I have a question. You wrote about the importance of USD and NFP and possible trend changes. I have many open trades but not with USD (OK one with USD but it is a long term trade which has good carry trade so out of question). The question would be if you would close any trades not having the USD before the US NFP report? I never read an article about this.
Hi Philip,
now we can argue a bit :-))) True, I said for me nothing happened last week. Why did I say that? Because I only have long trades open aiming for many hundreds of pips. I do not consider a 100 pip NZDUSD countertrend move an important event. It can be a great money if you are daytrading, but for long term positions it is a “non event”, especially since I am not trading USD pairs at the moment. I find a lot better setups. The other thing is GBPNZD, if you remember I wrote how much I love to trade GBP vs. comdolls. Most of those pairs had pause last week so it is another reason why I said nothing happened. This week is a lot more interesting although it is only Monday. My positions boomed right from the start!
Last but not for least I was really suprised on one of your sentences. You, as a technical trader tell me you do not consider trends because they started in the week of the elections. Well, if it is like that, this week we have NFP so I guess we should not consider trends either. Maybe next week there is some Retails Sales report or Inflation and we can cancel our trends too. I never heard something like that because of a fundamentals reason we just ignore the ongoing trends which were one way and great profit opportunities I am already waiting for your answer buddy!
Yeah a lot of good points so I wanted to divide them.
Regarding the last bit I think there is a misunderstanding. I was talking about the Forex market as a whole. You cannot say that just because 3 GBP pairs are up you can say that there were trends in the forex market. Because you can say GBPNZD, GBPCAD, GBPAUD and EURGBP were trending (you cannot say that GBPJPY is trending or GBPUSD because its been a while since we saw a new high or low).
Because then I will have to list the remaining forex pairs that weren’t trending. All the dollar pairs, the Euro pairs and the Yen pairs for instance.
Look at AUDUSD for example. The ENTIRE month of July its going sideways. EURUSD the same. USDJPY, GBPUSD, AUDCAD, AUDCHF, EURNZD and on and on.
Now that was not true back in October. You knew back then that going long the Dollar against any currency will make you money. You cannot say that about the pound in the last two weeks, because it was sideways against JPY and dollar.
A pair like AUDCAD was clearly in a downtrend for example, now not really.
So the fact that you mentioned 3 or even six forex pairs only I think proves my point.
Now there are some logical problems for me here. First you said that the 100 pip move in NZDUSD is not significant since you look for 100s and 100s of pips.
But then you said your GBPNZD position “boomed.” When I checked is that GBPNZD moved 80 pips up. So how come an 80 pip move is “booming” and a 100 pip move is insignificant. This shows that your analysis is neither rational nor objective.
Plus, to make 100s and 100s of pips you need to be in the position first before it moves 100s and 100s of pips. You cannot wait for a pair to move 100s and 100s of pips first before determining the trend.
So the fact that any pair has 1000,000 pips does not mean “it is trending” it means it “has been trending.” And all of us need different criterion to determine if that trend is likely to continue, pull back or reverse. Now all of us are in this thread because we use COT as [B]one of the criteria[/B] (as I said that seasonality) has not yet lined up for NZD.
So if you are dismissing the finding of the COT report, then you’re probably in the wrong thread man!
I liked the above sentence the most As we are the only two probably who follow the report on a weekly basis it is especially good to see Do you remember when I wrote a longer post 1-2 weeks ago how I see the usage of COT Report with spotting reversals or jumping into ongoing trends? Nothing has changed, I stick to it. The point was only to pay attention for picking bottoms.
As for trends, well I tell you honostly I have seen a couple of bloody conversations in other threads about what is a trend and what is not. So I just decided to better is not arguing about that. It seems like everyone has a different opinion about what is a trend, I have my own, you have yours and it is all fine.
One very last point: how much did GBPNZD, GBPCAD etc move? Honostly I do not know, I never count the exact pips (until I close the trade when I make a review). I check if there is a signal for closing a trade if not then it is still running. My very simple analysis is something similar like Mike writes down in longer report: my trades did not move up anything last week, they all had a pause. I woke up today and had significant gains. I am in trades based on pairs where I do see with my own evaluation longer-term ongoing trends. So if last week there was no gain and today morning I had nice ones then for me the trends were going on the direction I decided based on my analysis And just like Mike, if I made a decision I let the market decide. So you are right in a way that I cannot tell you exact pip numbers. I check the charts often but never care much for the exact pips.
Either way you go with NZDUSD I wish you good trades! Oh, almost forgot, the only reason I am interested about USD NFP report is because of your Gold and Silver discussion. I am very interested to see what happens if commercials will have an overall lon position.
Loool you always misunderstand me don’t you :). I’m not holding a NZDUSD long, I already closed the trade last week. I was just highlighting the instruments that were in an extreme.
I need to say that NZDUSD is now out of the extreme zone btw according to last Friday’s report. CAD and AUD are close to being in an extreme but not quite yet. Gold is definitely ready for a long. In fact I think it could be a nice long scalp on bad employment numbers.
GBPNZD since May or April has moved 3000 pips. Since June 800 pips (that’s all the way to the high not to the current levels)
Now we speak the same language. I was thinking yesterday the same. What would I do if traded the NFP? I am not ready to trade it if it comes out strong. Just do not feel comfortable about it. But what if it is weak? Well the gold trade with its extreme position came also into my mind. USD afterall cannot be traded only vs. currencies!
Seems a few other traders had those lines - today offered a 60 pip range, I reduced my own target to 25 of those, the narrower the range then the greater the risk, so exited today early.
I’ve been targeting longs all last week and also yesterday and today, but when I see this type of price behaviour I reduce the pip target and increase exposure.
All long term trades start off short term, so after Friday there is a possibility of starting something, in the meantime I’ll be flat.
Crosses like GBP/CAD or GBP/NZD could well resume their trend.
Update to above - in the length of time it took me to screen capture and post GBP has fallen almost back to where it opened - confirming the need to exit early in this type of price behaviour
Philip, interesting, we did not talk about the falling CHF in the COT Report. Do you think there is a reversal in all CHF pairs? GBP and USD are ahead of the pack but it seems like that even commodity currencies are slowly turning the longer-term trends. (oh, we are again at the expression “trend” which can cause some problems)
Well I don’t have CHF near extremes at all so it would be interesting to share your findings on that.
As for Comm Currencies (NZD, CAD and AUD) we were discussing how they are close to giving buy signals based on the COT report. Of those three, I think AUD has definitely signaled a fundamental shift at least. The Central Bank has hinted that it will not cut rates any longer and that its satisfied with the price of AUD. After that there was a consistent buying of AUD against all currencies, I am looking to buy either AUDCHF or AUDJPY. I’m keeping an eye on GBPAUD but I prefer to buy the previous two pairs.
But may be now we can expect something similar from NZD in coming months. An end to rate cuts that is.
It is a really tough market to judge at the moment, and I remember Peterma discussing being at an inflection point. For example the GBP yesterday, we had one member calling for a rate hike. But Mr. Market decided he was disappointed with that and down went the GBP. Today we get NFP numbers that are in line with expectations which brings a rate hike closer, but down goes the USD anyways.
I feel we have seen the low in those two currencies, as well as in gold. But every time I remember we still have a US rate hike, I feel that we can go down even further. That’s why I feel like I don’t want to trade until December.
With all that confusion in the markets, I think we will probably end up getting a dovish rate hike.
Yeah, sometimes we trade with hope, other times with expectation.
Today’s nfp I was trading with the latter, that there would be a clear signpost - an end to the change.
The bad news for a long term traders is that the sign post remains blurred, the numbers point in one direction, to keep the status quo, the signmaker, on the other hand, seems to want to point in another.
This is a major problem for decision makers in business, do they print in an increase or not, clear guidance is sadly lacking from the Fed, if ever there was a need for strong leadership then …
Anyways, the days of strong leadership in central banking are gone, now rule is by committee - long time ago I remember being taught that a successful business is seldom managed by committee.
So I have been doing some research which eventually led me to a conclusion I learned when I first entered forex (but have forgot for some reason).
That conclusion is: The value of NZD and AUD reflects the economic performance of China rather than their own.
Now we all know China’s Renminbi is artificially undervalued. It seems that as a result of that and the fact that China is the biggest trading partner for Australia and New Zealand (its the second biggest of NZD after Australia), it seems that the performance of NZD and AUD is more affected by developments in China than anywhere else (including the dollar).
Secondly, and I think this could be important. The exports of New Zealand to China increase when the financial position of people in China increase. This is because almost all the exports of New Zealand to China are things like meat and especially milk (this is actually why we give such a high importance to milk prices and its effect of NZD). [B]So when the spending and wages of Chinese people increase, NZD exports normally would increase. [/B]
Now Australia, in addition to primary products like meat, sell commodities like iron and natural gas to China. [B]So when investment spending in China increases, so does Australian exports. [/B]
A paragraph in Ross Kendall’s study at the RNBZ sums up what happened to both currencies and confirms the relationship to China.
“Since 2000, investment (in China) has increased significantly as a share of GDP, from about
35 percent to over 45 percent in 2013 (figure 2). The largest shift in the composition of GDP
was during the global financial crisis (GFC) in 2008-2009. The government implemented a
large stimulus package to offset collapsing export demand.”
If you look at a monthly chart of NZDUSD or AUDUSD. You will see that it bottomed in 2009 and went in a sharp upward that surpassed the 2008 high and peaked in 2011.
Now other currencies such as EURUSD and GBPUSD also found a bottom in 2009. But they never made new highs. In fact EURUSD made new lows and GBPUSD is in a monthly range. [B]So something happened in NZD and AUD that did not happen in EUR and GBP[/B]
In New Zealand, “a surge in dairy, forestry, and meat exports since 2008 has seen the share of primary exports grow to over 80 percent,” Kendall says.
In Australia, it is a similar scenario. A surge in iron and gas exports technically rescued the Australian economy.
[B]China[/B]
But now China, after 30 years of an average GDP growth of 10%, is struggling to match its downgraded growth target of 7%. For a number of reasons that some have to do with the global economy and others for structural issues in China. [B]It is this slowdown that forced a downward pressure on AUD and NZD. Rather than the strong dollar.[/B] The low prices in commodities is a byproduct of China’s economic slowdown as well.
Well, the answer is we shouldn’t. In fact we should be rather bearish on AUD and NZD in the future.
However,
There is a trick.
There are talks of China kick starting another stimulus package. Now if that stimulus helps China fix its growth problems (unlikely in my opinion), then we will start to see rallies in AUD and NZD. Big rallies. If it doesn’t, then the trend could continue for some time.
Having said that there is one thing I will be keeping my eyes on. How the AUD and NZD react to bad Chinese data. If there is buying, [B]Then we could have a case for buy the rumor sell the fact.[/B] Every bad number prompts buying AUD and NZD in anticipation of China’s announcement of a stimulus package.
If we see that happen, then we probably have a fundamental reason to buy.
Here, highest level of buying iron ore by China this year.
Remember that the rumored stimulus package is for infra-structure projects like building roads, homes and so on. Let’s see how AUD acts. But its very possible guys that we are on the verge of catching a nice move.
Thanks for that.
I’m keeping an eye on the Comm trend also. At first, I was thinking that due to Friday’s results, the Comms have turned the bend, going up. But, I’m not gonna be too quick on that juuuuuuussst yet. We need about one more week of results. Let’s see what happens this week.
And remember what I said last week, about the AUD/JPY monthly chart? That’s the Comm/Major chart. And yep…it did bounce on up. Meaning the Comms are possibly starting to turn.
We need a little bit more data though.
But, good stuff on that Philip!
You gave us a fundamental reason behind the Comms actions. And I gave a technical reason.
I am already waiting for your answer buddy!