2016–11–18 Account update, eurusd, gbpusd technicals and dollar fundamentals
What a crazy week! Dollar strength all over and safe haven assets dumped. The market and sentiment went only in one direction.
Lets check the account’s performance and how we stand.
We saw 10 straight days of gains on the Dollar Index where it climbed from 97.20 to today’s highs at 101.53. Last time the dollar was so high was in April 2003, yes 2003! The eur/usd took a big dive printing 10 days of losses. During the US election day it rallied towards the 1.13 and then nose dived all the remaining days and closing today at 1.0578. The 1.06 was the bottom of the bullish channel and after such a losing streak, the euro is now extremely oversold with the daily Relative Strength Indicator at 22 (below 30 is oversold signal). The next levels down that might hold the euro now are 1.0520, the low from November 2015 and then the 1.0460, low of march 2015. Below these levels we are going back to lows from 2003.
Everything is possible from here, but this is clearly emotions running the market hot. A rate hike is expected to be certain in December and should be fully priced in by now. The US are apparently showing improving figures, but they are hiding and manipulating these figures as they don’t show the full truth. I could elaborate more, but found a great article with some great charts for those that are really curious about what’s behind the eye, numbers and the media, behind what the FED tells the world. https://realinvestmentadvice.com/3-things-retail-sales-ignorance-return-reality/
Here’s an important quote of the article: “.. consumers are struggling just to maintain their current living standard and have resorted to credit to make ends meet. Since the amount of credit extended to any one individual is finite, it should not surprise anyone that such a surge in credit as retail sales decline has been a precursor to previous recessions. “
At such oversold levels and at such a cross road where the FED did not confirmed any hike and expectations are so high, I see this dollar strength limited.
Option 1, after a few years stalling and lowering the dot plots (long term expectations of where the FED see rates), in order to keep credibility the FED hikes as expected while Obama is still President. The market should range, but I would expect some take profit from the markets. Then Trump takes place and will have a harder job keeping inflation, jobs and wages increasing. He favors more Quantitative Easing in order to avoid a recessive economy. With higher rates people have less money to spend as the monthly credit payments get expensive. The US has a big student and credit bubble, where more than 40% of the student borrowers don’t make any payments. Trump could fix many issues but it would take decades and a lot of heavy regulations and he will have all the big boys against him. It will be easier for the big boys to create havoc and a crisis, bursting some bubbles, blaming Trump and then go create a few new bubbles. That’s how they make money.
Option 2, they hike but less than expected, profit taking and some hedging is expected and dollar goes down.
Option 3, they don’t hike, dollar goes down heavy.
Option 4, expect the unexpected. It is how the big boys fool the people, don’t listen to analyst and to the media, keep watching what happens and don’t waste to much time speculating.
I don’t trade heavy exposure short term and therefore I don’t care to much about my short term speculations. There is always too much noise and emotions, but for the moment I still favor buying euros for the bigger time frame.
Now about gbp/usd (cable), well last week I was spot on with my Fibo analysis predicting a drop from the 1.2650, 38.2% retracement from our highs and lows of post Brexit, but without candle spikes noise (check my last article). Today after a bigger take profit move it can build up momentum again and reach for higher levels, attempting the next upper Fibo levels. Backing the current analysis we have on the shorter 4H time frame a good indication of a possible ABCD pattern with support right at the 61.8% Fibonacci retracement level, indicating an up move from here on as long the support holds.
As you all know technical analysis is not an exact science, it is just a pattern that tends to repeat and until it is valid it is a strong indicator that it will repeat once more.
With these two last strong signals I reduced a few positions safely with my highest gbp/usd buy at 1.3112. Today with much lower exposure I also closed my small sells and can handle all pairs only buying. I increased my free margin and I am adding exposure cautiously watching these crazy market conditions.
The account balance is increasing above target and I can keep my eurusd buys running in green longer if there is a turn at these low levels, aiming for bigger profits medium term on this pair.
I wish you all an amazing weekend and join my Facebook group http://bit.ly/FBCLHedgeFundGroup if you have any questions about my strategy and long term plan towards financial independence.
I’m happy to help and answer.
Thanks and wish you a lot of wealth and success.