What did we learn this week? The Fed’s Powell likes cats but not pigeons

Bring down the shutters on another week of trading

Let’s get the easy stuff out of the way. Brexit’s all sorted. We’ve got a vote date of 11^th Dec. Stick your feet up and put the kettle on. Nothing to see here until then, apart from the continued lambasting of the Brexit deal, politicians blowing their own idealistic trumpets and Theresa May trying to find any willing buyers of the deal. Strangely enough, even though we have the vote date, this is when the politics is really going to ramp up. You have been warned but more on that next week. In the meantime, GBP has been fairly steady, when you take the week’s range as a whole.

Inflation was a bit volatile in the Eurozone again. It’s been a bit of a rollercoaster these last few months. That’s been largely ignored buy the Euro as Draghi and the Draghinettes all say these are temporary blips and they’re well on the way to sustained inflation. What has happened this week is the old sauces bottles have been opened and been poured into the newswires. We’ve had various sources stories tipping us off about what’s coming in the Dec meeting. It’s a recurring theme around important ECB meetings now, purely designed to sap the excitement from the excitable in the market. We’re in the final furlong for that so it won’t be long before we find out. EUR hasn’t done much in a rough 130 pip range for the week.

So over we go the good old US of A and the almighty dollar. First the grind – The week started with USDJPY doing its snail thing. It spent 3 days climbing around 100 pips to 114.00. Then came the bump – Fed’s Powell poured petrol on the “neutral level” fire and the dollar took a whack. Analysts have been falling over themselves to pick between his comments on what was and wasn’t meant. They’ve pulled him up on whether comments indicated past tense or a change from prior comments. The comments have been picked apart six ways from Sunday but do you know what? As traders it doesn’t matter what the analysts and economists think, all that matters is what the market thinks. The market has been leaning this way for a few weeks now. It got further ammo from Clarida previously, and now it’s had it from the man at the top himself putting the cat among the pigeons. I speak often about the market always looking for a bone, well, it’s got an ‘approaching neutral’ Fed bone in its teeth and it ain’t letting go.

But, it’s not what Powell said between the lines, it’s the fact that he said it. Is anything going to change the market’s mind now? Probably not, unless unemployment drops to 3%, wages rise to 5% and inflation busts 3%. At most, we’ll get a temporary reprieve at the Dec FOMC, if the Fed keeps its standard message but that’s unlikely to last long in FX prices. That could well be one of the last quick USD fade trades to grab before the holidays but that’s a discussion for the future.

On the face of it, the damage hasn’t been that great anyway, and GBP and EUR have given up all or most of the Powell gains. There are a few stubborn souls clinging on to them, like AUDUSD but gravity is starting to assert itself as time ticks on.

Again, something is bubbling under the surface in the US is only starting to get wider attention, and something else could be starting to flag problems. Regular readers know that we’ve been all over the swiftly falling refinancing data in the MBA numbers. It’s a low-key data point but there’s a reason why we watch it, and that’s not just to fill web space. The housing data is starting to stutter in the main numbers and this could be a big reason why the Fed could turn more neutral. We also saw a jump in the jobless claims data. That might be a one off but it’s another small-ish data point that has a good record of flagging upcoming issues.

I explained to the folks in my trading room why I monitor such data. My main trading make-up is looking for the big fundamental changes that bring the big FX trend changes. It all starts with small items of data like the ones listed above. If I start to see patterns, my trading antennae starts twitching. Most times it leads to nothing but if more pieces start fitting together, that can often mean the start of some shifting sands. Housing and jobs could all be seasonal or some other factors but (for housing at least) we’ve seen a lengthy period of weakness in one thing (refis), and now it’s spreading to the main data. That’s not something to be ignored and if we can identify those things early, we have a chance of positioning early in a trade, and that’s what I’m looking for now.

But, again, that’s something to embellish on in the days and weeks ahead. For now, I’m supposed to be summarising the week gone but as usual I’ve gone off the path to wander about the daisies.

The long and short of the week is that not much has changed price wise. End of month flows we’re pretty evident and the market has always had one eye on this weekend’s G20 farce meeting. Once again, we’re have some headline risk for the Sunday night open, with the main risk pairs front and centre. Please check out K-Man’s excellent post covering many of the possible outcomes.

One thing I will add. Although GBP should be able to take the weekend off from Brexit news and gaps, don’t be surprised if some of the naughty crowd use May’s absence to get on into the papers and Sunday political programs to stir things up. Also, there’s a slight risk of some GBP positive headlines if May manages to wheedle out some positive future trade comments from some leaders over there. Trump is the obvious one.

Trading wise, again not a busy week for me. I’m being very pragmatic with my trading just now. I don’t need to go chasing anything, I’ve got my levels jotted down and I’m happy to sit and wait for them. USDJPY short into 114.00 was my main trade this week. Doesn’t sound like a lot but then I don’t have to do a 1000 trades a day to be happy.

The folks in the trading room have been a pleasure to watch again. Just seeing the thought processes and execution of trades is some profit enough for me. We’ve folks who I’m watching who are listening to the experience of others and putting that into practice and I can see definitive changes and improvement in their trading. That’s why I do this, so that others have a chance to make something out of trading, and more importantly, not lose something to it.

I thank those folks for holding faith in this project at ForexFlow, and to my colleagues for helping to make that happen.

So, beware the Buenos Aires risk for the Asia open but between now and then, take the chill pill and have a fun and safe weekend.