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

Before looking at the major news that affected us as forex traders in the past week, I wanted to make an important blog announcement.

The title “The Weekly Fx Drive-Thru” will remain in place, but, I will now be adding a midweek blog update based around the new blog section called “What trades are on my radar”. I will now publish an additional blog probably on a Wednesday, reviewing existing trade set-ups and their progress, plus, updating trades that I am waiting to trigger from the previously published “Radar Trades” section of The Weekly Fx Drive-Thru.

I have been asked to provide my updates and on-going thoughts and I am trying to deliver. The additional blog will be more of a review/update. I am going to call it the Midweek Fx Drive-Thru.

If you currently subscribe to the blog it will be automatically delivered to your inbox. If you connect via Twitter or Linked-In you can connect in the usual way just keep a look out for the Midweek Drive-Thru.

Moving on…the world can breathe again,

The eagerly awaited Forex event of the last two/three years has finally passed and fair play to Ben Bernanke he took probably 99% of the press, the market analysts and bloggers such as myself by surprise. I actually thought he would taper $20-$25 Billion…wow…did I get that wrong or what!

The great news after the “No Tapering” FED decision, was that it was the easiest of all trades to take. Just short the USD and watch your account balance grow. It was to say the least, one of my best income days for such a long time. I had no time to tweet as I was trading multiple pairs at the same time.

After having taken profits post FOMC and letting a couple of trades run through Asian and European sessions, I closed all trades at about 7.00am eastern the following day (Thursday) and I have remained in cash since waiting for pullbacks. Since then we have really been in fairly tight trading ranges.

The only excitement since the FOMC was “Bullard” speaking on Friday saying that a $10 Billion FED QE reduction would have been no big thing. That comment from “Bullard” created a 25-40-pip move across the majors for a few minutes.

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<b><span style="text-decoration: underline;">2. THE VIEW FROM MY TRADING DESK:</span></b>
<p style="text-align: center;"><b><span style="text-decoration: underline;">BEN SHOWS US ONCE AGAIN WHY HE IS THE MOST POWERFUL MAN IN THE WORLD, BUT PERSONALLY, I THINK LARRY SUMMERS IS THE SMARTEST</span></b></p>
I was gob smacked when the FOMC announced no change in QE. I traded like crazy, I added 25% to my main trading account within 18 hours, it would have been more had UK retail sales not been awful the next morning, which, cut back my profits.

Having had time post FOMC to think about what Bernanke announced, my immediate thought was if the FED believes that the pace of economic growth is not good enough now to even reduce QE by even $5 Billion, how fragile the U.S. recovery must be. This surprises me, because it is at odds with political commentators, FED members who talk to the TV and Radio and many economic analyst’s

The cynic inside of me then thought, Larry Summers who pulled out of the race to be the Bernanke replacement a few days prior to the big announcement last week, is a clever guy. In the name of all that is defined as sanity, who, would want to take on the role of FED president? That Larry Summers is a clever guy.

I believe that Ben Bernanke is the non-elected president of the USA. President Obama, well meaning as he may be, is a lame duck president as party political dividing lines in the U.S. Congress block any progress on attempting to improve the U.S. economy. The elected representatives by the people to manage the country are completely dysfunctional. They claim to be interested and concerned in improving the U.S economy, but in my book actions speak louder than words. They have collectively contributed nothing, other than show us political squabbling on TV, which leaves Ben out on his own.

So why is Ben where he is with his thoughts?

No one really knows apart from the man himself, but as always I have my own thoughts. Let me highlight the major pieces I took from the statement and the press conference.
<ol>
	<li>While the economy is growing, fiscal tightening in Washington in the form of sequestration spending cuts remains a significant obstacle.</li>
	<li>The downside risks to growth have diminished over the past year. However, the tightening of financial conditions in recent months, if sustained, could slow the pace of improvement in the economy and the labor market.</li>
	<li>Fed moves toward tapering will be dependent on economic data improvements.</li>
	<li>Fed would taper “at some point, possibly later this year.</li>
</ol>
He obviously said a great deal more, but these are what interest me.

I feel like an idiot, several months ago Bernanke stated that he was looking closely at two numbers in particular, unemployment and Inflation. I even quoted these in last week’s blog, yet like the huge majority of people chose to ignore these numbers when debating would tapering happen and if so by how much. We simply were not close enough to risk the economic improvements, in the eyes of the FED, given all Washington concerns, which must not be underestimated.

<i> </i>
<p align="center"><i>Unemployment Rate of 6.5%</i></p>
<p align="center"><i>Inflation Target was 2.0% …but then it became as long as it’s below 2.5%.</i><i> </i></p>
<p align="center"><i>Then in June this year unemployment substantial improvement meant 7% not 6.5%.</i></p>
<p align="center"><i>Right now, we are in the following position: -</i><i> </i></p>
<p align="center"><i>Unemployment Rate = 7.3%</i></p>
<p align="center"><i>Inflation = 2.0%</i></p>
I thought, like most on-lookers, that we were close enough to begin a never before attempted removal of QE.

Despite the improving economic data in the U.S. the Fed remains in “Easing” mode. It would appear that despite an auto sales surge and housing data showing signs of improvement, inflation is in line with the FED’s targets and the fact that the employment improvement is only slow, the numbers show a steady move in the right direction (that of course you believe the statistics to accurate), it appears that Washington trumps all.

From where I sit, this is never going to change for the foreseeable future. Washington as previous stated appears divided upon party lines, there is zero willingness for the good of the country to walk the divide and try to move things forward. There is no agreement on any form of meaningful legislature at all. This is sad, and, if I were voting for these people to represent me, to put it calmly I would not be happy.

Therefore, “Non elected President Ben” who has been able to do more for the U.S. economy than any sector of politicians of late, assumes control. I do see a problem though.

Bernanke wants to see America back to work and keep inflation under control. In the FOMC rate statement the Fed also wound back the target GDP growth numbers. This is significant in itself; a target sub 4% for the USA is a failure by any stretch of the imagination.
<p align="center"><i>GDP target 2013 was 2.3% now revised to 2.0%</i></p>
<p align="center"><i>GDP target 2014 was 3-3.5% now revised down to 2.9-3.1%</i></p>
There is also the markets reaction to “No Tapering”. There was no real follow through. Are we at the position, which, I have referred to before of diminishing returns on the QE effect? If so, does the Fed lose control of the way the markets react to continuing QE. The uncertainty once again causes bond rate increases and this has a knock on effect into mortgage interest rates (do not forget on “the no to tapering” mortgage interest rates alone fell by 0.25%), Bernanke has a problem trying to control all things at once.

Personally, I think Ben may have bitten off more than he can chew and he has backed himself into an almost impossible position. For all his key factors to be in line for long enough to pronounce the end of QE and tapering to start, we may not be in that position until long after he has left the FED and well into 2014. Given that the FED wound back GDP growth numbers, maybe even longer.

I think that with the indicators that the FED originally wanted to be measured by (unemployment and inflation) was more than enough to contend with. However adding in the Washington affect and what that could potentially have on the financial markets and the economy as a whole, opens up a whole new game. Frankly I do not think no matter what the FED has its in armory it could not control this additional responsibility it appears to have undertaken.

Bernanke has shown that he has the power to move markets but what size of job scope has he created. He is placing a crazy burden on his replacement, who would appear to be taking on a thankless position hence my comment that Larry Summers is a very clever guy to withdraw from consideration to be Ben’s replacement.

How to trade this situation:-

I think that we are in for an extended period of range trading and we could be in limbo for sometime. The markets were expecting tapering to start. It did not happen. After the USD getting crushed after the FOMC there has been no real follow through. There is uncertainty. Will tapering happen in 2013 or not until 2014? At one stage Bernanke was predicting a complete exit of QE by mid 2014. Is that still the case? There are more questions than answers.

I think that we will be in a state of flux for sometime with the U.S. situation. Leaving the Fed to one side it will probably be Washington that takes centre stage next with the debt ceiling debate. Given that both sides have publicly stated that they will not negotiate, we are set up well.

So I predict range trading once again. As long as you are disciplined this is a nice way to trade, as long as we have good 100 pip ranges to play with. On the positive side, when the ranges compress any breakouts that are confirmed are usually explosive which is also good.

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<b><span style="text-decoration: underline;">3. LONG TERM TRADES:</span></b>

At this stage I am still in cash.<b></b>

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<b><span style="text-decoration: underline;">4. POTENTIAL TRADES ON MY RADAR:</span></b>
<p style="text-align: center;"><strong>EUR/USD</strong>
<strong>Long: 1.3450 (or thereabout)</strong>
<strong>Stop Loss: 1.3410</strong>
<strong>Initial Target/Limit: 1.3600</strong></p>
<p style="text-align: center;"><strong>GBP/USD</strong>
<strong>Long: 1.5960 (or thereabout)</strong>
<strong>Stop Loss: 1.5910Initial </strong>
<strong>Target/Limit: 1.6100 then 1.6150</strong></p>
<p style="text-align: center;"><strong>NZD/USD</strong>
<strong>Short 0.8440 (or thereabout)</strong>
<strong>Stop Loss: 0.8470</strong>
<strong>Initial target 0.8300</strong></p>
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<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 1.3522. </b>It was quite a move higher in the week with this pair on the back of the FOMC. We are however in a new range of 1.3450 to 1.3600. Play this range until you get a break defining the next direction. I am not sure which way this pair is heading.

<b>GBP/USD: Closing Price 1.6002.  </b>We closed just above the psychological barrier of 1.6000. Had it not been for poor retail sales numbers last Thursday morning, I wonder where this pair would have finished the week. The “Cable” was so strong I had in the back of mind a test of 1.6700 in the coming weeks. Who knows, that could still happen. For now, a break below 1.5960 sets up a move lower, but this is also a great place to enter long with tight stops. Resistance lies at 1.6100 and better still at 1.6160. Play the range with this pair just like the EUR/USD.

<b>AUD/USD: Closing Price 0.9392.  </b>Was it a significant end to the week with a close below 0.9400? Who knows, but does it place the bears back in control …maybe, but, maybe not. A break below 0.9350 gives me more confidence that the bears are back in the driving seat. On the other side, a break above 0.9500 would set up a test of maybe a run to 0.9600. That would be my area to look to get short…that's if we can break higher. I am not too sure that that will happen now.

<b>NZD/USD: Closing Price 0.8357</b>. This pair is acting very strong on the back of RBNZ comments a few weeks ago. A break below 0.8300 should however set us up for a break lower. Resistance is very strong at 0.8470.

<b>USD/CAD: Closing Price 1.0303. </b>I failed to get long this pair at 1.0200 after the FOMC. I thought that we were going to break lower to test parity. I am pinching myself about that missed opportunity considering we are now closing the week at 1.0300. I feel a squeeze coming here if we break up above 1.0350. Support is at 1.0240.

<b>USD/CHF: Closing Price 0.9099. </b>I am still not really following this pair. In the back of my mind I think it will soon test 0.8800 or close to that level before possibly spiking higher. But this really depends on how the EUR/USD behaves.  We are so close to 0.9090 support if that gives way it's a run to 0.9000 support. We need to break above 0.9150 to see a real lift with this pair<b>.</b>

<b>USD/JPY: Closing Price 99.31. </b>Last week we closed at 99.36. Not much of a change at all week on week although we have been down up down up all week. I am not sure what to do with this pair. I see the trading range as 98.50 to 99.80. Let the trade come to you to tell you what to do is probably the best trade..

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

SUNDAY: EUR – German Federal Elections.
SUNDAY: CNY – HSBC Flash Manufacturing PMi

MONDAY: EUR – French and German Flash Manufacturing PMi.

TUESDAY: N/A

WEDNESDAY: N/A

THURSDAY: N/A

FRIDAY: N/A

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

Not a great deal interests me this week.

It amazes me that the German elections do not seem to worry the markets, hardly a mutter about them and quite frankly I think that the Eurozone issues are more worrying when one thinks of Spain and Italy…never mind Greece, Cyprus and Portugal issues.

We should now see a return to “normal” trading volumes which will help but I fear that with so much up in the air regarding the U.S. economy we may see a prolonged period of range trading so get the coffee supplies in and be ready.

As usual, trading with caution is recommended. Do not over-stretch your account and keep inside your trading plan limits.

Watch out for the first Midweek Fx Drive-Thru this week.

Good luck and take care.

Scott Pickering
The Pip Accumulator
Saturday September 21st 2013

FOLLOW ME AT:
Twitter: @pipaccumulator

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