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

I am now back home after a short vacation in Prince Edward Island.

I have not been active on Twitter these past two weeks or so, I apologise for this..... I will get "back in the saddle" next week. Even though away for a short holiday, I took my laptop and traded whilst away. This month has been a great trading month with most of my profits emanating from the AUD/USD and NZD/USD short. I hope, if you trade you had the same success.

Looking back over 2013 so far, we have had three great trading opportunities so far that have lasted a week or so to maximise. Initially, we had the USD/JPY that in real terms has been moving since about October/November last year and now I think we are about as far as we will go given that I believe the long equity bull run is now stalling and I believe I could argue is starting to pullback. Secondly, we had the GBP/USD 1,000 pip drop in January and February. Get ready, this pair, after a very shallow pullback is now ready to drop even further. The final trade is the AUD/USD, which dropped from about 1.0500 to 0.9600 (900 pips) over April and May so far. With both the GBP/USD and AUD/USD I believe these will be major short trades over the next two/three months with huge profit opportunities up for grabs. I will expand on these thoughts later in the blog and add in charts to show the levels in more detail.

Whilst I am bullish the USD......."Never fight the FED" should always be in your thoughts as Ben and his team are supporting the stock market to the tune of $85 Billion per month. As I have written about several times, I do believe eventually the market will tire of the effects of quantitive easing, and I think we are almost there. In addition, the "Buy the Dip" mentality in the equity markets is starting to get many traders a little nervous given the commodity sell off. Whilst this sell off  at the moment is primarily in commodity currencies, look at Holy Trinity of commodities  (Gold, Oil and Copper) they are not exactly setting computer screens alight with multiple green lights, hence the nervousness, it may not be a "buy on the dip" opportunity - it may actually be a downward trend that is formulating .Continual low interest rates are eating away...next it's going to be deflation rather than inflation. Watch this space.

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<span style="text-decoration: underline;"><strong>2. THE MARKET OVERVIEW FROM MY DESK:</strong></span>
<p style="text-align: center;"><strong>"TAPERING" IS JUST ANOTHER WORD....ARE YOU DROWNING IN CENTRAL BANK LIQUIDITY?</strong></p>
I go away for a few days and in the main I trade from my charts with little fundamental news getting through to me. I return home and in the first hour or so of watching CNBC or listening to Bloomberg Radio a new word has entered my world......."Tapering". Holy Mother of God, not happy with starting the rush to weaken your currency, the FED or rather Ben is creating a new trading dictionary word by word. So as I see it, as the FED begins to end its $85 Billion monthly support, the markets will be weaned off the monthly support level by "Tapering".

If you are new to trading currencies you must be totally confused at the moment. It is such a false marketplace; there has been little two-way action. Data releases whether "Good news or Bad news" means nothing. Markets just keep rising as the Central banks continue to support equities. "Good news" means good for markets and "Bad news" means more support which also means its "Good news" for markets as the fear of removing support could cause panic selling. Most Central Banks......FED, BOJ, BOE, SNB, RBNZ and ECB are all to differing levels employing a form of easing / asset / bond purchases to weaken their currencies and this intervention looks like it is going to be with us for some time yet. The FED will lead us out of this mess via "Tapering" just as Ben led us here via his helicopter dropping waddies of cash into Wall Street.

So how do we trade around this false environment?

Firstly.....it is what it is...it's not really false it is something that we as traders have to get used to and accommodate in our trading day regardless of what type of trader you think you are.

As mentioned many Central banks are easing or directly intervening in the currency markets. I have written on many occasions that drowning in liquidity is soon to be a common occurrence and we are now on a merry-go-round that is circling faster and faster making it impossible to stop it never mind get off it!

Let me start with the ECB..... Super Mario has pledged to do "Whatever it takes" to keep the single currency alive...I don't think he thought that the Eurozone recession would bite the way it has the slowdown reaching into Germany. The latest GDP data shows the region in recession and for the Mediterranean countries of the Eurozone they will be in recession for years to come. The outlook for economies in the Eurozone is poor and further easing is required to help...this will be negative for the Euro but positive for the USD.

The Bank of Japan (BOJ), Kuroda as head of BOJ and Prime Minister Abe want to weaken the JPY and at all costs create a bit of inflation...a target of 2% has been set. The start of a pullback in US equities is weighing heavily on all JPY pairs and we have seen huge volatility in YEN pairs as they struggle to cope with the market swings. The JGB bond market is also volatile. The BOJ is not buying government bonds.... yet, well they may be, but they are not buying directly in the market. The Bond market is spinning around and adding to the volatility. Up to now the BOJ has been vocal, but verbal intervention can only take you so far. Both Abe and Kuroda to keep the G7 and G20 sweet have stated that they are only interested in tackling deflation and that currency exchange rates and stock market values are not in their interest.... bulls**t.  However if the volatility continues more than verbal intervention will be required.

Then we have the "Daddy" of them all the FED. Bernanke was in Washington last week under scrutiny from one of the many senate committees that love to question him over his actions (talk about the pot calling the kettle black…if only the American people had the same TV coverage to Q&amp;A their elected representatives over their ineptness in doing anything in Washington other than call the party line!).  During the Q&amp;A when pressed about the exit strategy of the existing $85 billion per month QE programme, Ben brought up the matter of tapering and at the same time re-iterated the unemployment target rate of 6.5%. The markets fresh from hearing other FOMC committee members in the past few days voice their differing opinions on the exit strategy and of what tapering could and could not do ignored much of Bernanke's comments and only  heard.... ' tapering…. tapering…tapering…and, exits…exits…exits'. God love them; the fear of the end of “Buy the dip”…let’s “Buy the dip” must have hit then hard. Equities began to sell off as the fear finally struck home that the Fed were actually already discussing ending, or at least reducing the amount of QE per month.

Top tip…buy, buy, buy….”Depends”, “Andrex”, “Scotties”, “Cushion Soft”, "Charmin Ultra" or whatever is sold in your area. There will be a new kind of run on Wall Street!!

So, the markets as usual heard what they wanted. Ben talked it both ways. U.S. data is in essence winning the less ugly competition on the worldwide economic stage right now, but let’s face facts, the GDP numbers do not in any way shape or form reflect this confidence. They are still well below par, and the recovery talked about is still fragile, hence Ben’s two way discussion on the hill to the committee.

If Japan ups the anti…what do you think the FED is going to do?

Next, let me write briefly about the UK.

Recent data released up to this past week has been improving,  perhaps  indicating  the doom and gloom merchants were maybe a little too harsh.  However, the past week’s data on Retail Sales would have put the cat amongst the pigeons somewhat, as it was weaker than expected, maybe a reality check needs to take place. The PMi data at the beginning of the month may not after all be the Holy Grail for the UK economy.
In addition, we have “Merve The Swerve” King leaving the BOE in July and the very Conservative incoming new BOE Governor Mark Carney stepping into his shoes. How eager will Carney be to add to the UK asset purchase facility (QE), or rather get the UK back on track again? I hardly think "Tapering"  will feature in Carney's vocabulary for some time yet!

Finally, little New Zealand the smallest of the majors…. has been directly intervening in the foreign exchange markets to weaken the Kiwi. No QE programme for them…just straight in no messing about!!

What I am trying to point out as briefly as possible is that most of the major world's central banks are playing in the markets and we have a very, very false picture of basically everything financial.

Whilst an individual country's Central Bank intervention is primarily aimed locally, because of the fact so many Central Bank's are adopting similar policies and all markets are now so intertwined it is very difficult for an individual Central Bank to achieve 100% of it's goal. We are reliant on something that is very difficult to stop, as the solution appears to be more easing,  and more intervention to try and stay ahead. To simply say STOP...is not that simple. This style of intervention has never been carried out by so many Central Bank's at the same time. We are on a merry go round or roller coaster on it's way down a large fall. This has never been done before and no one at all, absolutely no one without question has any idea what the market reaction will be, when one Central Bank stops first. If it was a coordinated stop by all Banks, then  God only know what would happen.

On the immediate horizon, you can bet your bottom dollar that Asian countries are ready to move if Japan steps up and away from verbal intervention in the next week or so, this action will have a knock on effect all over. The merry go round increases speed and the cycle starts up again, as everyone tries to squeeze an edge over someone.

So, as traders we are “Drowning in all this liquidity’ What are my thoughts?

I am thinking bet on the USD. There are more US dollars than other currency in the world.  It is the dominant force and as the FED winds back, U.S. equities will follow and the USD will strengthen across all pairs.

Looking at all the USD majors, most of them have charting patterns starting to become more and more obvious as the FED “Tapers”: -

EUR/USD: Head and Shoulder pattern on a break below 1.2820, sets up a move towards 1.2635. In my opinion we are in a very long term down channel and sub 1.2000 is on the cards for me, maybe even a test of 1.1860.

GBP/USD: There is already a bear flag formation in play targeting 1.4100.

AUD/USD: The government has made it clear that the Aussie is way too strong. Most pundits are calling for 0.9000, some back to real low…. lows of 0.6000.

NZD/USD: The RBNZ is already playing “Footsie” direct with foreign exchange. A break below the key level of 0.8000 sets up 0.7400 very quickly. If the Aussie does slip through 0.9000, the Kiwi could slip to 0.7000 and then my Armageddon number of 0.6500 is in view!!

USD/CHF: The SNB (Jordan) is rumored to be thinking of raising the peg in the EUR/CHF from 1.2000 to 1.2500.  We now trade in the region of  1.2500 without him openly stating a new floor, it makes you wonder. This has a knock effect in all CHF pairs. The EUR/USD directly affects the USD/CHF exchange rate as they are inverted for the most time.  Should the EUR/USD break below 1.2635, this should place the USD/CHF back above parity. Should this happen momentum will target 1.0500 pretty quickly.

USD/CAD: The most annoying USD major pair in my opinion. It is ready to surge. I think 1.1000 is back on the cards with USD strength deployed.

USD/JPY: I hate saying this…. but I am not too sure how this would react to a massive reversal in the US$ index given all the easing that Abe and Kuroda have at their disposal, as we will have a large pull back in equities, which historically all the YEN pairs have mirrored. Maybe the big disconnect will be coming, who knows. I do however see a possible re-test of 100.00 in the exchange rate, before any move higher should be confirmed.

A week or so ago, I would have said 105.00 for sure and possibly 110.00 by the end of 2013

Basically, chin up…no drowning…capitalize on the opportunities. You do not need to pick bottoms or tops, there should be 1,000’s of pips available.

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<span style="text-decoration: underline;"><strong>3. MY LONGER TERM POSITION TRADES:</strong></span>

I currently have none. I exited most positions on Thursday last week and I am looking and waiting patiently for pullbacks to re-enter.

I will definitely tweet my entries as they happen.

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<span style="text-decoration: underline;"><strong>4. LOOKING AHEAD; WHAT ARE THE KEY SUPPORT AND RESISTANCE LEVELS IN THE USD MAJORS THAT INTEREST ME:</strong></span>

<strong>EUR/USD: Closing Price1.2931.</strong> Big support lies at 1.2797, which was the most recent low. Upside resistance is at 1.3025, beyond there 1.3250 a bit away but a great shorting level if we could ever get  there…I doubt that we will.

<strong>GBP/USD: Closing Price 1.5125</strong>. Obviously there are going be stops in huge form below but 1.5000. We got as low last week as 1.5014. I think we are heading lower. After 1.5000, which, in my opinion is inevitable 1.4830 the recent March low comes into sight. My chart shows the bear flag to 1.4100. The upside resistance is at 1.5175 then 1.5320, the recent high.

<a href="https://weeklyfxdrivethru.com/wp-content/uploads/2013/05/GBPUSD-W-25052013.png"><img class="aligncenter size-large wp-image-1770" alt="GBPUSD W 25052013" src="https://weeklyfxdrivethru.com/wp-content/uploads/2013/05/GBPUSD-W-25052013.png" width="660" /></a>

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<strong>AUD/USD: Closing Price 0.9652</strong>. We are trading so close to a major breakdown, or should I say meltdown! 0.9580 is critical support from last month. A break through here it’s bye bye Gracie goodnight one and all…or should that be Sheila? October lows in 2011 are just below 0.9400. This would be an obvious target after 0.9580. Upside resistance is at 0.9780 and then a big level of resistance is at 0.9850.

<a href="https://weeklyfxdrivethru.com/wp-content/uploads/2013/05/AUDUSD-M-25052013.png"><img class="aligncenter size-large wp-image-1769" alt="AUDUSD M 25052013" src="https://weeklyfxdrivethru.com/wp-content/uploads/2013/05/AUDUSD-M-25052013.png" width="660"/></a>

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<strong>NZD/USD: Closing Price 0.8091.</strong> Big levels are 0.8000 to 0.8250

<strong>USD/CHF: Closing Price 0.9612.</strong> A big sell off at the end of last week but I am still bullish this pair. Support is at 0.9540 and initial resistance 0.9740 and 0.9840.

<strong>USD/CAD: Closing Price 1.0317.</strong> A break above 1.0340 sets up 1.0450 the June 2012 high. I think we should see much higher levels though. Last Monday’s low of 1.0210 is support.

<strong>USD/JPY: Closing Price 101.28</strong>. I am hesitant on this pair. I do think that we may re-test support at 100.00 going forward or just below at 99.60 (the 62.8% Fib. retracement of this month’s move). Last week’s high of 103.74 looks a long way away at the moment, but this is the range to watch.

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<span style="text-decoration: underline;"><strong>5. MAJOR NEWS AND DATA EVENTS THAT INTEREST ME IN THE COMING WEEK:</strong></span>

TUESDAY: JPY - KURODA SPEAKS

WEDNESDAY: CAD – BOC INTEREST RATE STATEMENT
WEDNESDAY: AUD - BUILDING APPROVALS &amp; CAP. EXP.

THURSDAY: USD – PRELIMINARY GDP

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<span style="text-decoration: underline;"><strong>6. FINAL THOUGHTS &amp; COMMENTS:</strong></span>

As usual trade easy out there and do not get too carried away. I really believe we will have some great opportunities ahead to make some great pips on some major moves.

We need to be patient for all the “ducks” to get in a row. I think we will be able to make, store and bank profits for a while should the USD take control. We do not need to be heroes picking tops and bottoms, there are 1,000’s of pips available if the move takes hold. Establishing core positions will be key, but patience and working with good money management disciplines critical for success.

Work within your trading plan at all times.

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Scott Pickering
The Pip Accumulator
Saturday 25<sup>th</sup> May 2013.

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