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

I got it wrong on the JPY reaction last week. I think that the JPY is going lower but I may be a week or two too soon with my thoughts. The tapering debate is screwing with my market thoughts and timings…. such is life!! When the markets start to sell off I think the USD/JPY will lead all the JPY pairs lower, but that is for another day.

A great week of trading for me I hit my daily target 5 days out of 5 but I did find it mentally hard this past week. I am still basically trading the AUD/USD, NZD/USD and to a lesser extent the EUR/USD and USD/CAD.

It was a big week for news from the major central banks, the FED, ECB and BOE all on rate alerts.

I enjoyed the new Draghi approach this time around at the ECB press conference….”Let me read what WE thought”….”Let me quote what WE ALL decided” this was just brilliant. This was stage one of the classic “CYA” (cover you’re a**) approach to your job preservation, as you either suspect or know that someone is gunning for you. The amount of times Draghi referred to notes for 100% accurate quotes was incredible. He pushed back to questioners quite a lot as well this month. He was much more confident than recent press conferences. This was a total non-event and a missed opportunity for him to weaken the currency to help the Mediterranean countries that are suffering at the moment.

<b><span style="text-decoration: underline;">2. TO TAPER OR NOT TO TAPER…IT’S ALL BULL S**T REALLY!</span></b>

So another week passes by and the summer trading sessions now enter August with the big question “To Taper or not To Taper” still hanging in the balance.

I thought and tweeted during the week that the Japanese markets relationship with the Yen was a “Yo-Yo” affair…. up one day, down the next

The U.S. markets were little different towards the end of the week. There were blow out numbers twice in one day with “Taper talk” at fever pitch claiming it to be “on” for September. This followed a rather tame non-committal FOMC release earlier in the week that had many people thinking/believing that Tapering was off for September. Then yesterday, following very weak consumer and Non Farm Payroll numbers it had most pundits saying “No!” to September.

How can the FED start tapering?

Both Housing and Unemployment markets are still basically in poor shape. Without these booming or at least showing consistency to the positive and without consumer spending there is no recovery. The FED has failed.

The Fed has been too focused on supporting the greed of Wall Street and missed the opportunity. Now it appears rushed, as Ben wants to start his QE exit strategy before his tenure as FED president ends.

Deep down I hope that care is taken if tapering starts. I cannot see Ben screwing up now having come this far. I believe he will do nothing at all that in anyway would spook Wall Street or damage the economy. In writing that, I realize that he is playing with $85 Billion per month and the scope for a marginal reduction is a good one, but, one has to remember that dealing with Wall Street must be frustrating even for the most patient of people. Many of the brokers, jobbers and analysts on Wall Street are new in within the past five years. They only know how to “Buy the dips” nothing else and, therefore, they do not know how to work without the support of the FED under-pinning their trading activity. To remove the safety blanket without warning and without full disclosure will have them running for restrooms crapping themselves.

The FED option may be to reduce QE by $15-20 billion for a few months at a time but who knows. This has never been done before so it’s completely new to one and all, the FED included.

Personally, I find it all (removing stimulus) to be a bit of a joke for the following basic reasons: -
<ul>
	<li>Unemployment is still around record highs.</li>
	<li>The participation in the unemployment lines is reducing bringing down the overall unemployment rate. You cannot trust the numbers.</li>
	<li>Basic consumer consumption is down therefore the government cannot rely on the population to buy goods and grow the economy.</li>
	<li>GDP numbers are poor for the second largest economy in the world. A minimum of 3%-4% needs to be seen, not the bouncing around 1%.</li>
	<li>Housing numbers are still sitting near the bottom. Only overseas speculators buying the longer-term problem properties have been providing some under-pinning to the statistics. There are one or two standout areas that buck the trend but overall it’s not a great picture. A buoyant housing market is required to grow the economy.</li>
</ul>
These facts alone tell me that the economy in the U.S. in NOT in a good position and five years into this QE programme to even be talking about removing stimulus is crazy given the fact the economy is NOT in great shape. Without a true buoyant housing market there is no economic growth, and, feel good factor, that the general public can see and feel, that encourages consumer spending.

Good PMi data does NOT mean all is well. There was a massive over-reaction in my eyes to the China PMi data this past week. That data was opposite that of the HSBC PMi data. Do you believe the Chinese data? They have a reason to manipulate their data. Eurozone PMi data last week showed 11 member countries with improving PMi figures. That sounds great and it is encouraging, but the Eurozone area economically is in the crapper. The U.S. PMi data was treated as triumphant…crazy.

My thoughts are that we now have a “New Normal” of a mix of good and bad data with zero consistency. Continuing uncertain consumer data and the de-leveraging of the past five years continues and no matter what the FED does it is not achieving its goals that it set out to achieve. All Ben is doing is continuing to feed the greed of Wall Street.

Here’s a thought…Five years ago wouldn’t it have been a better option to just let the markets stand on their own. Isn’t hindsight wonderful!!

Being serious though, to have the S&amp;P and Dow Jones close yesterday at record highs, when the economy is in such poor shape is a disgrace in my opinion. The FED support of looking after Wall Street rather than Main Street has really showed through. To even talk about tapering now with such a poor economy is a disgrace. The Fed in my opinion has really missed its mark. It has failed miserably so far with it’s primary objectives of getting the U.S. back to work and getting the housing market on a positive and consistent footing.

From a trading perspective - we have great opportunities with trading currencies. The following is now very clear: -
<ul>
	<li>Strong U.S. data and the USD strengthens.</li>
	<li>Weak data and the USD weakens.</li>
</ul>
Play the market accordingly until we change.

One thing I do want to write though is; the equity markets have to pull back at some time and when they do focus on the commodity currencies. Right now with equity market highs, where are the AUD/USD, NZD/USD and USD/CAD positioned?
<ul>
	<li>AUD/USD – you would think 1.1500, all time record highs. But it trades around 0.8900.</li>
	<li>NZD/USD – is performing better but you would still expect it to be at all time highs and better 0.8500 – 0.9000. But it trades at 0.7800.</li>
	<li>USD/CAD – should be around 0.9000 – 0.9250. We trade around 1.0400.</li>
</ul>
If these pairs cannot hit extremes what is going to happen to them if equities sell off?

These are my focus currency pairs. Longer term I am looking for moves as follows: -
<ul>
	<li>AUD/USD 0.8000</li>
	<li>NZD/USD 0.6850</li>
	<li>USD/CAD 1.1200</li>
</ul>
Whilst it is fascinating from a fundamental view to look at the economics the technical chart analysis is fun, given the sizes of the opportunity.

Tapering will happen for the right or wrong reasons and whilst this is a discussion point, the movements in currencies is all that really interests me and I see great opportunities ahead. Be ready, it may not happen until we are well into the fall.<b><span style="text-decoration: underline;"> </span></b>

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

I have no longer-term trades in play at the moment. I am looking to set up longer-term trades but I need to see a true directional market first for me to be convinced.

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<b><span style="text-decoration: underline;">4. LOOKING FORWARD…THE KEY SUPPORT &amp; RESISTANCE LEVELS WITH THE USD MAJORS:</span></b>

<b>EUR/USD: Closing Price 1.3278. </b>All week we seemed to have traded in a range from 1.3180 to 1.3350. These parameters have held through the ups and downs of the tapering debate over the past few days. We need to break out of this range to set up a directional trend. The simple fact is the EUR/USD is the most liquid of all the forex pairs and once it breaks out of this range, we will have a direction that the other pairs will follow.

<b>GBP/USD: Closing Price 1.5288</b>. What a move yesterday we saw with this pair. At 08:29 eastern we were around 1.5130 after the publication of the statistics it flew to 1.5270, so what is next? I am thinking that 1.5100 to 1.5350 will be the immediate range and if the upside resistance is broken with continued USD weakness you have to aware that 1.5500 offers a round number stop off point.

<b>AUD/USD: Closing Price 0.8907. </b>Early in the week RBA governor Stevens weakened the AUD by publicly stating that the currency was over-valued. It fell 150 pips on his statement. We now have a weekly low of 0.8875. This is not major support, just a spike low. If we break lower through this level there is very little by way of support down to 0.8715. We may get a little stop on the way at 0.8800 but this will be a major stopping level. The upside resistance is 0.9000. We must also note that there is plenty of economic data scheduled for the AUD this week.

<b>NZD/USD: Closing Price 0.7838</b>. We are now in a “Head and Shoulders” formation. When we held 0.7930 after non-farm payrolls yesterday the shoulder break remained intact. The measured move lower is now towards 0.7750. The upside resistance is around 0.7950.

<b>USD/CAD: Closing Price 1.0390.  </b>At long last this pair is starting to move. 1.0400 is a tough resistance point to the upside; it is proving tough to crack. I do think that once this level is broken we may see a swift move towards 1.0570. Support is strong at 1.0340 then 1.0240.

<b>USD/CHF: Closing Price 0.9290.  </b>I have not traded this pair for quite sometime. I look at it and then ignore it. It has been range-bound then it snapped higher only to fall back into it’s range and it closed yesterday bang in the middle. The range to break out going forward is 0.9240 to 0.9340.

<b>USD/JPY: Closing Price 98.94. </b>I am finding this pair difficult to trade in the immediate term. Long term I think that the all the JPY pairs are going to strengthen; this will be on the back of a fall in equities. In addition, “Abeconomics” are being called into question and this creates uncertainty, which is reflected in the yo-yo moves seen in the Nikkei 225 and the USD/JPY. Looking ahead key support lies at 98.50. Below 98.50 I am looking at 97.00. Upside resistance is 99.00 but I think the range to work with is 97.00 to 100.00. This is a huge range, but I think once we break this once and for all we will see a direction. My bias is for a break lower…time will tell.

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<b><span style="text-decoration: underline;">5. MAJOR FOREX NEWS THIS WEEK THAT INTERESTS ME:</span></b>

SUNDAY: AUD – Retail Sales.

MONDAY: GBP – Services PMi
MONDAY: USD - ISM Non- Manufacturing PMi
MONDAY: AUD – Trade Balance

TUESDAY: AUD – RBA Cash Rate and Rate Statement
TUESDAY: NZD – Unemployment Rate.

WEDNESDAY: GBP – BOE Inflation report and Carney speaks.
WEDNESDAY: CAD – Building Permits and Ivey PMi
WEDNESDAY: AUD – Unemployment Rate.

THURSDAY: JPY – BOJ Press Conference
THURSDAY: AUD – RBA Monetary Policy Statement
THURSDAY: CNY – CPi

FRIDAY: CAD – Employment Change and Unemployment Rate.

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<b><span style="text-decoration: underline;">6. FINAL THOUGHTS:</span></b>

There are lots of news items this week - that means lots of opportunities.

I want to single out the AUD. If you trade the AUD there are lots of market moving news events that could yield huge profit opportunities. Be careful though as I am conscious that the AUD/USD could catch a bid if there is positive news and we could see a squeeze.

As always trade within your account limitations and use your trade plan effectively.

We are in the summer months, so trading will be thin and moves will be exaggerated. To allow for this, in particular in the Asian sessions, trade with smaller positions and wider stops.

Good luck and take care.

Scott Pickering
The Pip Accumulator
Saturday August 3<sup>rd</sup> 2013

FOLLOW ME AT:

Twitter: @pipaccumulator
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