups to provide trade set ups that can generate $$$ are provided for just CAD$1,250.00 per annum by comparison to the non-accountable fundamental data at CAD$14,500.00 a year that does not give entry or exit levels or follow ups on previous opinions.
Subscribers to the PREMIUM SERVICE receive detailed actual information that can generate $$$.
Perhaps I am in the wrong business!!
- LAST WEEK – MY TAKE ON SOME KEY EVENTS:
In no order, here is what floated my boat last week.
- USD: (REPUBLICAN HEALTHCARE PLAN… another rejection)
This all happened in the space of a couple of hours or so.
Last Monday in between the NZD CPi and the RBA minutes from the last meeting being released the failure to proceed in the current draft was announced and the markets went crazy.
Personally; I was out at the time operating with only an iPAD. It was hard to gather data and trade effectively, so I took the cautious route and systematically closed every open trade. In the process, I think I banked about 150 pips but had I been in front of my screens with total access I would have seen more and read some back up and may not have carried out the “LOCK DOWN” move as I could have seen moves across 6 screens, compared to one device. Whilst I banked pips, I think there were about 1,000 additional pips thrown away as the reversal moves were powerful.
Quite a few European PREMIUM SERVICE subscribers were asleep through it all and woke up to some pleasant surprises the next day.
Prior to the US news the NZD CPi data surprised most analysts by failing to meet expectations. The NZD pulled back and took the AUD with it. Around the same time as the Health Care news hit the wires the RBA minutes were released and they were more hawkish than the original interest rate statement from a couple of weeks ago.
That was double boost to the AUD which was already strengthening on the U.S. news, it took the NZD with it and all the cross rates.
It was around the RBA data that I was checking in on my iPAD. The rest is history as they say…. argh!!
- ECB: (Interest Rate Statement and Press Conference)
What can I say that hasn’t already been said?
God love him (Mario Draghi).
He tried his best to be DOVISH every step of the way but the markets just did NOT believe a word of it and looking at Draghi when he was talking he looked like he did NOT believe the crap he was spouting.
Every man, woman and child, even my dogs Ozzy and Aoife know that the ECB will be tapering sooner rather than later.
Draghi did his best, spouting words and phrases such as: - 2018, December 2017, next year, extended period of time, not in the foreseeable future etc. etc…
The result was the EUR/USD climbed from 1.1480 to 1.1656. Feck knows what would have happened had he been HAWKISH!
So; it’s just when and not if. All eyes are now fixed on the Jackson Hole Symposium next month. EUR/USD at 1.2000 is NOT out of the realms of possibilities now. December 2016, it was at 1.0350.
- GBP: (CPi and Retail Sales)
BREXIT scares the crap out of me and I believe that the market is just 110% complacent. The UK economy is starting to feel the pressure. Inflation and the relationship between inflation and wages is biting.
CPi missed and Retail Sales beat. Big fecking deal on the Retail Sales; this in my opinion is mainly tourist driven based upon the UK being a cheap place to visit and one gets mucho £££ now in exchange for whatever.
Cable is under pressure as the news emanating from the BREXIT talks is hardly setting the world on fire and with the UK economic data mainly being poor, I think we are heading much lower again.
- AUD: (Employment Data)
Fantastic data a huge beat in the jobs numbers. The AUD initially spiked and then fell back overnight (for me) into the ECB press conference. It then rallied on broad continuing USD weakness and rather bizarrely the NZD/USD which had not really matched the upward move of the AUD/USD in recent days took the lead after the ECB, leaving the AUD/USD behind a little.
We should keep an eye on these moves moving forward. The charts all look bullish but the moves are not consistent.
- JPY: (BOJ Rate Statement)
Stop the presses.
The BOJ announced that it has extended its target deadline date to 2019 to reach its 2% inflation target.
I want to comment without swearing…. feck that; Kuroda needs to get his arse in gear and start looking for a new job. I think that I will be six feet under pushing up daises before Japan has 2% inflation. There is more chance of hell freezing over.
- THE FX MARKET PLACE:
3.1: THIS WEEK’S ECONOMIC DATA RELEASES:
3.2: MY THOUGHTS ON THIS WEEK’S ECONOMIC DATA:
- USD: The big news this week surrounds the USD. This mean more nails in the coffin and could send the DXY towards 90.00.
Consumer Confidence, an FOMC Rate Statement and Advance GDP are all key events. Plus, not on my chart are Durable Goods plus the usual weekly job numbers and OIL inventory data.
It should be an interesting week.
Will Janet Yellen save or let the USD die? That is the question.
The cynic in me says if she wants another turn as FED chair she will kill the USD and please TRUMP. Did someone once state that the FED was independent?
- GBP: GDP and the Inflation report hearings. These news events both could move the cable exchange rate substantially. Recent economic data (apart from last week’s Retail Sales) has been poor so further bad figures will increase the downside pressure on the cable.
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 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.
Further information can be found by clicking TESTIMONIALS, PART-TIME TRADERS and FX PROMOTIONS tabs. To subscribe to THE PREMIUM SERVICE, you will require a valid credit card.
4.2: 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.
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: +1,598 net pips
YEAR TO DATE: +4,003 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:
CENTRAL BANK DIVERGENCE IS BACK
This week I am not writing about the end of the world or anything like that, after two weeks of writing about TIPPING POINTS and STRUCTURAL RE-ALIGNMENTS, to write about DIVERGENCE sounds rather boring by comparison.
For about 18 months and to me it does seem a hell of a lot longer, I have been banging on about CENTRAL BANK DIVERGENCE and the possible trades that run alongside it.
Earlier this year I thought that we had it, but “THE DONALD’S” ineffective management of the U.S. kicked that into touch no matter how aggressive the FED was in the early part of 2017. The USD (DXY) chart from the beginning of the blog is repeated below. It shows that even in a raising of rates scenario a currency can still NOT strengthen.
If you recall at the start of 2017 the FED stood in isolation of the G10 Central Banks. It started a policy of normalization with its interest rate policy. It did this whilst the other central banks inside the G10 stood still being dovish or at best neutral.
Three weeks ago, on the 1st of July, I wrote a piece for this section called “THE GAMEKEEPERS are now THE POACHERS”. This was based upon the fact that the previous Central Banks that had remained dovish or neutral were starting to change their policy stance.
At an ECB Monetary Policy forum in Sintra, Portugal, ECB Mario Draghi, BOE Mark Carney, BOC Stephen Poloz and BOJ Haruhiko Kuroda were all present and gave speeches.
Draghi, Poloz and Carney talked about a change in policy.
DRAGHI (ECB) – Basically his comments were walked back inside 24 hours as the single currency went on the rampage.
At his Press Conference last Thursday, Draghi did all he could to talk the EUR/USD, down, but to no avail. The market smelt blood and did NOT believe the dovish comments made and as a result the single currency strengthened across the board.
It now looks like The Jackson Hole Symposium next month and the October ECB meeting will be the times that the change in ECB policy will be discussed and details provided to the markets.
The single currency has moved from 1.0340 a to 1.1680, that is about 1,300 pips since December 2016.
How far will it go on ECB tapering and the beginning of interest rate normalization, I think 1.2600 is possible when all said and done. That is the 61.8% retracement from the 1.3990 highs in 2014 to the December 2016 lows of 1.0340.
POLOZ (BOC) – The man of action. He said rates were going to rise and they did by 0.25%. The move surrounding the hype and the actual rate increase effect was from 1.3550 to 1.2550, 1,000 pips or $0.10 cents.
Holy Mother of God, back in the day you would be lucky to see a $0.10 cent move for nothing less than 1.0% move in interest rates not for only a 0.25% hike. Is it any wonder Poloz appears happy at the moment with a “One and done” approach.
CARNEY (BOE) – The “Flip-Flopper” was at it again. The week prior he held rates unchanged at the BOE. Admittedly the BOE vote at that time was 5-3 in favour of leaving rates unchanged although from the outside at that time Carney looked under pressure.
A week later he’s talking about possible hikes into the end of 2017. A few days later after Sintra more bad economic data is released in the UK and rate hikes are once again off the agenda. In fact, one or two of the 3 from 5-3 MPC vote have subsequently now walked back their vote to say they would now not raise interest rates in the UK. But this does NOT stop the speculation.
KURODA (BOJ) – Nothing new from yer man. He still needs bridgework on his teeth and basically Japan’s low rate policy remains in place…. unchanged.
Since Sintra, we have heard from Dr. Philip Lowe, Governor from the RBA who surprised analysts by deciding to remain neutral on interest rates. This was only very recently re-emphasized by his deputy Guy Debelle, who told financial analysts just because other Central Banks are changing policy and moving on rates doesn’t mean the RBA should as well.
The way I look at this is that, the RBA have moved to neutral and are now firm neutral. It was only a short while ago with commodity prices struggling there were calls for a cut in interest rates and the reason that did not happen was because it would fuel the housing bubble in the Sydney market.
A RBNZ spokesman was also on the wires stating that the RBNZ is not worried by the strength of the Kiwi dollar.
There is movement and a stance change made or in the works in the next 6 months from, the ECB, the BOC, the RBA and the RBNZ.
The BOE, BOJ and SNB are in my eyes are not going to change.
What about the FED?
This is where it gets interesting. The Fed has changed its approach and has walked back from its hawkish stance on raising rates. Because of this the USD (DXY) has continued its fall that has been in effect since the start of 2017.
We therefore have a DIVERGENCE TRADE possibility.
It would be very easy to trade the DXY but we should be smarter than that given the positions of the various USD major Central Banks.
USD (DXY) basket weighted as follows: -
- EUR 57.6%
- JPY 13.6%
- GBP 11.9%
- CAD 9.1%
- SEK 4.2%
- CHF 3.6%
As we know the JPY does its own thing most of the time and aligns with equities and bonds and can move in opposite directions to the DXY.
The GBP is under severe pressure from several factors that could see it move in an opposite direction to the DXY.
Therefore roughly 25% of the index could trade opposite to the index ‘s direction. It would have an influence but maybe not a substantial one but an influence we should take into consideration.
At the start of 2017, I would never have thought that the DIVERGENCE trade would be against a weak USD, my thought process was always against a strong USD. But here we are with USD weakness.
Pick your pair carefully and if FED policy remains as is, all is good.
Bear in mind the next FOMC interest rate statement is this Wednesday, look for clues in the statement.
- 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: #246 FREE NEWSLETTER
DATE: 23rd July 2017.