09.11.2013

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

Wow…that was some week.

Between Draghi surprising the markets with an ECB interest rate cut of 0.25%, the U.S.GDP at 2.8% and Non Farm Payrolls, the data / news events have certainly confirmed in my mind what direction to trade the fx market moving forward.

Over recent weeks I have felt a little “wishy-washy” in some decision-making, and I have been to some extent convincing myself that I was a 100% convinced on what the markets were telling me. The technicals / charts made some sense but the fundamentals were telling me something different…but I still traded in line with the technicals. At one point I even became a “Scalper” trader something that I am not good at, or like, but the trades just did not seem correct for anything other than a few minutes.

This uncertainty has now come to an end. Without doubt I am certain in my mind what to do and I have a plan.

Although, it absolutely killed me, I ignored trading Non-Farm payroll yesterday (Friday), I had no live trades prior to the data release. In recent weeks I have had very mixed results and I did not want a poor NFP to screw up what had been a good weeks trading, so I sidelined myself.  I listened to the news, wrote down levels for the EUR/USD, NZD/USD and AUD/USD and went into the garden with my dogs and collected “Dog Poop”. I was away for about an hour.  My predictions were not too bad…damn… I could have made $$$!

There is a currency market everyday. I am now looking for pullbacks to sell into in a vast range of currency pairs that are now on my radar. There are thousands of pips available so I do not need to worry about missing a 100-pip drop after NFP across the three trades that I would have entered.

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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;">I BELIEVE THAT THE SMART MONEY IS LEAVING EQUITIES AND MOVING INTO CASH</span></b></p>
So much happened last week that I am going to try to be concise, although it will be difficult…I am from Liverpool after all!  The news events and data releases have, in my mind, confirmed what I have been thinking for a few months from around late summer and now my plan can be put in place for the next few months.

I believe that the “Smart money” investors in equities are already ahead of me and some of what was confirmed this week has already sparked a chain reaction with the key movers and shakers. I really think they are moving if they have not already moved away from equities.

I think that we are now very close to the top of the U.S. equity “Bull Run”. This fact is key in everything that I am thinking of looking forward, but outside of the U.S. additional things have happened that will help me place a direction on forex trading for the foreseeable future.

Here are my thoughts: -

<span style="text-decoration: underline;"><strong>1. THE ECB (European Central Bank)</strong></span>

What was very interesting for me reading the notes from the press conference was that Draghi kept his forward guidance unchanged. In ECB talk, this means that the present rates will be kept where they are now for an extended period of time. This actually hints at the possibility of negative rates. Finally, he kept the LTRO (Long Term Refinancing Option) in full to at least the end of 2015. This was big news.

The Eurozone is in crisis.

I have written several times after watching ECB press conferences that Draghi’s body language was saying the opposite of his mouth. He was shifty, twitchy, hand movements were wild and at times he was also very croaky with his voice in his delivery. This points to him hiding his true thoughts. He was trying his best to camouflage issues around growth and hide deflation in the periphery.

The Eurozone is run as if all member countries were provinces / regions of Germany. Germany’s low rate inflation policy of years and years was used as the approach. It may be successful in Germany but that does not mean it would be successful throughout the single currency zone. As I have stated on numerous occasions 17 into 1 does not go. One policy is difficult to implement to cover the whole Eurozone area exactly the same from country to country. 17 counties using the same chequebook does NOT work. There is integration talk on major policies that are repeatedly referred to such as, “Banking Unions” and “Taxation Efficiencies and Harmonies”…. it’s never going to happen or integrate effectively. It’s apparently vital to the success of the Eurozone. If these two factors were vital they would be in place by now. The reason neither of these two examples is in place is because there is no harmony, no agreements on implementation, management, review etc., plain and simple.

I am not going to list Eurozone issues other than list the following headings that spring straight to mind: -
<p align="center"><strong>GDP</strong>
<strong> UNEMPLOYMENT</strong>
<strong> HOUSING</strong>
<strong> CPi</strong>
<strong> DEFLATION</strong>
<strong> BAD DEBT</strong>
<strong> SOCIAL UNREST</strong>
<strong> SOCIAL SERVICES</strong>
<strong> HEALTH CUTBACKS</strong></p>
As the interest rate cut will make the EUR carry trade less attractive sellers will come into the market and the EUR value will lower. This will help exporters, but ignoring all that, it gives us as fx traders an edge and a direction to trade. The EUR/USD will head lower.

<span style="text-decoration: underline;"><strong>2. IMPROVING U.S. DATA GDP  and TAPERING</strong></span>

45 minutes after the Draghi rate cut bombshell the U.S. GDP figures were released. GDP growth at 2.8%, a blowout number. What government shutdown?
The calls for tapering from the FED are approaching volume level 100. Sooner rather than later tapering will happen. This will strengthen the USD, I am not so sure what this will do for the housing recovery, which, incidentally seems to be ramping up and prices are jumping like crazy. As a trader USD strength should enter the market. The EUR/USD will head lower.

<span style="text-decoration: underline;"><strong>3. USD/JPY FAILED BREAKOUT</strong></span>

After the GDP release the USD/JPY broke out of the weekly triangle pattern that had been containing prices in a range of 96.80 to 99.00. It blasted through, and then pulled back over 180 pips.

On the daily chart there is now a massive red reversal candle. Usually following a massive breakout failure the reversal is normally very powerful. I think the only reason we never saw a massive move was because 24 hours later the key NFP release was due.

In the coming sessions, the USD/JPY is set to move lower in my opinion. It steadied again yesterday (Friday) after NFP, but this in my opinion will be just temporary. This will place pressure on equities. As equities fall the USD will strengthen. The EUR/USD will head lower.

<strong><span style="text-decoration: underline;">4. THE S&amp;P IS NOW READY FOR A CORRECTION</span></strong>

I think as long as we have the FED “Free Money” being circulated; the upward pressure will remain in place in the equity markets. Technically we are at extremes in the S&amp;P charts.
The markets are just in buy mode only; I think it’s crazy and complacent. The swings between up days and down days are now triple digit, it’s uncertainty in the markets driving this volatility. We are due a correction. The line is the sand to define bullish or bearish sentiment is 1728.

My problem is I do not see a small correction. I see a 20% minimum pullback / correction in the S&amp;P towards 1300 S&amp;P points, maybe more 1250-1280 looks a better support area.

Red lights and alarm bells are going off in my head. The ECB has acted so fast it’s out of the normal…there are huge issues ahead facing Draghi and Merkel. The Fed is going to taper, probably sooner rather than later, the data in the U.S. is getting better. At the same time the Eurozone is in poor shape.
<ul>
	<li>Gold is on the cusp of a breakdown, it is struggling with $1300; it is not going up, it fell to $1285 yesterday (Friday). I see a challenge of $1250 again very soon and then I suspect we head lower. Gold is a hedge against inflation…what inflation…where is it?</li>
	<li>Oil is falling back below $100.</li>
	<li>Copper is struggling to maintain $3.30.</li>
</ul>
All of these factors add to USD strength. Correlations count and mean something in trading. All of these factors influence my decision making process.

You should also note in the past 7 days the AUD/USD, one of my lead indicators has fallen over 200 pips. This has happened at a time the Dow Jones and S&amp;P have reached “all time” new highs. Divergence…lead indicator…we must take note.

The only factor that is unknown is, how are the numpties in Washington going to react when the debt ceiling and party political issues in Washington rise up in January / February next year?

Having reflected upon all the above factors, I still believe that the smart money is exiting equities and reverting to cash. I believe this despite all the calls for a “Santa Claus” rally into the New Year. Just because it always happens does not mean it has to every year.

What keeps plaguing me is the effect on the EUR/USD, with so many influencers affecting it: - the very recent JPY failure, the introduction of tapering, the effects of ECB Growth and Deflation and U.S. equity pullbacks. The EUR/USD could be trading below 1.3000 maybe even below 1.2500 in the coming months, maybe even lower.

I have charts below with my targets on my three favourite currencies to trade EUR/USD, AUD/USD and NZD/USD. Later in the blog, I have my projected objectives on my radar trades (there are lots of them) later in the blog as usual the entry levels are critical. I have placed limit and stop orders with my broker on all of these trades already.

<a href="https://weeklyfxdrivethru.com/wp-content/uploads/2013/11/EURUSD-MONTHLY-09112013-1024x526.png"><img src="https://weeklyfxdrivethru.com/wp-content/uploads/2013/11/EURUSD-MONTHLY-09112013-1024x526.png" alt="EURUSD-MONTHLY-09112013-1024x526" width="1024" height="526" class="alignnone size-full wp-image-3000" /></a>
<a href="https://weeklyfxdrivethru.com/wp-content/uploads/2013/11/AUDUSD-MONTHLY-09112013-1024x526.png"><img src="https://weeklyfxdrivethru.com/wp-content/uploads/2013/11/AUDUSD-MONTHLY-09112013-1024x526.png" alt="AUDUSD-MONTHLY-09112013-1024x526" width="1024" height="526" class="alignnone size-full wp-image-3001" /></a>
<a href="https://weeklyfxdrivethru.com/wp-content/uploads/2013/11/NZDUSD-MONTHLY-09112013-1024x526.png"><img src="https://weeklyfxdrivethru.com/wp-content/uploads/2013/11/NZDUSD-MONTHLY-09112013-1024x526.png" alt="NZDUSD-MONTHLY-09112013-1024x526" width="1024" height="526" class="alignnone size-full wp-image-3002" /></a>

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<p style="text-align: center;"><strong><em>Over the coming sessions I will be looking very closely at levels and correlations. I think that I have written the following several times over the years of writing my forex blog.</em></strong></p>
<strong> </strong>
<p align="center"><strong><i>1. Commodities lead the way: - Look at Gold, Oil and Copper</i></strong></p>
<p align="center"><strong><i>2. Commodity currencies react: - The AUD/USD (a key lead indicator) has already shown divergence away from the S&amp;P. Also look at USD/CAD, USD/NOK and the USD/SEK.</i></strong></p>
<p align="center"><strong><i>
3. The Bond Market reacts: - Watch U.S. 10 year treasuries. As yields go up the USD/JPY sells off.</i></strong></p>
<p align="center"><strong><i>
4. Equities are last to the party: - This is where I think that the smart money has already moved out of equities because of the first 3 items in my list. The S&amp;P falls and this adds to USD strength.</i></strong></p>
<p style="text-align: center;"><em><strong>My trades (EUR/USD, AUD/USD and NZD/USD) at this stage should move from the volatile stage to the very directional stage.</strong></em></p>
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<b><span style="text-decoration: underline;">3. MY CURRENT LIVE TRADES:</span></b>

I have no live trades at the moment.

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<b><span style="text-decoration: underline;">4. TRADES THAT ARE ON MY RADAR:</span></b>

I have a lot of trades that are on my radar. Many of these may not trigger as my entries are based on levels that I feel comfortable with. The profit potential with these trades is huge and I may have to adjust entries over time based upon revised pullbacks.

My point to get across here is that I am waiting for the trades to come to me.

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<p align="center"><b>1. EUR/USD
</b><b>Short
</b><b>Entry: 1.3450
</b><b>Stop: 1.3510
</b><b>Limit: 1.3150 (initial objective)</b><b> </b></p>
<p align="center"><b>2. AUD/USD
</b><b>Short
</b><b>Entry: 0.9425
</b><b>Stop: 0.9550
</b><b>Limit: 0.9000 (initial objective)</b></p>
<p align="center"><b>3. NZD/USD
</b><b>Short
</b><b>Entry: 0.8270
</b><b>Stop: 0.8350
</b><b>Limit: 0.8000 (initial objective)</b></p>
<p align="center"><b>4. USD/CAD
</b><b>Long
</b><b>Entry: 1.0445
</b><b>Stop: 1.0380
</b><b>Limit: 1.0580</b></p>
<p align="center"><b>5. USD/CHF
</b><b>Long
</b><b>Entry: 0.9150
</b><b>Stop: 0.9050
</b><b>Limit: 0.9450</b><b> </b></p>
<p align="center"><b>6. EUR/GBP
</b><b>Short
</b><b>Entry: 0.8370
</b><b>Stop: 0.8420
</b><b>Limit: 0.8000</b><b> </b></p>
<p align="center"><b>7. GBP/AUD
</b><b>Long
</b><b>Entry: 1.6920
</b><b>Stop: 1.6650
</b><b>Limit: 1.9240</b></p>
<p align="center"><b>8. EUR/AUD
</b><b>Long
</b><b>Entry: 1.4120
</b><b>Stop: 1.3920
</b><b>Limit: 1.4550</b></p>
<p align="center"><b>9. GBP/NZD
</b><b>Long
</b><b>Entry: 1.9350
</b><b>Stop: 1.9250
</b><b>Limit: 1.9800 (initial objective)</b></p>
<p align="center"><b>10. EUR/NZD
</b><b>Long
</b><b>Entry: 1.6120
</b><b>Stop: 1.5980
</b><b>Limit: 1.6435 (initial objective)</b><b> </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 1.3364.</b>  From last Fridays’ close it’s about a 350 pip drop lower in the past 7 days. That is quite some move so I am expecting a little consolidation before resuming the move to the down side.<b> </b>Resistance should be really good at 1.3450 and it would be just brilliant to be able to establish an entry short around that level. Support is obviously at 1.3300 or 1.3295. Beyond those levels 1.3250 sits next. I do think that there is the potential for a real big move lower.

<b>GBP/USD: Closing Price 1.6012. </b>The support level of 1.6000 has been tested several times over the latter parts of last week but like a magnet the cable is pulled back to it. I think that whilst it is proving to be tough to crack it will break, in particular if the EUR/USD heads lower. Support is also good at 1.5900 should it break lower and resistance is stubborn at 1.6120.

<b>AUD/USD: Closing Price 0.9384</b>.  Bias and sentiment has changed in the Aussie. We closed on Friday, over 200 pips lower in the week. The RBA has indicated once again that they feel the value of this pair to be too high. It should also be noted that as the equities markets reach new highs the AUD/USD has fallen. This is divergence and the correlation is broken. This pair is a lead indicator and this fact should not go unnoticed. Support is really good at 0.9250. Only minor support at 0.9300 stands in the way. Resistance will be good at 0.9400 and 0.9460. The bias is now bearish with this pair.

<b>NZD/USD: Closing Price 0.8239</b>. I find this pair more stubborn than the Aussie to move lower. Wheeler at the RBNZ is still talking about rate increases early 2014 and this is hanging over this pair. We have edged lower in the past 7 days but only by about 40 pips. The AUD/USD has moved 5 times this movement lower by comparison. The range is 0.8200 support, to 0.8350 resistance.

<b>USD/CAD: Closing Price 1.0477.  </b>We are stuck in a range that is getting me bored. We need a break out 1.0400 to 1.0500. Trade the range if you feel you have to trade this pair.

<b>USD/CHF: Closing Price 0.9211.  </b>I missed the move higher with this pair and I am really annoyed with myself for doing so. The fresh range is 0.9150 support, to 0.9250 resistance.

<b>USD/JPY: Closing Price 99.04. </b> I have made several predictions about the JPY recently and it still trades inside the Daily Chart Triangle pattern. I think it will break lower before heading higher and the recent false breakout backs up my point but we need to see some action. 96.80 and 97.40 are support levels and 99.20 resistance.<b><span style="text-decoration: underline;"> </span></b>

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

SUNDAY: N/A

MONDAY: N/A

TUESDAY: GBP - CPi
TUESDAY: NZD – RBNZ Wheeler talks.

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

THURSDAY: GBP – Retail Sales.

FRIDAY: USD – FED Yellen testifies

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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.

I will be spending most of my time trying to gain the best entry levels for my radar trades, at the same time checking the markets for a start of what I think will be pull backs / sell offs in equities.

I will update in the middle of the week with the “Midweek Fx Fix”.

Good luck and take care.

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<strong>Scott Pickering</strong>
<strong>The Pip Accumulator</strong>
<strong>Saturday November 9th 2013 </strong>

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<strong>Twitter: @pipaccumulator</strong>
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