Fundamental Trading Always beats Technical Trading 100%

Lol the term symmetric was in fact quite hawkish hence why the longs rescinded shortly after the minutes as the market digested the langue. Unfortunately traders can be too trigger happy to make pips. I woke after those minutes were released and was 100% confident the dollar would regain strength.

The dollar deserves to be strong due to having a hiking cycle, good yields etc

I am not quite sure that is hawkish or dovish, it is more of they want to tone down market expectation and keep the hike on its current path. Sounds more neutral to me. USD strength is definitely there for now, as the data indeed been good. However, I did like to see it maintain the growth. If not it be just like Euro, where after a year of good growth it just fall off.

At the end of the day I am a trader not an economist. My goal is to benefit of what all the big players are thinking and trade in line with them whether I agree on it or not. The main thing is that I have a perception and understand the reasons for the current sentiment and not let my bias get in the way. So the best thing is to ride the trend and profit from it.

A MUST READ :

We will discuss this week’s main risk events and provide you with guidance on how to trade them. This will include three scenarios that will provide great trading opportunities.
The main event last week was the FOMC’s monetary policy decision which saw rates remain at 1.50-1.75%.
According to Bloomberg, the Fed conveyed a ‘relaxed attitude toward inflation’. Suggesting there would be ‘no shift to a faster pace of monetary policy tightening’.
This week, the market’s main focus will likely shift from the FOMC to the BoE. The RBNZ will also be in focus as they announce their latest decision on May 9th.

The key highlights for FX traders this week are as follows:
The BoE rate decision could give us three clear scenarios to make money. The most likely scenario is that GBP remains under pressure until the end of the week.
New Zealand’s inflation expectations could set the tone heading into the RBNZ. A significant increase would be NZD positive and a decrease NZD negative.
USD could strengthen heading into US CPI given USD’s current positive sentiment bias. This should be further supported by CPI expected to improve from last month.

Tuesday, May 8th
AUD – Retail Sales
The first opportunity of the week will be from Australia with Retail Sales for March and Q1.
Although not a major event, a significant deviation could provide a trading opportunity. Especially considering AUD has remained well supported over recent sessions.
If the data beats expectations, we would expect AUD sentiment to remain positive. On the other hand, a miss could see some profit taking, causing AUD to weaken.
As this is not a significant event, we would only recommend entering on a strong deviation. Ideally with both Retail Sales M/M and Q/Q deviating in the same direction.
If the deviation is marginal or as expected, we would not expect a sustainable reaction. This would likely mean there would be no trading opportunity.

NZD – Inflation Expectations
According to Statistics New Zealand, inflation slowed to 1.1% for Q1. This puts inflation at the lower bound of the RBNZ’s 1-3% inflation target.
Bloomberg suggests that most economists expect inflation to pick-up later in 2018. However, inflation expectations will play a key role as to whether that remains the case.
Like many aspects of economics, inflation can be a self-fulling prophecy. This means the expectation of higher prices is what causes prices to rise.
For this reason, inflation expectations can influence the central bank’s outlook. To the point where a change in inflation expectations could influence monetary policy.
A significant increase in inflation expectations could see NZD supported into the RBNZ.
On the other hand, a decrease in inflation expectations could see NZD weaken into the RBNZ. Especially considering Q1’s weak inflation numbers.
If inflation expectations fall, you could consider selling NZD into the RBNZ. Alternatively, if they increase, you could consider buying NZD into the RBNZ.
If inflation expectations remain unchanged, there will likely be no significant market reaction.

Wednesday, May 9th
NZD – RBNZ Rate Decision
The main event on Wednesday will be the RBNZ’s latest monetary policy decision.
This report will consist of four key releases. The Official Cash Rate, Rate Statement, Monetary Policy Statement, and Press Conference.
The RBNZ announce the Cash Rate, Rate Statement, and Monetary Policy Statement together. While the Press Conference takes place one hour later.
According to Westpac, the RBNZ will keep monetary policy unchanged. However, if there is a change, it will be in the direction of earlier hikes.
Westpac goes on to stress that a change in the RBNZ’s wording does not necessarily mean a change in stance. This is because this meeting will be the first meeting under the RBNZ’s new governor, Adrian Orr.
A change in the RBNZ’s rhetoric may be a reflection of Orr’s own style of communication. This could result in market volatility as the market interprets Orr’s comments.
If the market interprets the RBNZ as hawkish, we would expect NZD strength. Especially if the market does bring forward its rate hike expectations.
If the market interprets the RBNZ as dovish, we would expect NZD to weaken. Especially if rate hike expectations get pushed back.
A hawkish or dovish stance will most likely be the result of the RBNZ’s outlook for inflation.
If hawkish, the RBNZ will likely present an optimistic outlook for inflation. Which may also include the RBNZ dismissing Q1’s weak inflation report.
If dovish, the RBNZ will likely show a degree of concern over the inflation outlook. This may also include the RBNZ acknowledging or referencing Q1’s weak report.
Of course, the clearest signal would be a significant revision to inflation expectations.
A downward revision to inflation would be dovish, and an upward revision would be hawkish.

Thursday, May 10th
GBP – BoE Rate Decision
This week’s main event will be the Bank of England’s monetary policy decision.
The BoE has been in focus since several data points missed expectations in April. According to Reuters, this saw the market push back its expectations for a May hike.
As such, the BoE is now expected to remain on hold at this meeting. The bigger question, is, therefore, how much of an impact has the UK’s recent disappointing data had?
There are three scenarios which could provide great trading opportunities.
Scenario 1
Although the BoE is no longer expected to announce a hike, a rate change is still a possibility. If the BoE does still decide to hike, GBP will strengthen across the board.
This is our first scenario and will make for a great trading opportunity.
Scenario 2
If the BoE remains on hold as expected, the market will then turn to the vote split. This is the second scenario which could make for a great trading opportunity.
ING’s base case scenario is for the vote split to remain at 2-0-7. This would suggest McCafferty and Saunders remain the only members who vote for a hike.
If any more BoE members decide to join McCafferty and Saunders by voting for a hike, GBP could strengthen. However, the more compelling trade would be if McCafferty and Saunders revoke their dissent.
McCafferty and/or Saunders revoking their dissent would strike a very dovish tone. This would suggest that recent data has had a significant impact on the UK’s economic outlook.
Furthermore, this could see the market push it’s rate hike expectations into 2019. CNBC suggest current expectations are for the next BoE hike to come in August 2018.
Scenario 3
Our final scenario comes from the BoE’s quarterly released inflation report.
The BoE‘s last inflation report stated that the BoE expects GDP to expand by 1.7% in 2018 and 1.8% in 2019. A significant downward revision to GDP would be another dovish signal.
The BoE expects inflation to continue declining. Falling inflation will ease the urgency to hike and present a more dovish tone.
However, significant reductions to GDP forecasts would signal concerns over recent disappointing data.
Therefore, a downward revision to both GDP and CPI would be very dovish. This would provide another excellent trading opportunity.
Of course, these scenarios are not the only possibilities. These are what we believe to be the highest conviction scenarios.
The BoE’s Rate Statement may also provide a trading opportunity. Especially if it’s portrayed to be clearly dovish or hawkish.
Once again, any references to recent UK data or future policy decisions will be key.

USD – CPI
US inflation is another event which has the potential to move markets. Furthermore, as a key focus for the FOMC, it has the potential to influence rate hike expectations.
As stated by Bloomberg, the Fed made sure to convey a relaxed tone over inflation at their May meeting. This could reduce the significance the market places on CPI.
Nevertheless, CPI remains the most significant data point for monetary policy expectations. Therefore, it should still provide great trading opportunities.
For a buying opportunity, we would look for an overall positive report. Ideally with all data points beating expectations.
For a selling opportunity, we would look for an overall negative report. Ideally with all data points missing expectations.
If the report prints mixed or as expected, there is unlikely to be a high conviction trade.

Friday, May 11th
CAD – Employment
The final event of the week will be Canada’s employment report.
This report will consist of two primary components. The Unemployment Rate and Employment Change.
The initial reaction will likely result from any deviation in the Employment Change. This is because Employment Change tends to deviate significantly from expectations.
Furthermore, Employment Change consists of two components. Full-Time Employment Change and Part-Time Employment Change.
This means the report can be misleading if full-time employment contradicts the headline. This can create volatility and CAD to whipsaw as the market digests the data.
For this reason, we want any deviation in Employment Change to be a result of Full-Time Employment Change.
Regarding the Unemployment Rate, any significant deviation from expectations will likely influence CAD. Although this too could create volatility if it contrasts with the Employment Change.
Summary
In conclusion, this week’s main event and market focus will be the BoE. Other trading opportunities will include the RBNZ, US CPI and Canadian employment.
The best opportunities for the BoE will be the three scenarios discussed above. Although you could trade into this event, all prior rate hike bets have likely been unwound.
This would suggest the higher conviction opportunity would be to trade out of this event.
If USD’s positive sentiment persists early in the week, trading into US CPI could be a good call. Likewise, trading into the RBNZ after inflation expectations could be effective.

What site did this info come from? Or is this "your" analysis? This is really good stuff!!! I'm always so impressed with your analysis and how well you forecast your FA. Kudos my friend!

Today's trades:

GBP AUD: I went long on this trade due to poor retail sales from Australia and currently the AUD is sensitive due trade wars etc. GBP/AUD is also coming of from a double bottom via the 1 day chart. The pound seems to have regained strength also heading into the BOE meeting. What could damage this trade is if the GBP bears comeback lurking.

USD/MXN: MXN is currently facing political uncertainty and the Nafta deal needs to be resolved for them. The USD has completely been annihilating the MXN.

USD/CHF: Wants to mirror the EUR/CHF and reach the level from where the swiss franc crashed which is only 200 pips away from the destination. I am always scared when trading the CHF as my broker does not allow hard stop losses to be used on the CHF lol.

Isn't that the point of tightening monetary policy? This is how it curbs inflation.
In fact, my case would be that as the country that is most aggressive in normalising their balance sheet, the supply of currency would drop quickest and as a result, appreciate quickest, cetris paribus.

On interest rates, US already has higher interest rates compared to most developed countries. Save for Aud and Nzd. This makes US debt rather attractive in yield terms.
Aud and Nzd are a slightly different situation as they do not have to do balance sheet normalization.

Im not sure what you mean but i assume you meant risk sentiment? Well the biggest benefactor from risk off sentiment imo would be chf, jpy. Followed by usd.

If the USD weakens, I can just reverse positions. I have been at this for awhile and the USD pairs work fine for me based on my trading strategy. I trade daily chart on a EOD basis. The volatility of cross pairs and the extra margin requirements, higher spreads and interest is not appealing to me.

As for the GBPUSD I have been short for 11 Trading Days. I am already in for nearly 500 PIPS. If price goes up, I get stopped out and cash in, if not I can still ride it. I can then wait for the market to settle before deciding a bias.

- Ric

Could you explain what is meant by 'symmetric' I have been trying to make sense of this since the FOMC added that word in to their statement, all the news outlets went crazy of that one word but did not care to explain it in layman terms lol

Correct me if I am wrong but you also mentioned a possibility of a May rate hike in a previous post, is this the reasoning for your bullish GBP as well?

I'm still sticking with bearish, I think because of the low volatility the GBP lacked direction, but then again one could argue that GBP not hiking on Thursday has already been priced into the markets, its a tricky one, for me it was either to sell the EUR/JPY or GBP/JPY, I went with the GJ based on the fact it is at a cheaper price

BIAS

SELL
EUR: Recent poor data
GBP: No hike expected on Thur, however, sentiment has been rather bullish, but I am judging that the increase in volatility will take the GBP further down
AUD: Poor retail data
NZD: A lower inflation target

BUY
USD: The feds speeches so far have had no dovish remarks and I have seen a generally bullish sentiment in the pair of late
JPY: Safe haven flows surrounding the Iran deal should

BIAS US (CHANGES)

SELL

AUD: Poor retail data I am removing this from my sell recommendation based on the fact that the other pairs I have listed have a stronger basis to sell on, due to the good rhetoric that came from the AUD balance sheet, which resulted in them announcing that they will be able to get out of deficit by 2020


BUY

Not changing any of my buy reccomendations but if I do re-enter a trade I will choose the JPY>USD based on Powells lacklustre hawkish speech (although not dovish) his lack of conviction may seep doubt into the markets however the JPY is clearly strengthening on safe-haven flows for this reason also I will be exiting my current position shortly after Trumps announcement

UK TRADES

TRADE 1 & 2
NZDUSD and GBPJPY short



UPDATE (13:00 GMT+1): Closed the NU trade for +36 pips
LAST UPDATE: The GJ +15 PIPS, this is disappointing for me as this could have been a potential +88pip profit but I became too greedy

US TRADES

TRADE 3
EURJPY short


Aiming for a technical double bottom

LAST UPDATE: EJ finished at a -16 pip loss, I should not have taken this trade as it had exhausted most of it average pips for the day so aiming to get more pips was simply greedy

OIL TRADE



I am not one to make excuses but just by looking at this chart it would be challenging to trade the news reactively if FOUR! reputable sources announce FOUR! DIfferent biases before the main event. This led to me loosing 3/4 trades

 

1. CADJPY - BUY - 2 pips
2. CADCHF - SELL - - 5 PIPS
3. AUDCAD - SELL - -3 PIPS
4. AUDCAD - BUY - BREAK EVEN

I agree with you the raising of rake and reducing their balance sheet is to prevent inflation getting out of control. Though the question I am asking myself is the current growth in US economy on a sustainable path, should the FED hike 4 times and at the same time unwind the balance sheet. I will like to hear your opinion on that, as I am trying to get a better understanding of how this all play out.

Another opinion I will like to seek is also the twin deficit which for the moment has been put on the back.

I am none the wiser, this is just my opinion based on what I have read. Basically they are allowing the inflation to run slightly above 2.0% just as they have allowed it to run slightly below 2.0%.

You can read more here.
https://www.orbex.com/blog/en/2018/05/usd-implications-of-feds-symmetric-objective

I am unsure of the sustainability as well. But taking 2.3% YOY gdp growth as reference, hardly seems unsustainable to me.

4 rate hikes may be slightly too aggressive. But considering that the fed wants to stay one step ahead of inflation, there may be a small possibility of it. Unless we see actual inflation readings accelerate.

As for the budget deficit issue. It really depends on your investment horizon. Imo, budget deficits will cause problems when T bills and bonds come due. Currently, i'd still expect govt to be able to refinance. Until interest rates get too high (which is unlikely given the pace of rate hikes).

I guess most USD bears are making their case through the deficits, previous sluggish inflation, political instability. Which imo do have merit. But context have to be taken.

Imagine your face was flawless and you divided it into two then it would be symmetric. They said that the data was somewhat symmetric off the top of my head. Lol

I said pound was bullish overall. What is weighing on cable is the dollar side. If you look at other pound pairs there seems to be a bid. I feel traders are expecting a hawkish tone come Thursday so they are trading into the risk event. Basically I feel the sentiment has changed. Eur on the other hand will continue taking a beating. I am not expecting a hike come Thursday but the vote split and language is what the traders will be anticipating come the 1st part of Thursday.

There is also numerous articles out anticipating a hawkish tone which can be seen on reuters and Bloomberg.

Sentiment is tricky but I could be wrong but it's based on my analysis

https://www.ft.com/content/5e2e9ca0-5286-11e8-b24e-cad6aa67e23e

Another reason for a bullish GBP, however this would require options monitoring. If the GBP does not wield today I will leave it alone till Thursday

Thanks that article explained it really well

USD/MXN profit target hit