18th August 2015 Currency markets, news and analysis

Forex Market Commentary  

Just a comment before we start - Purposeful Trading: Day trading over 200 pip ranges does not work - Period. Too many traders are locked on their screens for the day session attempting to chase the mood, ducking and diving on their candlesticks, chasing concepts that do not work in the long run if you are not an institution with deep pockets booking trades for commercial clients for import/ export trades. Turning to the EUR/ USD considering a 3 month period from 18 may 2015, the pair has traded in a range 1.08 to 1.14 in a 600 pip range providing plenty opportunities for 5 day swing trade positions. But chase the day at your own peril where the chances of whipsaw and stop-loss over-runs become dramatically high.  In the last 3 months a mere 4 trades initiated on the short, the long, the short and then the long would have provided more returns when dealing over an extended period of time. Arbitrage is for the big boys who thrive on day trading with their algorithms. Swing trading and taking positions for a weekly horizon with an option hedge is a far more sensible methodology than trying to catch 3-4 trades per day. Hawk-eye trading in the long run creates mental fatigue and impairs judgement. The issue is not about matching up trades with sudden movements and getting out on a turn but more about grappling with more sustained directions that may clarify over an extended period of time. hence the necessity of falling back upon 50 day moving averages and also 5 day moving averages for fast price action interpretation and 200 day moving averages for the long term understanding.

In his book 'Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders', the author Curtis Faith, disciple of legendary currency trader Richard Dennis goes on to describe how a dice can be rolled 10 times and 3 out of 10 would come out in favor and the in terms of futures trading the 3 gains offset the 7 losses. However it takes the discipline of a master to mentally have the courage to trade without sop-losses and mentally cede to the market and bruise the ego for the sake of the longer run.

Once again; a must read  - 

http://www.amazon.com/The-Complete-TurtleTrader-Investors-Millionaires/dp/0061241717 

In understanding the above the day session is really like looking at a moving image frame by frame. usually after 10 frames you get to see the motion and successful trading is about delineating where that future motion may direct itself. You may not see the whole picture in frame 1 or frame 2 but shoudl yo delineate forward 20 frames you should be able to comprehend a single step.

Now, in a recent article by Mohamed El-Erian, the author writes as follows:

The longer countries fail to deliver domestically driven growth, the more they will be tempted to “steal” it from others. A time-tested way of trying to do so is to devalue a national currency in an attempt to make exports more competitive and imports more expensive -- thus diverting both internal and external demand to domestic production, at the expense of foreign suppliers.

This is exactly the same opinion that I voiced last week except I go one step further by pointing out that a) economies of the 2010's are not the economies of the 1970's and b) the currency devaluation as a whole does not address the real core problem of a domestic housing market and credit market problem. Quite rightly the Fed is annoyed, the IMF are annoyed and Mohamed El-Erian courteously pints out the naivety of the PBOC move in an age where central bankers cooperate very closely to create the global credit climate for global corporations to access credit and grow their markets and enhance their domestic GDPs with minimal currency volatility. It is a quick fix that does not work. The SNB moved the market earlier in the year and lost a whole bunch of money. Macro-economic issues at heart derive their basis from core micro- economic patterns reflected through the purchasing power of the individual consumer. take the 4 cornerstones of the global economy: USA, Europe, Japan and China and we can only see full employment in USA, a Europe barely able to inflate itself and a stuttering Japan unable to wake itself up from a lifetime of zero interest rates. China fears deflation and the loss of consumer purchasing power for political reasons; that is understandable; but going about artificially moving the currency rate is not even coming anywhere near tackling the real problem of how to raise the Chinese employment rate upon the same US economic model and empower the Chinese consumer so that vast concrete developments can become populated and banks do not have to write of a huge amount of bad loans.

Please read the full article here:

http://www.bloombergview.com/articles/2015-08-11/mohamed-el-erian-china-s-yuan-devaluation


Back to the USDX, the China issue has already been shrugged off and we are all waiting the September Fed decision to hike 25 basis points to nudge the markets back into the reality of a world where interest rates are above zero percent. Strong Q3 unemployment and inflation data will nudge the USDX slightly higher in September to the 98 again but not provide the ammunition yet for an assault on the 100 mark; we may have to wait for Xmas retail sales to gauge that. EUR/USD at a different stage in it's interest rate cycle has to lower to the 1.08 again as ECB Q.E increases momentum to force Bund prices up. Crude oil now has to wake up and deal with the Iran supply issue and increasing anxiety in China; the current stabilization in Chinese equities is not convincing at all with a housing and credit market problem deeply disturbing within it's core and may expose crude oil to sink to the 40 mark if Q3 China does not improve. Gold has pierced the 1100 but lacks the conviction to top 1150 but seasonal end of year sales will keep the market bouncing at every downturn.

Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.

USDX

US Dollar
96.965     +0.150 +0.19%
Support 95.839 Resistance 97.015
Forward 1 year - 97.273s.

EUR/USD
1.103850     -0.004145 -0.37%
Support   1.10487      Resistance 1.12307
Forward 1 year - 1.14160s.  

Crude Oil  WTI

42.89     -0.23 -0.54%

Support 40.66  Resistance  43.88
Forward 1 year - 51.17s.

Gold

1117.365     -1.400 -0.13%

Support  1,105.3     Resistance 1,123.5
Forward 1 year  -  1,119.1s.

Pieter Bergli - DeLoren Trust Holdings

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