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

Another week….another few $$$ in my brokers account, but not as much as it should have been.

The hindsight trader within me is kicking himself over two or three silly trades, that quite frankly for someone who has been trading for over five years should never have made. I know that you should never look back, you must learn from mistakes and move forward, but, if only…c’est la vie

The USD continues to show weakness. Even poor Eurozone PMi data and German weak “Ifo” numbers did not stop the EUR/USD grinding higher. This in my opinion is not because the single currency is so good but because the USD is soooooo bad!! I do think that the USD will have it’s day but in the past couple of weeks how many USD strength days have there been? I count one definite maybe two borderline days and I am being over generous with two.

The trades of the week obviously surround the CAD. The “loonie” finally playing the game and it looks like there is a little more to go. The BOC when keeping interest rates on hold earlier in the week moved all the Bravado comments from the press release about moving rates up etc. They fed the market what it was waiting for at long last, a good dose of “realism”. How in the name of sanity could the BOC raise rates when you have the dysfunctional numpties south of the border playing party political games gambling away any good U.S. economic data. Hell will freeze over first.

The other “loonies” in the U.S. are still bickering. They are getting ready for round two in the new year and they are not afraid to say so. Is it any wonder that the USD is weak. I think that the markets are not even anticipating tapering until the second quarter of 2014, at the earliest. Uncertainty and Washington power struggles = weak USD.  In last weeks blog I gave three good reasons, in my opinion, for continued USD weakness. These have not changed, and they are below: -
<ol>
	<li><i></i><i></i><i>The ratings agencies downgrade. Not just the Chinese agency down grade but also the S&amp;P negative outlook. Moody’s claims no adjustment for 2 years. Quite frankly how an agency can say this beggars belief. Do they not have memories from 2008? Quite unbelievable and totally irresponsible.</i></li>
	<li><i style="text-align: center;"> </i><i style="text-align: center;"></i><i style="text-align: center;"></i><i style="text-align: center;">The fact that tapering now looks to be so far in the distance, I am thinking it will take a miracle if it were to happen in the first half of 2014. There is no way the FED can rock the boat. We have continued uncertainty, as the peace will only last about 90 days, before the circus comes back to town. This will keep the FED intervening buying bonds etc.</i></li>
	<li><i style="text-align: center;">Who knows exactly what damage that the Government shutdown caused economically to the U.S. There are figures being quoted by some economists stating that it could be as much as 0.6% off GDP for Q4 2013. I do not know but this type of talk will keep the USD weak. The economic data that was not published during the shutdown starts to be released this week, but I do not think that we can trust the data 100% and we will require a couple of months to get back into the routine. For this reason this will add uncertainty in my opinion and uncertainty usually manifests itself as sell the USD.</i></li>
</ol>
For fx traders this state of play = $$$ opportunities.

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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;">THE JPY WILL SOON DICTATE THE MARKET DIRECTION AND I BELIEVE I HAVE A COUPLE OF GREAT TRADE SET UPS</span></b></p>
<p style="text-align: left;" align="center">My blog of 10<sup>th</sup> August 2013 when I used the title “Move over king USD it’s king Yen for now”, this followed my blog on July 27<sup>th</sup> when I was looking at charts believing the USD/JPY was going to fall sub 95.00 in the coming sessions.</p>
My timings may not have been perfect but there is no doubt that the very liquid pairing of the USD/JPY is a major player in the fx market.

The USD/JPY operates so close to U.S. economic sentiment in normal trading conditions it cannot be ignored. It is a great indicator to market sentiment and it can be used to support and give guidance on inter-market moves. Once again it has moved into a key position and as I see it, it will probably have a major part in determining market direction. Nothing has really changed since my August blog in macro terms. In between then and now we have had the “Tapering” debate with the FED, followed by the U.S. government shutdown and debt ceiling fiasco. This took the attention away a little.

Let me start off with a chart.

Below is the USD/JPY Daily chart.

<a href="http://www.thepipaccumulator.com/blog/wp-content/uploads/2013/10/USDJPY-DAILY-26102013.png"><img class="aligncenter size-large wp-image-2044" alt="USDJPY DAILY 26102013" src="http://www.thepipaccumulator.com/blog/wp-content/uploads/2013/10/USDJPY-DAILY-26102013-1024x516.png" width="1024" height="516" /></a>

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From this chart there is a pennant formation (triangle) highlighted. It is getting tighter every day and soon enough it will break. The problem is…I have no idea which way it is going to break. It looks at the moment that it’s going to break lower, but we will not know until we have a break confirmation. Usually, with this type of pennant formation the breakout is to the upside.

I think that I should point out that I believe that the USD/JPY will ultimately weaken and be trading at 110.00 by the end of 2014. There are so many influences on the JPY that initially I think it will struggle to weaken and before it moves higher it has to go lower first

The influences in my opinion are: -
<ol>
	<li>U.S. political uncertainty.</li>
	<li>U.S. Treasury Bonds are rallying in general terms but the USD/JPY is diverging.</li>
	<li>I firmly believe that there will be a U.S. stock market pullback and this will affect the USD/JPY directly.</li>
	<li>Pressure in Japan on “Abeconomics”. Whilst Abe has control of both houses in the Japanese legislature, there will be inward pressure on some of the economic changes he wants /needs to make to weaken the JPY. This initial pressure will manifest itself in actually strengthening the JPY.</li>
	<li>The quantitative Easing (QE) programme that Abe has in position is not fully in place yet. Albeit at the end of the day, it will be almost three times greater than that in the U.S., it needs to be active, rather than be on a promise.</li>
	<li>Commodity currencies, which as you know if you are regular readers of this blog, always lead the way. My key lead indicator the AUD is dropping away. The NZD is following and CAD spurred on by the BOC comments is also finally breaking new ground above 1.0400.</li>
</ol>
Looking back at the USD/JPY, the lower trend line was tested as recently as Thursday/Friday overnight and the key level of 97.00 held. To be more granular, I think the true support is actually 96.80. A break below here should be a nice one to about 95.00. What a great place to get long.

The upside breakout is going to be around the 98.60 to 99.00 levels. So there is a bit of a move required to break out to the upside.

In last weeks blog I suggested two long trades the EUR/USD and GBP/USD. Only the GBP trade would have triggered based upon my entry levels suggested. This trade had it been taken would have been a profitable trade, and, still would be if you were still holding the trade.

This week I am looking from the other side. I believe that should the USD/JPY break lower, this will give us Fx traders one really good, maybe the final chance of being able to short the EUR/USD close to the highs as seen on the long term monthly chart levels in the chart below.

<a href="http://www.thepipaccumulator.com/blog/wp-content/uploads/2013/10/EURUSD-MONTHLY-21102013.png"><img class="aligncenter size-large wp-image-2042" alt="EURUSD MONTHLY 21102013" src="http://www.thepipaccumulator.com/blog/wp-content/uploads/2013/10/EURUSD-MONTHLY-21102013-1024x516.png" width="1024" height="516" /></a>

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Should the USD/JPY break lower this should push the EUR/USD up to 1.3900 or 1.4000 very close to the trend line resistance in the chart of just over 1.4000.

This would be a great spot to short as you will know your risk level is probably a stop loss run above the trend line should we get there.

I thought that the GBP/USD would also be a great short around 1.6450. But we double topped at 1.6260 ( when I say double topped the chart below shows 7/8 occasions this figure has held either on a downside or upside move) and quite frankly I am not certain would reach 1.6450. But never under-estimate cable, it continually proves me wrong. The chart below shows what I am referring to.

<a href="http://www.thepipaccumulator.com/blog/wp-content/uploads/2013/10/GBPUSD-MONTHLY-21102013.png"><img class="aligncenter size-large wp-image-2043" alt="GBPUSD MONTHLY 21102013" src="http://www.thepipaccumulator.com/blog/wp-content/uploads/2013/10/GBPUSD-MONTHLY-21102013-1024x516.png" width="1024" height="516" /></a>

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<p align="center"><b>TRADE IDEA:
</b><b>EUR/USD
</b><b>Short at: 1.3900 –1.4000
</b><b>Stop Loss: 1.4100
</b><b>Initial Target: 1.3500</b></p>
<p align="center"><b>TRADE IDEA:
</b><b>GBP/USD
</b><b>Short at: 1.6400-1.6450
</b><b>Stop Loss: 1.6500
</b><b>Initial Target: 1.6000</b></p>
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Obviously, as I mentioned earlier, the opportunity to take the USD/JPY long at 95.00 or thereabouts would also be a great trade. Do not try to pick the bottom the move should be a big one.

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<p align="center"><b>TRADE IDEA:
</b><b>USD/JPY
</b><b>Long at: 95.00 or thereabouts
</b><b>Stop Loss: 94.50
</b><b>Initial Target: 98.50</b></p>
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<b><span style="text-decoration: underline;">3. MY CURRENT LIVE TRADES:</span></b>
<p align="center"><b>1.EUR/CAD
</b><b>Long
</b><b>Yesterday’s Closing Position 1.4416
</b><b>Entry / Cost Average: 1.4310
</b><b>Position Size: 20%
</b><b>Stop Loss: 1.4364 (54 pips protected profits)
</b><b>Target / Limit: 1.4800
</b><b>Present Position: + 106 pips</b></p>
<p align="center"><b>2.USD/CAD
</b><b>Long
</b><b>Yesterday’s Closing Position 1.0445
</b><b>Entry / Cost Average: 1.0416
</b><b>Position Size: 20%
</b><b>Stop Loss: 1.0330
</b><b>Target / Limit: 1.0850
</b><b>Present Position: + 29 pips</b><b> </b></p>
<p align="center"><b>3.NZD/USD
</b><b>Short
</b><b>Yesterday’s Closing Position 0.8276
</b><b>Entry / Cost Average: 0.8333
</b><b>Position Size: 20%
</b><b>Stop Loss: 0.8365
</b><b>Target / Limit: 0.8000
</b><b>Present Position: + 49 pips</b></p>
<p align="center"><b>4.GBP/CAD
</b><b>Long
</b><b>Yesterday’s Closing Position 1.6884
</b><b>Entry / Cost Average: 1.6823
</b><b>Position Size: 20%
</b><b>Stop Loss: 1.6850 (27 pips protected profits)
</b><b>Target / Limit: 1.8125
</b><b>Present Position: + 61 pips</b></p>
<b><span style="text-decoration: underline;">4. OTHER POTENTIAL TRADES THAT ARE ON MY RADAR:</span></b>

Commodity currencies are reacting differently and there are signs of divergences in the market. The Antipodean cross-rates, “High Beta” currencies interest me.

Here is my plan / strategy: -

The currency pairs involved in my plan are: - EUR/AUD, GBP/AUD, EUR/NZD, GBP/NZD and AUD/USD. With the exception of the AUD/USD these pairs are heavily influenced by the “risk-on” “risk off” behavior of the market, they are less liquid than the USD majors so you must exercise caution when placing trades. Assess your risk; know your limits before entering a trade.

Should we see a fall in equities these pairs will move very quickly to the upside. Right now they are moving upwards based primarily on downward moves in the AUD/USD and NZD/USD.

I will want to enter on pullbacks. Below I list the entry levels that I will be entering in my brokers account for limit orders over the next 48 hours. I will tweet limits and stops as/if the trades trigger.

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<p align="center"><b>EUR/AUD – long at 1.4360</b><b> </b></p>
<p align="center"><b>GBP/AUD – long at 1.6830</b><b> </b></p>
<p align="center"><b>EUR/NZD – long at 1.6600</b><b> </b></p>
<p align="center"><b>GBP/NZD – long at 1.9450</b><b> </b></p>
<p align="center"><b>AUD/USD – short at 0.9640</b></p>
<b> </b><b> </b>

The EUR/GBP is also interesting me. But my trade is quite some way away at the moment. I list it below, and I have a stop order placed with my broker already. This is a trade that may never initiate. But as the James Bond movie title says…”Never Say never”.
<p align="center"><b>EUR/GBP
</b><b>Short at: 0.8625
</b><b>Stop Loss: 0.8675
</b><b>Initial Target: 0.8280</b></p>
One other trade that interests me is the USD/CHF. I may have missed the trade but should the EUR/USD rally to 1.3900-1.4000 I should get a second chance to enter this set up.<b> </b>
<p align="center"><b>USD/CHF
</b><b>Long at: 0.8865
</b><b>Stop Loss: 0.8825
</b><b>Initial Target: 0.9000</b></p>
<p align="center"><b> </b><b><span style="text-decoration: underline;"> </span></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 1.3802.</b> This pair ended the week with a very bullish close above 1.3800.  It looks like this pair is eventually going to test 1.3900 and above. I thought that NFP (Non-Farm Payrolls) last week would have been the catalyst but that did not happen.  Initially the range I would say that needs to be broken is 1.3710 to 1.3840. This will not only confirm direction but once this range is taken out the whole market may “free” up.

<b>GBP/USD: Closing Price 1.6161. </b>Cable has under-performed this week. The EUR/USD moved up 150+ pips in the week and GBP/USD about 20 pips. It is strange considering economic data from the Eurozone has been weak and the UK data stronger. This worries me from my associated GBP related trade GBP/CAD and it adds another layer of thought to whether I trade the GBP/AUD and GBP/NZD. Without doubt 1.6260 needs to be taken out on the upside. Closing 100 lower than this level when the EUR/USD has been in rally mode makes me think….maybe GBP/USD down side pressure is on the horizon. The range that I think defines bullish / bearish sentiment on cable is 1.6100 to 1.6260.

<b>AUD/USD: Closing Price 0.9581</b>.  Commodity currencies led by the AUD are diverging. The AUD/USD is over 100 pips up than last weeks close. I want a pullback so I can enter short. My problem is that if equities roll over next week I may not get the chance and I do not chase trades. The overnight low Thursday/Friday was 0.9572. Yesterday’s close was pretty much at the lows. I feel that sentiment is going bearish on this pair. For sentiment to turn bullish once again I think that a break above 0.9650 is required. If we break below 0.9550 I think we head lower again towards 0.9250.

<b>NZD/USD: Closing Price 0.8276</b>. Over 200 pips lower in the week for this pair. The Chinese bank write-off news release in the week really hit this pair the hardest. Despite the RBNZ governor Wheeler, stating that interest rate hikes are going to be required, he has put these off until the second quarter 2014 if it’s to happen. He has another statement this week and this will be a good news event to follow. Fundamentally, the Kiwi dollar, in my opinion, is grossly over-valued. The New Zealand economy albeit showing signs of over-heating in major cities like Auckland and Christchurch is somewhat fragile in other places and the medicine that the RBNZ wants to deliver is not that cut and dried.  We have an excellent trading range that if broken could set up a great momentum trade on the back of the RBNZ announcement on Wednesday. The trading range I am looking at is 0.8220 to 0.8350.

<b>USD/CAD: Closing Price 1.0445. </b>The loonie…..the currency that I live with everyday and hate to trade. This week it has provided the basis of some great profitable trades. To make matters even better, the BOC finally said what most Canadians at least knew for past three months, that is that there should be no more monetary or major government policy changes here in Canada. We have to wait for the U.S. to get its house in order. Well frankly, the BOC didn’t actually say that…but…that’s what they would have said<b> </b>were we not in a<b> </b>politically correct society.<b> </b>This pair could go substantially higher for months to come, it has been range bound for several months already. The next resistance is 1.0480 then it’s 1.0575. Support is good at 1.0420 and beneath there 1.0330.

<b>USD/CHF: Closing Price 0.8923. </b>This pair now has my attention. I have a limit order placed with my broker. The range I see is 0.8890 to 0.9000 in the short term. Obviously, moves in the EUR/USD will affect this pair directly as it’s inverse relationship is still intact for now. Huge movements in Gold or U.S. Bonds could affect this relationship with the single currency so bear this in mind if trading this pair.

<b>USD/JPY: Closing Price 97.41. </b>The JPY continues to strengthen despite all the QE talk and equities in the U.S. grinding higher.  I have written at length about this pair earlier in the blog. The support and resistance levels are 96.80 to 98.30. A break of this range will direct the markets.

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

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

SUNDAY: N/A

MONDAY: N/A

TUESDAY: USD – Core Retails Sales, PPi and Retail Sales.

WEDNESDAY: USD – ADP Non Farm Employment Change and Core CPi m/m.
WEDNESDAY: USD - FOMC Statement.
WEDNESDAY: NZD – Official Cash Rate and RBNZ Rate Statement.
WEDNESDAY: JPY – Monetary Policy Statement.

THURSDAY: JPY – BOJ Press Conference
THURSDAY: CAD – GDP m/m
THURSDAY: AUD – PPI
THURSDAY: CNY – Manufacturing PMi

FRIDAY: USD – ISM Manufacturing PMi
FRIDAY: GBP – Manufacturing PMi

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

Lots of news items during this next week that will/ should be market movers. I have suggested many trade set-ups this week. It goes without saying, but, I will say it anyway my trade ideas can be thrown a curve ball quite easily with all these news items.

Therefore, whilst I believe my set ups are directionally sound, if trading these, I am suggesting you trade very small lot sizes until the trades are established and then ease yourself in with an increased trade size. Move stops to protect profits. It is NOT chicken to do this. Trading is about making $$$ and protecting your capital. It’s not about being a gambler. You are a risk assessor. Make certain that you have stops in mind when you place your trade to know exactly what your risk is.

As always, trade mean and trade lean inside the parameters of your trading plan.

I will update in the middle of the week with the “Midweek Fx Fix”, either Tuesday evening in the Asian or Wednesday morning in the North American session.

Good luck and take care.

Scott Pickering

The Pip Accumulator
Saturday October 26th 2013

FOLLOW ME AT:
Twitter: @pipaccumulator

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