16.11.2013

<b><span style="text-decoration: underline;">1. INTRODUCTION:</span></b>

Well, I think we now may have our market direction but it’s not the one I was thinking we were going to see. I still believe that there is enough divergence around to cause some concerns but the old quotes of “Never Fight The FED” are ringing in my ears at the moment. Having written that, I still believe that a top in the markets is close-by. New highs are on thin volumes and less stocks are playing in the run ups that we are witnessing. I still believe the markets are “toppy”.

Enough of that, moving on the markets got what they wanted last week when Janet Yellen (FED chairperson in waiting) went “To the Hill” strutted her stuff and basically said no change in policies.
<p align="center"><b><i>“It’s free money come and get it”</i></b></p>
Therefore, the markets are once again resuming the relentless climb higher making all-time highs, day after day. In my opinion, this is a bubble and eventually it will burst, and when it does, it will be swift and unforgiving. Hence my comments last week about “The smart money is probably already out of equities”. For investors, there is nowhere else to invest to obtain a return on your investment, however, we are now witnessing extremes, and, the equity markets will roll-over, it is just a question of time. Trading volumes are lower than usual and I think this will be the pattern through to the end of 2013 as the fear of a pullback is there, it’s just not talked about that much openly.
<p align="center">At the back of mind I still have my list: -</p>
<p align="center"><i>USA - Budget Limits.</i></p>
<p align="center"><i>USA - Sequestration agreement.</i></p>
<p align="center"><i>USA - The Affordable Healthcare Act (Obama care).</i></p>
<p align="center"><i>USA – Tapering / timing.</i></p>
<p align="center"><i>USA – Currency and Commodity divergences.</i></p>
<p align="center"><i>Eurozone – Deflation policies / EUR exchange rates</i></p>
<p align="center"><i>China - Banking issues / debt.</i></p>
<p align="center"><i>Japan - Abenomics, QE, JPY targets.</i></p>
<p align="center"><i>Emerging Markets – Effects of U.S. Monetary Policy.</i></p>
I am now 75% certain that the markets will just brush aside my list above for the time being. In 2014, however, these should be at the forefront of a trader’s thinking. Individually, the markets in the past have absorbed one item of bad news, taken it onboard, then spat it out and carried on regardless. If two or three of these items from my list are “hanging” at the same time I think that the reaction would be somewhat different.

Time will tell…watch this space.

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<b><span style="text-decoration: underline;">2. THE VIEW FROM MY TRADING DESK:</span></b>
<p align="center"><b><span style="text-decoration: underline;">ARE WE HEADING FOR ANOTHER EUROZONE CRISIS?</span></b></p>
As I have stated on many occasions I am a fundamental trader first, then technical. In the back of my mind after listening, watching and reading all things Eurozone over the past week or so and then looking forward, I have the following issues bouncing around inside my head.

I bet Mario Draghi pouring out his cornflakes today (Saturday) is probably saying to himself…
<p style="padding-left: 90px; text-align: center;" align="center"><strong>“<i>Mama Mia…. I cut the fecking rates; I gave into pressure from those Mediterranean moaning minnies; and, the bloody EUR/USD is still hovering around 1.3500. WTF”</i></strong></p>
In the 10 days since the last ECB press conference what has happened…in the Eurozone world?

I have read plenty of chatter about the possibility of negative rates being introduced to force the banking sector to lend, to act, and, to try to help provide stimulus to failing economies.  There have been a few pieces about the “Son of” LTRO (Long Term Refinancing Option) being introduced. Both of these topics would help reduce the strength of the single currency. The problem I see is that the FED is so powerful and the U.S. political situation is so uncertain the USD is treated as a weaker currency with most currencies. Fed policy is trumping all others at the moment.

The ECB without doubt has the tools and the power to weaken the EUR/USD currency pair in particular. However, given that Germany pulls the strings, I am wondering would there be the political weight behind such a move. The push for the recent interest rate reduction came primarily from the periphery countries coping with deflation and record unemployment as well as little to no chance of growth in the future, probably until 2015 at the earliest, and that is being generous to some countries

At the moment the political attentions are drawn back towards the bank stress tests and banking union. The bottom line with this present debate is that there is little point doing stress tests on the banks again, I think that this is #3 or #4, unless the tests are rigorous and actually mean something. Recent stress tests were carried out in 2011 and many banks were passing despite the fact that soon after the results were published, some banks were under pressure. Most of the failing banks were Spanish and Greek banks, but in addition the ‘barely passed list’ included 16 banks across, Cyprus, Germany, Greece, Italy, Portugal, Slovenia and the remaining Spanish banks that weren’t at crisis point in the original 9 banks.

Rigorous banks tests are wanted but this time the Eurozone Finance Ministers are charged with agreeing a set of action items based upon the results. The periphery countries in particular, want the EU/ECB to backstop and support any weaker banks by providing capital support. Germany does not want to write open cheques. There lies the next problem for the numpties in the Eurozone to sort out.

After this the on-going debate and meetings over the Fiscal and Banking unions will drag on and on without a resolution, or, by chance a resolution is achieved watch for the target implementation date. If not the date, check for a constitutional debate over the legality of such a move based upon political sovereignty. I am predicting another “can to be kicked down the road”.

All of this goes on with a backdrop of basically zero growth (GDP) in the Eurozone, increased unemployment lines, reduced social services and cutbacks in health and education and infrastructure expenditure placed on hold.

It is a powder keg ready to go off at anytime.

As with most matters Eurozone, Germany holds the key and with Merkel having recently been elected, one would have thought that she had the power and political mite to push through key Eurozone functionality issues. This is simply not the case any more, her coalition partners are no longer on the open chequebook policy, not that they really were before.

I can visualize a Eurozone crisis on the horizon regarding how to handle the stress test results, coupled with The Banking Union debate and appointing the Bank “Tzar”. The required ratification by country-head leaders will turn into a momentous “Cheese and Wine” event… the corporate hospitality in Brussels will be frothing at the mouth at the thought of a two/three day late night food and drink extravaganza keeping the TV companies on tip-toes for hours.

A crisis will be averted at the eleventh hour; a tacky agreement of sorts will take place pending a small focus group review later.

Added to this Brussels debate, the social issues and lack of coherent policy to improve living standards across the Eurozone will result in strikes, people marching in the streets etc.

The Greek Finance Minister has already come out and said “Enough is enough…no more Austerity…. it’s not going to happen”

Yes, I can see a Eurozone crisis /  implosion on possibly several additional fronts: -

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<p align="center"><i>AUSTERITY</i></p>
<p align="center"><i>GDP
</i></p>
<p align="center"><i>UNEMPLOYMENT
</i></p>
<p align="center"><i>HOUSING
</i></p>
<p align="center"><i>LOW CPi</i></p>
<p align="center"><i>DEFLATION</i></p>
<p align="center"><i>BAD DEBT</i></p>
<p align="center"><i>SOCIAL UNREST</i></p>
<p align="center"><i>SOCIAL SERVICES</i></p>
<p align="center"><i>HEALTH CUTBACKS</i></p>
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This will have a massive effect on the single currency, it will then be seen as the weaker currency against the USD and it will fall. Eurozone policies will be all about growth and reducing unemployment. There will be negative Euro overnight deposit rates with the ECB. Local banks will have to lend to make a return on investment.

Between the politicians and the ECB, by the middle of 2015 I see the EUR/USD lower, to about 1.2500, maybe even lower to 1.1800.

This trade will also be helped by the fact the Fed should have tapering started in the 1<sup>st</sup> or 2<sup>nd</sup> Quarter of 2014.

Low inflation worries across the globe will weaken Gold and it will fall lower creating more USD strength.

Commodities in general should also pull back and this will also fuel USD strength.

All the factors that increase USD strength will add to the policies that are Eurozone introduced to weaken the EUR currency and so the push lower in the EUR/USD will gather weight and power.

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<b><span style="text-decoration: underline;">3. MY CURRENT LIVE TRADES:</span></b>

I currently have three live trades at the moment.
<p align="center"><b>1. EUR/USD
</b><b>Short
</b><b>Entry / Cost Average: 1.3497
</b><b>Position Size: 20%
</b><b>Closing Price: 1.3494
</b><b>Stop: 1.3530
</b><b>Limit: 1.3000
</b><b>Present Position +3 pips</b><b> </b></p>
<p align="center"><b>2. USD/CHF
</b><b>Long
</b><b>Entry / Cost Average: 0.9136
</b><b>Position Size: 20%
</b><b>Closing Price: 0.9146
</b><b>Stop: 0.9068
</b><b>Limit: 0.9450
</b><b>Present Position +10 pips</b><b> </b></p>
<p align="center"><b>3. USD/JPY
</b><b>Long
</b><b>Entry / Cost Average: 100.40
</b><b>Position Size: 20%
</b><b>Closing Price: 100.17
</b><b>Stop: 99.70
</b><b>Limit: 105.50
</b><b>Present Position - 23 pips</b></p>
<b><span style="text-decoration: underline;">4. TRADES THAT ARE ON MY RADAR:</span></b>

When I posted the Midweek Fx Fix last Wednesday, I was in the middle of several papers regarding the market and I had decided to pull all the limit and stop orders in place with my brokers, pending my review of the current market place.

I am looking to enter several trades but my entry levels are fairly precise from my perspective and I am waiting for these trades to come to me. At this stage I have no intention of reducing my entry levels, should this status change I will tweet my actions

My point to get across here is that I am waiting for the trades to come to me.
<p align="center"><b>1. NZD/USD
</b><b>Short
</b><b>Entry: 0.8350
</b><b>Stop: 0.8420
</b><b>Limit: 0.8200 (initial objective)</b></p>
<p style="text-align: center;"><b> </b><b>2. AUD/USD
</b><b>Short
</b><b>Entry: 0.9380
</b><b>Stop: 0.9420
</b><b>Limit: 0.9000 (initial objective)</b></p>
<p align="center"><b>3. USD/CAD
</b><b>Long
</b><b>Entry: 1.0420
</b><b>Stop: 1.0380
</b><b>Limit: 1.0580</b><b> </b></p>
<p align="center"><b>4. GBP/AUD
</b><b>Long
</b><b>Entry: 1.7150
</b><b>Stop: 1.7025
</b><b>Limit: 1.7350 (initial objective)
</b><b>With a break through this level I think we could be heading to almost 2.0000.</b><b> </b></p>
<p align="center"><b>5. GBP/CAD
</b><b>Long
</b><b>Entry: 1.6800
</b><b>Stop: 1.6750
</b><b>Limit: 1.6950 (initial objective)
</b><b>With a break above this level I think we will set for a move towards 1.8000.</b></p>
<p align="center"><b> </b></p>
<b><span style="text-decoration: underline;">5. LOOKING FORWARD…THE KEY SUPPORT &amp; RESISTANCE LEVELS WITH THE USD MAJORS:</span></b>

<b>EUR/USD: Closing Price 1.3494.</b>  This pair moved about 350 pips lower last week on week, this week it’s about 130 of those pips given back. I am presently short this pair and thought Yesterday (Friday) that it was a great entry around 1.3500 and that it should be a great risk / reward trade. At the back of mind I am being haunted by a little voice saying 1.3600 to 1.3750 is where this pair is moving to next on the upside. Support is good at 1.3450 and then at 1.3410.

<b>GBP/USD: Closing Price 1.6114. </b>This pair had a 100 pip gain over the past week. We closed at great resistance at 1.6120. My gut feeling looking at recent price action is that this pair is itching to go higher. The pressure for a move to the upside is mounting. The next resistance level is 1.6200 then 1.6250 before 1.6330. Support is strong at 1.6000 and then 1.5920. If we see a confirmed foothold above 1.6120 I think this pair will see 1.6300 before it sees 1.6000 again.

<b>AUD/USD: Closing Price 0.9365</b>. Not much movement in the week but I do think that this pair is at the crossroads. I am not that certain which way it is moving. Having said that, it should be a lot higher given the movement in equities. It isn’t - so it struggles. Copper is performing badly and this has an effect on the AUD currency. I am looking at the following range 0.9275 and 0.9380.

<b>NZD/USD: Closing Price 0.8331</b>. I really do not know what to do with this pair. I have shorted several times over the past two weeks, made some shorter-term gains and then handed them back. The pair has moved up just over 100 pips in the week from last weeks close. Stubborn resistance lies at 0.8350, we have touched this level several times and it has been a great place to enter short of late. Support has been strong at 0.8200. I suggest that we play this range

<b>USD/CAD: Closing Price 1.0437.  </b>We have broken lower through 1.0480, which had been stubborn support of late. The big question now is; are we going to re-test 1.0400 or lower? This pair is on my radar and although I have my entry price listed in this blog, I may revise it over the next day or so. Resistance is massive at 1.0511.

<b>USD/CHF: Closing Price 0.9146.  </b>We closed on support at 0.9150. The next support levels are 0.9090 and the 0.9050. Resistance is good at 0.9190 and then 0.9250.

<b>USD/JPY: Closing Price 100.17. </b> We are breaking higher, finally in the USD/JPY. For weeks we have been trapped in a daily chart triangle from 96.80 to 99.20. I am currently long this pair and I am of the opinion that we should keep edging higher until the S&amp;P starts to rollover. The next resistance level is 100.80 and support should now be strong at 99.80.

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<b><span style="text-decoration: underline;">6. MAJOR FOREX NEWS THIS WEEK THAT INTERESTS ME:</span></b>

SUNDAY: AUD – Monetary Policy Minutes.

MONDAY: EUR – German ZEW Economic Sentiment.

TUESDAY: GBP – Inflation Report Hearings &amp; MPC Votes.
TUESDAY: USD – Core Retails Sales, FOMC Meeting Minutes

WEDNESDAY: GBP – Unemployment Data.
WEDNESDAY: GBP – BOE Carney speaks and BOE Inflation Report

THURSDAY: EUR – French and German Manufacturing PMi.

FRIDAY: CAD – Core CPi and Retail Sales.

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<b><span style="text-decoration: underline;">7. FINAL THOUGHTS:</span></b>

Not much by way of news that interests me this week. This does not mean that I do not foresee any market volatility. The fact that there are only a few items that catch my attention usually means that when I least expect it a bolt out of the blue will happen, and, probably from an unusual origin.

As always, trade smaller with wider stops to establish your position, only then do you add in, but it should be in line with your trading plan. Do not over-stretch yourself and let the trades come to you. Price your entries and establish your risk prior to taking a trade. This is a sound practice and it works.

I apologise, but there will be no “Midweek Fx Fix” this week as I will be away from my desk on Wednesday.

Good luck and take care.

Scott Pickering
The Pip Accumulator
Saturday November 16th 2013

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Google+/scottpickering

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