Forex FOREX PRO WEEKLY, January 09 - 13, 2023

Sive Morten

Special Consultant to the FPA
Messages
18,551
Fundamentals

So, we've got very dramatic Friday's action, as ADP on Thu and NFP on Friday have made the day. Earlier in the week FOMC minutes release has brought more mess, as markets first have reacted down on hawkish Fed and later have had to change the mind on new NFP data. Somehow markets treat recent employment data in positive way, building positive plans on 2023, and as we will show you below, expecting economy recovery as soon as in the IIIQ of 2023. Our opinion is based on dynamic of other statistics, which makes us think that structural crisis is not over yet, and will last at least for 2-3 years more. The fact that job market still could show some positive numbers is a short term and means that economy infrastructural degradation is not started yet at full capacity. Additionally, the overall crisis processes are slowing by Fed stimulus. This makes us think that recent upside spike is mostly emotional and have no chances to last for too long.

Market overview

Gold held near seven-month highs reached on Wednesday after the minutes of the Federal Reserve's last meeting showed all its policymakers remained committed to fighting inflation, but agreed on the need to slow rate hikes in 2023. The eagerly-anticipated Fed minutes arrived and failed to surprise, with markets broadly shrugging off the hawkish tone and still pining for a rate cut sometime this year.

The minutes of the meeting, which were released on Wednesday, showed policymakers still focused on controlling the pace of price increases that threatened to run hotter than anticipated, and worried about any "misperception" in financial markets that their commitment to fighting inflation was flagging. The central bank now needed to balance its fight against rising prices with the risks of slowing the economy too much and "potentially placing the largest burdens on the most vulnerable groups" through higher-than-necessary unemployment.

"Most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance," the minutes said, indicating officials may be prepared to scale back to quarter-percentage-point increases as of the Jan. 31-Feb. 1 meeting, but also remained open to an even higher than anticipated "terminal" rate if high inflation persists.

"Participants reaffirmed their strong commitment to returning inflation to the (Federal Open Market) Committee's 2% objective," the minutes said. "A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee's resolve to achieve its price stability goal."

"No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023," the minutes said.

"Our view is still that rapidly easing inflation, combined with a notable drop-off in employment growth will alter the landscape quite dramatically over the first half of this year," Capital Economics Chief North American Economist Paul Ashworth said in a note after the readout was published. "After a final 50 (basis points) of tightening over the first quarter, taking the fed funds rate to a peak of close to 5%, we still expect the Fed to be cutting rates again before the end of this year."

Interest-rate futures, too, showed traders largely sticking to bets the Fed will lift the target interest rate to just shy of 5% in coming months and then begin cutting it in the second half of the year. Fed officials in December projected that rate, currently in the 4.25%-4.50% range, would rise to just over 5% by the end of 2023 and likely remain there for some time. How long "restrictive" monetary policy will be needed could become an emerging topic of debate.

Recent economic growth had been stronger than previously expected, Fed staff said, and as a result economic output was not expected to slow to a below-trend pace and unemployment rise above its "natural rate" until "near the end of 2024" - a year later than anticipated.

Kansas City Federal Reserve leader Esther George said on Thursday that she hopes the central bank will continue its efforts to shrink its balance sheet, while also warning that she believes the Fed will need to press forward with rate rises and keep them high for some time once the tightening process ends.

In an interview on CNBC, George said she believes the Fed will need to lift a federal funds rate target now at between 4.25% and 4.5% to over 5% and stay there "for some time...until we get the signal that inflation is really convincingly starting to fall back toward our 2% goal."

Inflation in the United States has not "turned the corner yet" and it is too early for the Federal Reserve to declare victory in the fight on rising prices, a top IMF official said in an interview with the Financial Times on Thursday. Gita Gopinath, a deputy managing director of the Fund, urged the U.S. central bank to press ahead with rate rises this year.

She said it was important for the Fed to "maintain restrictive monetary policy" until a "very definite, durable decline in inflation" was evident in wages and industries not related to food or energy. If you see the indicators in the labour market and if you look at very sticky components of inflation like services inflation, I think it's clear that we haven't turned the corner yet on inflation," she told the newspaper.

In the interview Gopinath added that she expected China's economy to suffer significantly in the near term. A rebound is possible later this year, however, as Chinese demand recovers, the report quoted her as saying.

Global equity funds witnessed net outflows for a ninth straight week. According to Refinitiv Lipper data, global equity funds recorded a net $15.42 billion worth of withdrawals, compared with just $791 million worth of disposals in the previous week. Last year, investors pulled out $172 billion and $354 billion from global equity and bond funds, respectively, as U.S. interest rates marched higher due to monetary policy rate hikes from the Federal Reserve.

Here is how markets treat recent job report. Later in this research that it is far from reality, if you take a complex view... But here is why markets across the board have shown impressive rally on Friday:

The U.S. economy added jobs at a solid clip in December, pushing the unemployment rate back to a pre-pandemic low of 3.5% as the labor market remains tight, but Federal Reserve officials could draw some solace from a moderation in wage gains. Still, the U.S. central bank's fight against inflation is far from being won. The Labor Department's closely watched employment report on Friday also showed household employment rebounding by a whopping 717,000 jobs last month.

Recent declines in household employment had fanned speculation that nonfarm payrolls, the main measure of employment gains, were overstating job growth.

A jump in the workforce and easing wage growth suggests the U.S. job market is starting to move the way the Federal Reserve has hoped it will, to bring the supply and demand for workers into better balance and help in its battle against inflation. Nearly 165 million people were either in jobs or looking for them last month, a record high that showed a long-hoped-for improvement in labor supply. U.S. firms added 223,000 payroll jobs to cap a year in which 4.5 million people were hired, a total exceeded in the post-World War Two era only by 2021's 6.7 million.

At the same time, hourly wages - the price of labor - grew at the slowest annual pace in 16 months and has dropped by a full percentage point since the end of the first quarter of 2022. Weekly average earnings gained 3.1%, the slowest pace since May 2021.

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The jobs report is "the embodiment of the soft landing narrative - this idea that can you have a strong labor market with slowing wage growth," said Simona Mocuta, chief economist at State Street Global Advisors. You can kind of, in this case, have your cake and eat it too," she added, with earnings growth coming off the boil but no collapse in labor demand or widespread layoffs. Ideally, she said, that should allow the Fed to slow and soon pause its interest rate hikes.

Traders took the report as evidence the Fed's work is near to being done. U.S. stocks rose and interest-rate futures traders added to bets the Fed will slow its rate hike pace further at its Jan. 31-Feb. 1 meeting and ultimately stop short of the 5.00%-5.25% policy rate range that nearly all U.S. central bankers have signaled they believe will be needed to bring inflation to heel.

Atlanta Fed President Raphael Bostic on Friday said he expects the policy rate this year to get to the range just above 5.00% that he and his colleagues signaled last month and stay there until "well" into 2024. That's a stark contrast to traders' expectations for the policy rate, now in the 4.25%-4.50% range, to top out at 4.75%-5.00% and then for the Fed to begin cutting borrowing costs in the second half of this year.

"Today I would be comfortable with either a 50 or a 25 (basis-point increase)," Bostic told broadcaster CNBC, referring to the Fed's upcoming rate-setting decision. "If I start to hear signs that the labor market is starting to ease a bit in terms of its tightness, then I might lean more into the 25-basis-point position," he said, adding that at this point he doesn't see wages as driving inflation.

More inflation data due next week will play into the Fed's calculus about where to go in the months ahead, with the Labor Department's Consumer Price Index expected to show price pressures had softened further in December. The annual CPI rate is expected to have dropped to a 14-month low of 6.5% in December from 7.1% in the prior month, and the month-to-month rate is forecast to have been unchanged, an abrupt turnaround for a measure that had been running at its highest rate since the early 1980s just six months earlier.

"We have seen the inflation dynamics in the U.S. slow significantly," Robin Brooks, chief economist at the Institute of International Finance, said on Friday at the annual meeting of the American Economic Association (AEA) in New Orleans. "That is a very real development. And it has more or less persisted. That's really good news."

So, why it is so big contract of market expectations and Fed plans?

Come Back to Earth - (instead of bottom line)

First, let's take a look at some additional statistics and try to combine it together with recent NFP data and positive mood as a result of it. So, please explain me, how we could combine higher employment with shorter average work week? So, we're hiring to make people work less? How we could combine constant rising of continues claims in recent 3-4 months, decreasing of the vacancies amount with the new jobs created at high tempo? If we have so perfect job market with near the "soft landing" for Fed, why employees report on 364K job cuts in 2022 - 13% above 2021 and the 2nd worst result in 30 years?

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Finally let's take a look at cross sector statistics. US recently has significantly improved Trade Balance. It dropped to "just 60 Bln", and becomes almost two times smaller. But this is not because of increasing national economy capacity. This is because of drastic cut of import. This is deflationary sign and sign of drop in economy, as people start consume less. This is also confirms by other countries, for example Taiwan export has dropped for 12.1% in December - 4th month in a row, which is perfectly agrees with the US Trade balance dynamic.
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People are loosing consumption power. Tell me, how it is possible with high employment? We should see opposite picture. Finally - why we have decrease production in all spheres - industry, service, manufacturing etc. PMI's are dropping across the board. If 96% of population are working, wages are rising at high rate (6-10% this year) - PMI in all spheres should rise. At least we have 2.3% GDP growth, don't we? Why people are working but do not consume? Whether they do save for future? No - savings stand around 2.34% - lowest level ever. What is going on?

The answer is - job market has not reached yet the threshold level due to government support and disbalances in banking sector. People are loosing wealth, real income value but due to money over-supply, banks could provide them loans with the rates under Fed level. This lets small and mid business stay on the surface by far. We think that this is short term situation. Very soon it starts to change. Previously we've said many times that we're now in "structural crisis", this is not the cyclical recession. It calls structural also because the economy infrastructure (logistics, producing powers, business models etc) was structured for high level of consumption. Now, with the drop in demand and consumption, the constant expenses are rising, triggering the chain reaction. For example, if you have production line. Usually you sell 10 units of some goods per month. But now you could sell only 5 units. You could get even the same revenue due higher price level, but your capital is not reproduced itself, so you can't just keeping produce 10 units anymore as it will lead to rising expenses on over-supply and excess of goods storage. You probably could stop the line for half time, but you anyway have to keep engineers that serve it. So your constant expenses takes larger part in cost of goods. It means that your business infrastructure doesn't fit to new economy and you have to restructure it for less consumption level. And this has to be done everywhere. Do you understand the scale of the problem?

Now this process is already underway, and we see it in PMI, Production etc. But due to solid government support, excess of liquidity - consumption remains high by far. This lets companies to hire, and keep existed jobs. That's why job market now shows absolute outbreak compares to other economy statistics. With exhausting of Fed reserves, and QT programme, situation will start to change very soon. We do not believe in "soft landing" and situation improvement in 2nd half of 2024. Even vice versa - crisis processes should become evident and job market has to join the common tendency.

One of the major signs of this change should be the drop on stock market. But take a look - how positive markets are. They draw corporate profits rise, starting from 3Q of 2023:
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It is no need to remind about Real Estate market. Take a look at the charts above - just minor up tick in Mortage rate has crushed Mortage applications for 10%+ in a week!

If you think that it is different in other countries - it is not. For example in Germany we see the same thing as in the US - massive drop of import and together with record drop of Consumption. This is evident sign of economy contraction and loose of personal purchasing power.
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That's being said, the Fed minutes shows that the mood of the board members is returned to hawkish. In other words, they believe that it is necessary to raise rates further, it is impossible to lower them in 2023, too low rates are dangerous and harmful because of the constant threat of inflation.

The denying to slow down the rate suggests that the members of the Fed board realized that the effect of rate hiking policy doesn't match to their expectations. Other words, the rate of inflation slowdown is insignificant, and the economic downturn continues quite regularly, not very dependent on the rate increase.

There are not so many options. Roughly speaking, in order to stop the recession, it is necessary to stimulate the economy, and this will cause an increase in already high inflation. But if the rate is sharply increased again, then inflation maybe (!) will decrease and it will be possible to improve the economy.

Recall that the structural crisis is associated with the degradation and destruction of the excess part of the economy, which has grown over decades of excessive economic stimulation. Note that there were experts in the United States who talked about this for a long time, we can only recall former Congressman Ron Paul, who 15 years ago proposed raising the rate to values comparable to the late 70s (that is, up to about 20%). And then, Ron Paul said, the economy will shrink, but it will improve and it will be possible to "start from a solid bottom" and start sustainable growth.

But no one in the United States (including Ron Paul) understands how much the American economy will fall. According to expert opinions , today this decline will be at least 55-60%. From the real GDP of the United States, which is about $ 15 trillion. So it has to be around $5-7 Trln

In other words, the current leadership of the Fed, in fact, offers Ron Paul's plan, only stretched for many months and, very likely, not applicable in the logic of Paul himself. Because there was no structural crisis in 70's, but today it has already begun, and therefore the structural component of inflation will not go away, even if the rate, albeit gradually, is raised to 20%.

Just like a year ago, we saw record inflation figures in every report, now we see record indicators of the collapse of industry (for several months now), the service sector (in recent weeks) and the real estate market (primarily in the United States). Well, the drop in retail sales, which best show the general state of aggregate demand and the state of the economy, since the vast majority of the GDP of any developed countries is private demand.

In other words, the crisis is not just developing, it is developing very consistently and confidently. At the same time, the decrease in inflation does not have any positive effect, it is largely a deflationary effect associated with a decline in the economy and demand. Well, even taking into account the obvious decline, which cannot be hidden, inflation is still quite high.

Raising the cost of credit in such a situation is an incredible risk. Moreover, since poor citizens cannot reduce their already low consumption, we can only talk about reducing the demand of the "middle" class. That is, in fact, we are talking about a massive transition of representatives of this class to the state of the poor.

But the decline in the number of the "middle" class will inevitably affect the structure of consumption. The demand for more or less high-quality goods will fall more than the aggregate demand as a whole and this will only spur the degradation processes in the economy, the structural crisis will receive a new impetus. So we can safely say that there are no trends towards ending the crisis. Of course, this followed from the theory of structural crises, but theory is one thing, and observable reality is another.

That's why we do not to buy into the idea of "soft landing" and "Strong job market". By our opinion average positive NFP numbers just tell that the turn of job market is yet to come. In EU situation stands even worse - inflation is higher, drop of production and consumption stronger. Thus, it is early to speak of EUR/USD reversal either. Median forecasts showed the euro will trade at $1.04, $1.06 in the next three and six months respectively. It is then forecast to change hands around $1.10 in a year, a near 4% gain from current levels.
 
Technicals
Monthly

It is once again, when statistics intrudes and break technical background, at least on shorter-term charts. Unconfirmed monthly trend stands bullish now. Recent NFP rally makes no impact on monthly chart because no new top has been made and price remains under major K-resistance area. So, situation about major breakout postpones to the next week and now depends on CPI numbers.

Here we also set new yearly pivots for 2023.

Market keeps chances on downside reversal. Investors now are unstable mentally, changing opinion very fast. Every statistics could easily throw them off the stride. Our fundamental view doesn't support common inspiration about "soft landing" and soon rate cut. That's the reason why we do not consider any bullish long-term position on EUR by far. Besides, it stands at resistance, as we've said and EUR keeps B&B "Sell" scenario valid here. It is not cancelled.
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Weekly

The same story on weekly chart. Context is bullish here - MACD trend is up, and price is not at overbought, but it stands the resistance level. Although upward action looks small, compares to previous downside trend, but it has 9 upside bars and potentially also might be the condition for DiNapoli patterns here. Despite positive reaction on NFP, strong rally, say, on Gold market - EUR was not able to set a new top, at least currently. Here is again - no reasons to go short, but K-resistance area also prevents taking long position immediately, demanding downside pullback:
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Daily

Due to the recent NFP mess, it is difficult to plan something relying only on technical picture. Next week CPI report once again could turn everything from top to bottom. Still, technical picture is bullish. Market has turned above slightly earlier, in advance of XOP target. As a result we've got bullish reversal session. But it doesn't change the core.

Technical picture suggests ability of long entry with stops under K-support area and target around the previous top and weekly K-resistance. Currently risk/reward is not attractive, but if some downside bounce happens, we could consider this setup:
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Intraday

Although it seemed hardly possible but divergence has worked perfect. Here we have upside reversal swing and maybe widening triangle consolidation. Thus, chances on deep retracement seems not bad. Anyway we have to wait for pullback, because right now risk/reward ratio is not attractive. 1.0544 level seems more or less interesting to consider position taking.
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There is a lot to digest from the report. Europe`s winter will be warmer, energy prices are back to normal - EU inflation is coming down. This is probably fueling the EUR strength and the worst case scenarios is being priced out. Yes, there are a lot of things worse in Europe, but I feel that this is about expectation. Markets were expecting that Europe will have a perfect storm, but since it is not happening we are seing the EURUSD holding on to 1.05 succeccfully. I do think the USD is oversold, but it shows no momentum. Unable to go against the stock market, no matter what the FED says.
 
There is a lot to digest from the report. Europe`s winter will be warmer, energy prices are back to normal - EU inflation is coming down. This is probably fueling the EUR strength and the worst case scenarios is being priced out.
Hi Suomi,
the problem is not with availability of energy resources, but with its price, which is 3-4 times greater than in the US and doesn't depend on whether it is warm winter in EU or not. With such an expenses the EU industrial sector can't compete with the US. This is just the question of time, when EU comes to an edge. It still has some safety margin but it is constantly exhausting.
 
Hi Suomi,
the problem is not with availability of energy resources, but with its price, which is 3-4 times greater than in the US and doesn't depend on whether it is warm winter in EU or not. With such an expenses the EU industrial sector can't compete with the US. This is just the question of time, when EU comes to an edge. It still has some safety margin but it is constantly exhausting.
This is absolutely correct. In Belgium, more and more people are sitting with their lips no longer just above water, but under water. I am not exaggerating that normal families (3p) here (depending on their energy contract) pay 300 to 600 euros or even more per month(gas and electricity) to have heat in the house. Not to mention the fuel for the car. Warm or not a warm winter, does not matter. Politics is involved in everything for their own pockets and the propaganda media is running at full speed. It is criminal how the government steals from the middle class.
 
Hi Sive,
You are giving us powerful reasons for believing that your expectations are more likely to be correct
than are the paths that the market makers are following. At any point in time they will change their path, sometimes in agreement with the "correct" path but not always.
I had been starting to think the way to trade, is only to select long-term trades, because I seem to be far from successful with short-term. Trouble is, at the moment, EU is almost certainly going to be 'weaker' economy than US in the next couple of years at least.
Yet we have " Median forecasts showed the euro will trade at $1.04, $1.06 in the next three and six months respectively. It is then forecast to change hands around $1.10 in a year, a near 4% gain from current levels."
If I am reading things correctly, we are expecting that within this sort of time-scale, it will get to $0.90. So, if the actual path turns out to be more or less correct, but we have people sending it up towards $1.10, that is a massive difference in forex terms. And on its journey, the technical scene can be going one way and then for no apparent reason until after it has done so, will suddenly change course. How on earth can we trade with any sort of conviction?
"technical picture is bullish" but is that picture justified or is it as a result of 'wrong' choice by the market makers, which they can suddenly change their opinions?
Am I showing that I do not have any clue about how to trade?
 
This is absolutely correct. In Belgium, more and more people are sitting with their lips no longer just above water, but under water. I am not exaggerating that normal families (3p) here (depending on their energy contract) pay 300 to 600 euros or even more per month(gas and electricity) to have heat in the house. Not to mention the fuel for the car. Warm or not a warm winter, does not matter. Politics is involved in everything for their own pockets and the propaganda media is running at full speed. It is criminal how the government steals from the middle class.
Sorry to hear that families are struggling, hope it gets better soon. This is the case in many countries and I'm not dismissing that fact. Only saying that the markets are about anticipation and not all the risks are materializing. This is not saying that life is beautiful, but it is not as bad as could have been. World was most pessimistic when the EURUSD hit 0.955, is all I'm saying. Technicals matter we need to read the market without a bias.
 
Hi Sive,
You are giving us powerful reasons for believing that your expectations are more likely to be correct
than are the paths that the market makers are following. At any point in time they will change their path, sometimes in agreement with the "correct" path but not always.
I had been starting to think the way to trade, is only to select long-term trades, because I seem to be far from successful with short-term. Trouble is, at the moment, EU is almost certainly going to be 'weaker' economy than US in the next couple of years at least.
Yet we have " Median forecasts showed the euro will trade at $1.04, $1.06 in the next three and six months respectively. It is then forecast to change hands around $1.10 in a year, a near 4% gain from current levels."
If I am reading things correctly, we are expecting that within this sort of time-scale, it will get to $0.90. So, if the actual path turns out to be more or less correct, but we have people sending it up towards $1.10, that is a massive difference in forex terms. And on its journey, the technical scene can be going one way and then for no apparent reason until after it has done so, will suddenly change course. How on earth can we trade with any sort of conviction?
"technical picture is bullish" but is that picture justified or is it as a result of 'wrong' choice by the market makers, which they can suddenly change their opinions?
Am I showing that I do not have any clue about how to trade?
Well, you're asking right questions, but it is really big subject. It would be best to split it in parts. You have to start from the basics first. There are two major questions - return on investments that you would like to get and what will be in the background of your every trade. If you want to get return more than10-15% annually on average, then using of the margin is unavoidable, that leads you to using of the stop losses.

Second - you could trade based on fundamentals or based on technical analysis. There are only two ways of fundamentals trading. First is - what we do on gold market. We take a look at economy statistics, political situation and make the conclusion that gold will rise. Then we use physical investments in bullions and coins. No margin, no stop losses, long-term investment. Now we need just control the situation.

Second way - is to trade data releases. this is intraday trading where you have to guess the numbers or just rapidly react on its deviation from expectations. This has nothing common with investing.

Now we're going to technicals. If you decide to trade technicals, you automatically accept the idea that reasons for your trading, for decision making will be technical analysis, mostly charts, price shape and indicators. So, you're saying:

Yet we have " Median forecasts showed the euro will trade at $1.04, $1.06 in the next three and six months respectively. It is then forecast to change hands around $1.10 in a year, a near 4% gain from current levels."
If I am reading things correctly, we are expecting that within this sort of time-scale, it will get to $0.90. So, if the actual path turns out to be more or less correct, but we have people sending it up towards $1.10, that is a massive difference in forex terms.

But take a look at the monthly chart above. If EUR will reach 1.10 area - doesn't it mean that bearish context will be broken? No. Other words speaking, reaching of 1.10 doesn't cancel the 0.9 target. It will be just 50% retracement. Thus, the first conclusion that we could make is - you have to understand how to combine time frames, and determine the vital points.

Second very important moment for using of a technical analysis - is correctly match the targets to the time frame that you're trading at. For example, there is no contradiction that we still keep 0.9 target on monthly but we tell that daily context is bullish and consider action to 1.0750. Because this is different time scales.

In fact you have to get only two time frames. First one, is where you determine the trend, the direction and second one - where you take the position. Second time frame is always shorter term. Possible combinations are weekly/daily, Daily/hourly, Hourly /5-min or 15-min etc. First time frame tells you in what direction you're trading, gives you important levels. Second time frame you're using to execute the entry.

It also means one important thing - if you trade on Daily/Hourly - you absolutely do not care about monthly trend and miles away standing targets. You need to control only strong levels and monthly /weekly Overbought/Oversold levels, so they do not make impact on your daily trading range. Until they stand outside - you do not care about it.

It is a big topic, and it is probably enough for beginning, if you have some specific questions don't hesitate to send me PM and ask.
 
If I am reading things correctly, we are expecting that within this sort of time-scale, it will get to $0.90. So, if the actual path turns out to be more or less correct, but we have people sending it up towards $1.10, that is a massive difference in forex terms. And on its journey, the technical scene can be going one way and then for no apparent reason until after it has done so, will suddenly change course. How on earth can we trade with any sort of conviction?
Take a look at how EUR/USD traded in the first two weeks of December 2007. Trading from 1.27 to 1.47. This is fx trading. I always remember(as a retail trader), forex trading is speculation in the first place!
 
Well, you're asking right questions, but it is really big subject. It would be best to split it in parts. You have to start from the basics first. There are two major questions - return on investments that you would like to get and what will be in the background of your every trade. If you want to get return more than10-15% annually on average, then using of the margin is unavoidable, that leads you to using of the stop losses.

Second - you could trade based on fundamentals or based on technical analysis. There are only two ways of fundamentals trading. First is - what we do on gold market. We take a look at economy statistics, political situation and make the conclusion that gold will rise. Then we use physical investments in bullions and coins. No margin, no stop losses, long-term investment. Now we need just control the situation.

Second way - is to trade data releases. this is intraday trading where you have to guess the numbers or just rapidly react on its deviation from expectations. This has nothing common with investing.

Now we're going to technicals. If you decide to trade technicals, you automatically accept the idea that reasons for your trading, for decision making will be technical analysis, mostly charts, price shape and indicators. So, you're saying:



But take a look at the monthly chart above. If EUR will reach 1.10 area - doesn't it mean that bearish context will be broken? No. Other words speaking, reaching of 1.10 doesn't cancel the 0.9 target. It will be just 50% retracement. Thus, the first conclusion that we could make is - you have to understand how to combine time frames, and determine the vital points.

Second very important moment for using of a technical analysis - is correctly match the targets to the time frame that you're trading at. For example, there is no contradiction that we still keep 0.9 target on monthly but we tell that daily context is bullish and consider action to 1.0750. Because this is different time scales.

In fact you have to get only two time frames. First one, is where you determine the trend, the direction and second one - where you take the position. Second time frame is always shorter term. Possible combinations are weekly/daily, Daily/hourly, Hourly /5-min or 15-min etc. First time frame tells you in what direction you're trading, gives you important levels. Second time frame you're using to execute the entry.

It also means one important thing - if you trade on Daily/Hourly - you absolutely do not care about monthly trend and miles away standing targets. You need to control only strong levels and monthly /weekly Overbought/Oversold levels, so they do not make impact on your daily trading range. Until they stand outside - you do not care about it.

It is a big topic, and it is probably enough for beginning, if you have some specific questions don't hesitate to send me PM and ask.
Hi Sive... as always, fantastic analysis and insight which are most helpful. Thank you very much for your time & efforts.
Personally, I have noticed and believe the Europeans are comfortable to keep the Euro within 1.04xx to 1.06xx and the Japanese to keep the USD/JPY between 130.xxx to 134.xxx. Anything below or above those levels, all sorts of movements start happening which don't make much sense and can only be attributed to some behind the scenes actions by their respective government to keep their currency to these levels.
We just need to pay more attention to economic and geopolitical news as that is driving markets for now.
Cheers and all the best!
 
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