That was exactly one week ago, today’s headline on BBC:
There is now a certain ‘panic’ in the air 
Which explains the JPY strength today. Although one thing I like about the EURJPY long is that due to ECB’s QE, Euro will start to act like a safe haven as well.
Hi Philip,
did you check the last COT Report? I compared the COT Index for gold, silver and oil. Interesting results are out there.
Gold reacted for the COT Index and moved upward. Based on the previous movements, it might take about 10 weeks to get another sell signal.
Silver is in the middle of the index, showing no clear signals.
Oil on the other hand is going to reach the buy territory in the beginning of the next week, I will be interested to see if an upward movement will come. Most likely it would grab CAD with it to the upside.
Rookie, Peter and Philip are contributing but no signs of life from Mike and BB.
Hope everyone has a great weekend,
FE
I have shared before pictures of my system on the Gold weekly chart and how it rode the pull backs with good timing. I wanted to post it here because I think it will be relevant for the discussion. Now this analysis is not to predict the future, but rather discuss opportunities under certain probabilities.
Now earlier this year I discussed the Taylor rule and how that US interest rate usually follow in the direction of that rule, but are less conservative. Back at the time, the Taylor rule suggested interest rates should be 0.75%. Now at the moment, the reading is 0.95%.
Now there are two probabilities. The first, and this what the market and even Chinese Central Bank is predicting, is that the rate hike is coming in September. That devaluation of Chinese Yuan done in August is actually done in anticipation of a September rate hike in the US. We can discuss that in detail of course but I want to try and focus on the probability.
Now if the US hikes rates there are easy trades everywhere; You basically can sell Oil, gold, copper, AUD, CAD and NZD. Also if you have any index of emerging markets such as Australia, China but especially a GCC ETF or something. This will be particularly weak since gulf countries rely on oil very much. Now the problem for me is that all these trades are already very crowded. I mean something we learned about the markets is that it needs those pullbacks for the trend to revitalize. Now we haven’t had that in oil, NZD, AUD nor CAD.
So the best sells for me in that case would be selling EURUSD and GBPUSD (as well as buying DXY, which I recommended buying 8 weeks ago @95.39
EURUSD is already in the process of a sell signal based on my system’s weekly chart. That sell zone is in the area between 1.1147-1.15999. In other words sell when touching 1.15999 or a break below 1.1147.
GBPUSD is actually above my target sell area of 1.56. So it will be a great sell if US hikes rate in September.
Now what if the US doesn’t hike rate (which I think would be the sensible thing to do.) This will present us with fantastic opportunities.
Firstly, it will allow a washout in the DXY. On the monthly charts that level is 0.90-0.85. It will also allow a much needed bounce in Gold, Oil (and as a result NZD, AUD and CAD). Which in turn will improve inflation and build a really strong case for a definite, beyond a shadow of doubt, rate hike in December.
Going back to the chart, the small lines on the Gold chart is where I would sell if the US hikes rates in September. But I expect Gold to break the 1200 level again and target the two thick lines (1226 and 1288) if the US opts against hiking rates. It will also lead to bounces in all other currencies including EUR and GBP and I have levels for those as well which we can discuss in other posts.
So you notice in my two probabilities I’m bullish Dollar. Its just I think different probabilities will give us different trades.
I’m expecting a no-hike in rates firstly based on the charts which indicate we still haven’t seen any pullbacks in NZD, AUD and CAD. Not to mention that the COT index is also showed extreme buying on those, so commercials will have to unload their position at some time. More importantly not hiking rates in September will save us from a very real threat of global deflation. So a strong part of me is just hoping the Fed doesn’t put humanity in that difficult situation.
But I’ll be trying to make money no matter what 
Hey guys!
I am still kickin’, so no worries
I’ll contribute to the thread once I have some spare time again. I’m planning to trade full-time and needles to say, I was quite busy in the last few weeks. I have a few MT4 indicators which needs to be translated to cAlgo, had a Business Plan to write and I needed to change broker due to DFMarket’s minimum lots in FX.
But good news is that I am finally free from the burden of 9 to 5 
I hope all of you are stacking the pips
I knew Philip that even we understand sometimes each other :-))) I personally would trader rather other pairs in a rate hike situation then EURUSD or GBPUSD short, however I agree with the whole analysis.
BB, that went fast for you with the work. After a couple of months you already decided to do it full time. Something has to work there good, or just being brave?
FE
Well congrats on quitting and welcome aboard the trading world. You couldn’t have picked a crazier time.
You’re gonna love it 
Things are looking up, so I can’t complain. My intention with work was to gather some capital so I can finally concentrate on my trading. I invested a lot of energy into my method development when I finished my shift.
Hey guys.
(last but not least) Mike here.
I’ve been ok. For awhile there I couldn’t get on Babypips. It was the changing of the web browsers that screwed me up big time. And also I’ve been busy. (Of course, what trader isn’t)
Wow. BB…nice to hear your turning the bend (career wise). Making a business plan is very smart. I remember two years ago I did that. I saved it with all my other paper work, and plan on revisiting it and fine tuning it when I get closer to the [B]day[/B] (like where your at now). I’m excited for you. Hopefully you have all your ducks in a row. There’s got to be a lot of work in that. Cause I see it as something like a trading plan. All you have to do is follow it. No surprises. And in this business, you probably should be ready for all the different things that can happen. Whether you hit your goals, or not.
And remember, it’s for the long haul.
Make it happen.
Be smart.
Well, you all know me by now, I’m always keeping track of the numbers, trends, strength/weakness.
But, as I read about all your thinking on the market, it’s hard for me to tell what’s gonna happen. We all know by now that[B]no one[/B] knows what’s coming. I guess I find it difficult to make a judgement even on the possibilities of what might happen next. Cause I’m pretty focused on what’s trending [B]now[/B]. And lately I have in mind, very much so, whether the trends are continuing or turning, and what those trends might be. See, when I think about what I do, this is the ultimate goal.
[B]I want to see what is trending[/B] (that is collectively where everyone stands against one another…aka the field).
Ooops. Sorry…been saying the ‘T’ word. I know that can be a taboo thing. But…I’ll tell you what I am talking about there. Whoever is on a continual climb making higher highs and higher lows in a certain time frame. I prefer the weekly time frame.
Then, as I’m keeping track of that,
[B]I should be able to see the changes happen, gradually.[/B] Because I also keep track of them on the daily time frame. And so therefore I watch the daily time frame trend changes in reference to the weekly trends. All that in hopes of being in on the flow.
And I do understand that what I’m really keeping track of is [B]history[/B]. And I also believe we just will not know what is the future. So therefore, I think that’s the best that anyone can do.
So…you guys (Philip) are talking about the USD. Man…I find that interesting. Sure, it could happen. And probably will, sometime. But, in the meantime, I have it in my mind that they are presently on the down slope. Look at what happened this week with their trends. They turned. This is how (my determination) the week looked like at the beginning, and how it ended up.
Weekly trend strength to weakness line-up. At the open. ///////The daily trend strength to weakness.
1.[B]GBP[/B]/////////[B]EUR[/B]
2.[B]USD[/B]/////////[B]USD[/B]
3.[B]EUR[/B]//////////[B]GBP[/B]
4.[B]JPY[/B]///////////[B]JPY[/B]
5.[B]CHF[/B]//////////[B]CHF[/B]
6.[B]AUD[/B]//////////[B]NZD[/B]
7.[B]CAD[/B]//////////[B]AUD[/B]
8.[B]NZD[/B]//////////[B]CAD[/B]
After the close.
1.[B]GBP[/B]////////////[B]EUR[/B]
2.[B]EUR[/B]////////////[B]CHF[/B]
3.[B]CHF[/B]/////////////[B]GBP[/B]
4.[B]JPY[/B]//////////////[B]JPY[/B]
5.[B]USD[/B]/////////////[B]NZD[/B]
6.[B]NZD[/B]////////////[B]USD[/B]
7.[B]CAD[/B]/////////////[B]CAD[/B]
8.[B]AUD[/B]/////////////[B]AUD[/B]
Points:
----On the weekly, the USD dropped below the 3 other Majors (safe haven?)
----In the Comm camp, the NZD is the strongest and was the only one to move up. In fact, the NZD you can see moved higher up on the daily time frame than the USD.
----As we mentioned before, the Comms are [I]still[/I] behind the Majors collectively.
----The GBP has not dropped enough to lose any real trends. (This is my determination don’t forget)
----The CHF really have moved on up, along with the EUR.
Ok. That’s nice.
My only point is, after hearing you guys talk about the USD, it’s hard for me to think about them moving up. Only until after I see it happening will I jump in with them. But for now, all I see is the EUR, CHF, JPY, and even the GBP to possibly make some pips this coming week. And I feel that the Comms are still on the slippery slope.
Thanks guys.
I’m with you.
Mike
i have look at COT reports but dont understand how to trade with, its good or no?
Hi guys, good to see Mike and BB back to the thread, Philip as always causing and stimulating thought and of course Rookie and FE
Something that has been in my head for a long time, and then Philip highlights that very thing -[B] predicting[/B].
There are some who find the word almost offensive, they may work for a ‘broker’ or indeed might even be full time traders (although I suspect not) but anyways part of my understanding of the market has a need to predict, if I cannot do so then I feel like a leaf in the wind.
So thanks to Philip, he has expressed the notion of prediction perfectly, not to predict the future but to set oneself up to take advantage of a probable/likely opportunity.
Back to the week ahead, I’m still only selling S&P and shorting USD either via Gbp or Eur - chance that the S&P may recover early in the week, China now allowing the pension fund to invest in the stock market, may have some effect especially tomorrow.
Usd, the hike prospect will likely take a back seat, there seems to be a feeling that all has been priced in, hike happens and knee jerk up, then down, hike doesn’t happen and down, bit like Euro and QE only in reverse.
Peter, so far there’s no sign of recovery /a bounce/. Global equity market is headed down. Onto Sydney open yen gained and AUD,NZD,CAD just sank while EUR gained. I think its about time for some correction on EUR crosses. I wonder if the panic mode is just temporary or if we’re in for a big surprise ? Its a little too early for any conclusion, but while we’re on the topic of prediction and how major players price in early, I thought I’d ask the question.
Phil, great sum up ! I can assure you’ll be able to make money no matter as long as you get the timing right what that’s the beauty of trading unlike investing where you look for growth and by that I mean that we’re allowed to short. I agree that certain opportunities are already filled in months prior the actual event mostly driven by anticipation, technical analysis I think comes in handy for detecting early indications for future opportunities.
Hi ahlywbarca,
thanks for the question and for your interest in the COT Report.
I guess as everything is relative, for some people the COT Report is useful (for example Philip and myself), but many other people do not use it. You have to decide on your own.
If you want to learn more about it, first you should check the Babypips school about the basics. After that, go to the very first post of this thread and check the table of contents where you will find the needed information.
I wish you good learning,
FE
Well its is a very, very exciting time in the emerging markets. Here’s what I think happened (if its true, it helps us understand where things would go next.):
Let’s say that five or six years ago I borrowed a lot of dollar for basically no interest. Then I took that dollar and started investing it in China. This would involve me converting some of the dollars to Yuan and investing them in the stock market.
Now what if I know, without a shadow of doubt, that the value of the US Dollar will increase? It will mean that my profits will shrink, and may be even turn into losses. So I start taking my Yuan out of the market and turning it into Dollar in preparation of the increase in its value.
Seeing this, the Chinese central bank would like to limit my ability to do so. In turn, they lower the value of the Yuan so that they lower the amount of dollars I can take.
There are thousands, may be millions of people like myself located all across the world. All of them trying to take money out and convert it into dollars. They will most likely be thinking of buying bonds (yields have been going down over the last two months).
[B]Now I’ve discussed this before but I think its important to stress it again,[/B] it is not just raising rates that matters…it is also how the Fed raises rates.
-
Fed could “we raise rates by 0.5% and will continue to hike rates over the next two years.” In that case we could see further depreciation in Emerging markets (that means China, Australia, New Zealand, Canada,…etc).
-
Fed can raise rates by 0.25% and say that’s it they will not even consider hiking rates further in the future. That could actually go both ways. We can see a mild appreciation or the dollar could actually fall on such an announcement. There would be a mild correction in the S&P as well.
-
Delaying the rate hike would lead to a small bounce. But by December we will return to probability 1 and 2 as we.
The problem is, the way the market is behaving, it seems that they are expecting the first scenario. From an investor point of view, my first hat, I’d like to buy some emerging market-stocks and physical gold at these prices. I would definitely look to own more dollars if I don’t live in dollar-denominated country.
Selling yen might be one of the interesting trades as well across the board. If we can get 118 that would be a good level to buy.
Because when you think about it. If US hikes rate, JPY should go down. If US doesn’t, it won’t be long before Bank of Japan interferes to bring JPY lower.
Phil,
If I remember correctly Fed was looking to increase rate incrementally and its been said numerous times that its going to be data dependent. We don’t exactly know the timeframe of future rate hikes. So that leaves us with 2 options ; 1) September first rate hike and incremental increase, 2) delay the rate hike altogether which leads to more uncertainty
Having said that in my opinion its obvious for market players to price in on the first option, they have been pricing in on that very premise since last summer. But looking at recent PA I’m not certain if the market still believes in option 1 but tilted more or so for the 2nd option. Or it could be that the trend is in exhaustion state. Dollar had a great run for almost a year. Well pound is running at 2nd place if I remember right, Mike had his eyes on pound awhile back. I guess from an investors point of view we’re a little too late on both of these.
Why would you catch a falling a knife ? Buying gold ? It may bounce back and forth on its role as a currency, but besides that there’s no apparent risk of inflationary pressure at least in the near future with oil expected to drop further or remain at its current level in the near to mid term /While I like to reference inter market analysis I think we shouldn’t discount the very nature of market supply and demand, oil/. If oil stays cheap -> [B]no inflation [/B]-> /therefore the possibility of rate hike out of the question/ this one doesn’t really matter much but I wanted to highlight inflation , why buy gold ?
I agree with Peter, that gold is up on investors wanting more return as stocks started a downward move.
Ok since I mentioned it briefly and the trade hit I thought I share my idea in full.
So here we go, we had the rally on the monthly chart. I highlight with the green line the areas were I think the retracement would be over and the trend will resume. Now rather than trading those levels straight away, it is much better to switch to a lower time frame (4 hr for example) and start looking for longs near those areas.
The probability gets higher when the monthly stochastic is oversold. But we have crossed an important level. The next two levels are 113.9 and 103.9.
Hey Rookie,
I wasn’t sharing trades I was about to enter. I was just mentioning possible opportunities under given scenarios. In fact I might not trade as soon as I get exit signals for my current trades.
Today’s moves announce officially the beginning of an economic crisis, how exciting! 
A very important note, we are seeing those buying spikes because the S&P has reached its limit. If the decline continues when the S&P resumes you should to close all other non-Euro non-Jpy long positions. You really, really should.
Yeah, that was last week, the market often just repeats what it did before, same old, same old.
Eur/Jpy felt that a lot - over 200 pips or thereabouts.
Btw, I traded today, but I hit the exit button fast, may well have left some on the table but when there is panic in the air it is usually advisable to watch from the sideline, tomorrow is another day.
I’d say end of any hike talk for a while now, will keep looking to short USD
Good posts Philip.
I really hope there will be no hike, it will give us much needed bounce.
Now You are spot on in terms of JPY. But the idea was that Euro would be the least susceptible to JPY in the worst case scenario. Unfortunately the worst case scenario happened but luckily Euro was the least susceptible.
Now if we get a no hike, EURJPY would explode to the upside, and I was discussing long-term targets obviously in the form of 149.