Never Marry Your Opinions
If you look back at the beginning of last week you'll see the market doing something called "buying the rumor, selling the fact".
The market expected the Fed to hold. No rumor there. The action occurred around what the Fed would say afterwards, i.e. a hawkish statement. That's the rumor that was bought into; (GBP shorting). From a close on 10/20 of around 8850, we saw it shorted all the way to the low 87's all thru London on the 23rd. Once the facts where known, the $ was sold off all the way to 9000.
All along I thought a hawkish statement was in the cards. Turned out the statement was pretty neutral to dovish-the market certainly interpeted it that way and that's my point: My thought on the statement was wrong. After that, I quickly changed my opinion and traded accordingly. BTW, I don't deel bad at all; a lot of other people had the same opinion regarding the tone of how the Fed statement would be.
Having an opinion is not like being married where you stay with your partner thru good times and bad, in sickness and in health. You don't do this with your opinions and trades. With trading, you need to be able to change your thinking 180 degrees based on new fundamentals. You gotta trade off the reality whether that reality fits with what you were thinking or not. If your opinion was right, great you're a genious. If it was wrong, so what. Recognize that and do what needs to be done. As it turned out, based off what the Fed said on Wed I developed an opinion that Friday's numbers would be very $ negative. That's exactly what happened and I was able to have a huge trade from that. I'm not bragging, i'm just pointing out that you need to be able to think fast and change your opinion without letting yout feelings get hurt.
How do things look going into Monday's very importatnt core PCE? Well due to some technical factors on how it's calculated, core PCE tends to rise slower the the core CPI number. Owner's equivilent rent contributes about half to core PCE vs core CPI. Medical costs are also figured differently, as gov't programs (where prices are regulated) play a part in core PCE and do not in core CPI.
Aside from that, we have the Fed statments to work from. I'm pretty sure that the Fed knew the core PCE last Wed and that what they saw did not scare them. Based on that, I see the core PCE coming out lower then consensus, but I'm temporing my opinion as you'll see below.
Since the BoE is still tipped to raise the rate and the Fed isn't, i'll still focus on this pair. Right now, there's a lot of GBP profits on the table, from traders who got long from the low 8700's and continued to buy after Wed right thru Fri. When London opens Mon, I wouldn't be surprised to see some profits taken. No saying as to what level we could see, but look what happened on Fri in London. Profits were taken down to around 8875 from 8910. Further GBP buying occured thru there as traders were convinced the Fri #'s would be $ neg. They were and the run-up continued all the way to 9000 before closing around 8965. So, there's plenty of profits left on the table for the taking. Here's what to look for:
If the market is of the mind that the core PCE will be $ neg, we could see profits taken down to around 8920-30. I really don't believe it'll crack 8900 if that's the thinking, but still, the idea is to find a bottom and see if it holds. If it does hold, the above is confirmed. You may want to consider going long at this point and holding it thru 13.30 GMT when the core PCE is announced. You'll be doing what a lot of professional money is doing.
If no profit taking occurs, to my thinking the market is absolutely convinced the core PCE will be $ neg, so I would go long here. It should go thru 9000 and hold for a while.
If a free-fall occurs, all bets are off. To my thinking, they'll be selling cable on a hot rumor that the core PCE will be inflationary. From what the Fed said last Wed I really doubt that's gonna happen, but if it does, you'll know what it means.
That's what I mean by not getting married to an opinion. Yes, I believe the core PCE will be $ neg, but if the free-fall occurs...
If you look back at the beginning of last week you'll see the market doing something called "buying the rumor, selling the fact".
The market expected the Fed to hold. No rumor there. The action occurred around what the Fed would say afterwards, i.e. a hawkish statement. That's the rumor that was bought into; (GBP shorting). From a close on 10/20 of around 8850, we saw it shorted all the way to the low 87's all thru London on the 23rd. Once the facts where known, the $ was sold off all the way to 9000.
All along I thought a hawkish statement was in the cards. Turned out the statement was pretty neutral to dovish-the market certainly interpeted it that way and that's my point: My thought on the statement was wrong. After that, I quickly changed my opinion and traded accordingly. BTW, I don't deel bad at all; a lot of other people had the same opinion regarding the tone of how the Fed statement would be.
Having an opinion is not like being married where you stay with your partner thru good times and bad, in sickness and in health. You don't do this with your opinions and trades. With trading, you need to be able to change your thinking 180 degrees based on new fundamentals. You gotta trade off the reality whether that reality fits with what you were thinking or not. If your opinion was right, great you're a genious. If it was wrong, so what. Recognize that and do what needs to be done. As it turned out, based off what the Fed said on Wed I developed an opinion that Friday's numbers would be very $ negative. That's exactly what happened and I was able to have a huge trade from that. I'm not bragging, i'm just pointing out that you need to be able to think fast and change your opinion without letting yout feelings get hurt.
How do things look going into Monday's very importatnt core PCE? Well due to some technical factors on how it's calculated, core PCE tends to rise slower the the core CPI number. Owner's equivilent rent contributes about half to core PCE vs core CPI. Medical costs are also figured differently, as gov't programs (where prices are regulated) play a part in core PCE and do not in core CPI.
Aside from that, we have the Fed statments to work from. I'm pretty sure that the Fed knew the core PCE last Wed and that what they saw did not scare them. Based on that, I see the core PCE coming out lower then consensus, but I'm temporing my opinion as you'll see below.
Since the BoE is still tipped to raise the rate and the Fed isn't, i'll still focus on this pair. Right now, there's a lot of GBP profits on the table, from traders who got long from the low 8700's and continued to buy after Wed right thru Fri. When London opens Mon, I wouldn't be surprised to see some profits taken. No saying as to what level we could see, but look what happened on Fri in London. Profits were taken down to around 8875 from 8910. Further GBP buying occured thru there as traders were convinced the Fri #'s would be $ neg. They were and the run-up continued all the way to 9000 before closing around 8965. So, there's plenty of profits left on the table for the taking. Here's what to look for:
If the market is of the mind that the core PCE will be $ neg, we could see profits taken down to around 8920-30. I really don't believe it'll crack 8900 if that's the thinking, but still, the idea is to find a bottom and see if it holds. If it does hold, the above is confirmed. You may want to consider going long at this point and holding it thru 13.30 GMT when the core PCE is announced. You'll be doing what a lot of professional money is doing.
If no profit taking occurs, to my thinking the market is absolutely convinced the core PCE will be $ neg, so I would go long here. It should go thru 9000 and hold for a while.
If a free-fall occurs, all bets are off. To my thinking, they'll be selling cable on a hot rumor that the core PCE will be inflationary. From what the Fed said last Wed I really doubt that's gonna happen, but if it does, you'll know what it means.
That's what I mean by not getting married to an opinion. Yes, I believe the core PCE will be $ neg, but if the free-fall occurs...
