USDJPY – Can it Clear 115.00?

USDJPY – Can it Clear 115.00?

Chart Of The Day

USDJPY finds itself in a precarious position. While the pair remains in an uptrend it is coming dangerously close to forming a double top at the 114.50 barriers unless it can get push higher from buyers to clear the key 115.00 resistance level.

Testimony from Janet Yellen today was inconclusive as she failed to offer any fresh reasons to be hawkish and mainly stuck to familiar themes of gradual tightening. Investors have been skeptical of the Fed’s US growth scenario -- none more so than the bond market where yields have been drifting towards yearly lows. One nagging doubt of fixed income traders is the strength of the US consumer.

Despite tight labor markets, wage growth and spending have been lackluster with Retail Sales missing their mark 4 out of the past 6 months. That’s why tomorrow’s Retail Sales data could be key to the USDJPY rally. The markets are looking for a rebound of 0.4% from the prior month’s data of 0.0%. Any beat to the upside could infuse the USDJPY with fresh enthusiasm and propel the pair towards the 115.00 mark. But if the data misses once again the prospect of a double top becomes increasingly real.

EURUSD – Explosion to 1.1500?

EURUSD – Explosion to 1.1500?

Chart Of The Day

Today news that Donald Trump Jr. may be in legal trouble took its toll on the dollar as traders flocked to the euro for safe haven flows. We think that dynamic is likely to continue over the next few days, even as Janet Yellen prepares to testify before Congress tomorrow.

Ms. Yellen’s hawkish views are well known so much of her testimony will be discounted unless in the very unlikely event she hints that the Fed is open to two rather than one rate hike. Barring that, whatever knee-jerk move the buck may have will likely be reversed. Meanwhile, today’s email revelations suggest clear criminal activity by Mr. Trump Jr. according to various legal scholars (although not treason). In any case the reverberation of the story is likely to continue to pressure US assets as investors begin to price in political risk.

All of this should help the EURUSD, which is a notoriously trending pair and could hit the 1.1500 level tomorrow regardless of what Ms. Yellen says.

EURUSD – 1.1500 in View?

EURUSD – 1.1500 in View?

Chart Of The Day

The euro continues to be on a tear as ECB is clearly moving towards a taper sooner rather than later. Although ECB officials continue to warn that inflation is still subdued, they clearly see that the EZ economy is recovering and will likely provide guidance about beginning to tighten QE relatively soon.

The EURUSD, as a result, has shot higher despite the fact that US monetary policy makers also have a hawkish bias. At this point, the trade is in relative expectations. German Bund yields today hit a 1.5 year high and the yield differential between US rates and German rates continues to compress.

Tomorrow NFPs could trip euro longs, but only if the number shows blow out strength. Otherwise, the pair could shrug off any knee jerk reaction and if the numbers actually miss the forecast euro longs will no doubt press for the 1.1500 target as the day proceeds.

USDJPY – Will Disappointment Lead to Selloff?

USDJPY – Will Disappointment Lead to Selloff?

Chart Of The Day

USDJPY has turned into a nightmare for the dollar bulls. Despite decent US GDP data, the pair failed to hold the day’s highs and worse sold off below the 112.00 figure as the day progressed. US rates were well bid, but the pair instead chose to take it cues from the equity market which sold off hard dropping by more than 1% my midday New York trading.

The flame out does not bode well for USDJPY and suggests that investors are beginning to doubt that the Fed will hike rates anytime this year. Inflation remains subdued while growth is still lackluster. So far this month the market has seen nothing but economic disappointment from US data and that is likely to keep downward pressure on the unit for the foreseeable future.

With no major data on the docket tomorrow and a long weekend holiday coming up, the pair could continue to sell off into the close of the week with 111.00 the next target of the shorts.

EURUSD – The Big Breakout

EURUSD – The Big Breakout

Chart Of The Day

EURUSD has been on a tear today challenging the long term resistance levels at the 1.1300 figure. The rally has been triggered by hawkish comments from ECB Chief Mario Draghi who sent euro soaring in early morning European trade when he indicated that ECB policy may soon move to neutral from accommodative and stated that the recovery in the Eurozone is in full bloom.

Speaking at an ECB Forum on banking Mr. Draghi painted a generally upbeat picture of economic conditions in the Eurozone noting that the central bank sees EZ growth above trend and that all signs are now pointing to a strengthening and broadening recovery in the region.

Mr. Draghi, however, added that inflation remains muted and that it not yet durable or self-sustaining. Still, he affirmed that policy is likely to change to a more neutral stance in the near future, suggesting that ECB may be making preparations for a taper.

All of this provides a very bullish foundation under the pair and could propel it towards the 1.1500 level over the near term horizon especially if EZ growth continues to accelerate while US growth remains sluggish.

Can Euro Break 1.1200?

Can Euro Break 1.1200?

Chart Of The Day

It’s been an extraordinarily quiet week for the EURUSD which has been trapped in 50 point range for with little movement in the past few days. The market appears to be in equilibrium as traders await the next batch of data next week that could provide some light on relative growth prospects of both US and EZ.

Meanwhile, tomorrow’s EZ Flash PMIs often serve as the earliest indications of conditions on the ground. Markets anticipate a slight decline perhaps tempered by a pullback in French data. However, if the data surprises to the upside it could provide a much-needed lift to euro bulls and shake the currency out of its stupor as it would suggest that growth in EZ region is actually accelerating which may force the ECB to curb QE faster.

Technically the pair remains in a 1.1000 -1.1300 corridor, but a break above 1.1200 would provide it with an upward bias and possible move all the way towards 1.1500.

GBPUSD – Fresh Lows in View?

GBPUSD – Fresh Lows in View?

Chart Of The Day

Cable has been the big loser today after Governor Carney dismissed any notion of hiking rates anytime in the foreseeable future.

Speaking at the Mansion House, Mr. Carney stated that, “From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular, anaemic wage growth, now is not yet the time to begin that adjustment.

In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations.”

In addition to the dovish news from BoE, cable was hit by news that PM May is having trouble negotiating with the ultra-right DUP party and if those talks stall, the prospect of a Tory government could be in doubt which is sure to propel pound even lower.

Technically the pair would make a symmetrical bottom at the 1.2500 level, which was the breakout point at the time Ms. May called the snap election. With political and monetary news turning ever more negative cable is headed that way.

USDJPY – 109.00 in View?

USDJPY – 109.00 in View?

Chart Of The Day

USD/JPY continues to be under pressure as US yields sink lower. The benchmark 10 years is at 2.20% as the market increasingly begins to doubt the fact that the Fed will hike rates any further beyond the 25bp factored in for tomorrow’s rate hike.

Despite the generally hawkish posture of US monetary officials, US data has been woefully disappointing and the much-vaunted rebound in second half of 2017 is nowhere to be seen as growth continues to track at about 2% rate. The end result is that market expectations have gradually declined from 4 rates hikes this year to 3 to now only 2. The Fed funds futures project only a 42% chance of any additional rate hikes beyond the June hike expected this week.

Meanwhile, technically the pair is making a series of lower highs and could target a move towards 108.50 if the news tomorrow is dovish

How to Trade the UK Election on the JFK AirTrain on Your Way To Madrid

Boris Schlossberg

1. Go with the Flow. When the news is shocking there is always continuation

2. Trade Small. This is important for two reasons -- one you will not freak when the trade moves against you by 50 pips in 5 seconds. Two you will almost certainly need to do multi-entry in order to get a good average price for a high probability profit. How small? My usual size is 1X equity ( i.e. no leverage) Today I started with 1/4 of my usual size.

3. Don’t worry about spreads. It doesn’t matter if they are 15 wide. They will narrow and prices will move 100 pips in 5 minutes.

4. Don’t worry about mistakes. (Hitting Buy instead of Sell, setting Stop rather than Limit, etc). You will make it back in the next 5 minutes

5. Don’t use stops. I know this is sacrilege but you will almost always get stopped out in such markets unless your stop is -200 pips or more. Your trade size is your stop. That’s why you trade small.

6. Use limit exits only. You will NOT get done if you try to exit market. The prices are too fast and you will be rejected 10 times in 10 seconds as coming off-market. It’s futile. Move your limits if you want to exit earlier.

7. Take a breath. Prices will come back to your direction even if you miss your first exit.

8. Once things settle down rinse and repeat. The news -- unless it changes -- will have ripple effects for hours.

9. Get a double espresso in the airport lounge and pre-set your levels while you are in flight.

10. Peace out to all my FX junkies.

Screenshot 2017-06-09 17.50.40

USDCAD – 1.3400 Support?

USDCAD – 1.3400 Support?

Chart Of The Day

The collapse of oil has been the main driver behind loonie’s relative weakness this week. Crude crumbled to $45/bll level despite tensions in the Middle East as supply continues to weigh on the market. Meanwhile Canadian economy has seen mixed results with a rebound in GDP data, but softer housing and Trade Balance numbers.

Tomorrow Canada will release it labor report which will be the main event risk in North American session. The market is looking for 11.5K gain but if the number comes in worse or even negative, the loonie could shoot for the 1.3600 figure. For now, 1.3400 is very support and the pair remains in buy the dip mode.

AUDUSD – Can It Power Through .7500?

AUDUSD – Can It Power Through .7500?

Chart Of The Day

The Aussie went for a roller coaster ride today dropping 30 pips on news that Current Account data came in softer than expected with net exports printing at -0.7% versus -0.4% eyed. This is likely to cause a downward surprise in the GDP reading later tonight. The market is anticipating 0.2% print but it is quite possible that the reading could actually come in negative.

Nevertheless, the Aussie regained all of the losses after RBA reaffirmed its neutral stance in its monthly statement which kept rates at 1.5%. With US yields continuing to compress, the Aussie is benefiting from carry trade flows, but that dynamic will only last if the market believes that the yield is secure. If the GDP data does turn negative, it will create a fresh set of worries about the prospect of further easing and the pair will be vulnerable to further downside shocks and could test the .7400 figure on any miss to the forecast.

Random Trading is the Best

Boris Schlossberg

One of the greatest books on trading contains no practical advice about the markets whatsoever but still describes price action better than a thousand hedge fund managers ever could. The Drunkard’s Walk by Leonard Mlodinow details how virtually all aspects of life are ruled by randomness.

In fact, just the other day I came across a paper by a Hebrew University professor that eviscerates the concept executive performance compensation by proving with a near absolute degree of statistical certainty that 90% of CEO performance is a function of luck rather than skill. For every Steve Jobs, there are a thousand lucky fools just warming the seat.

But back to randomness. If we are honest with ourselves randomness is a massive part of market price action. It’s one of the principal reasons that almost every backtest fails miserably under real market conditions. And it is also the reason that I consider tactics to be much more important than strategy when it comes to making money day trading the market.

My favorite tactic is what we in the BK chat room call, the Boomer entry, where we will enter the trade at one level and if it goes against us we will add to the position allowing us to exit the trade at the original entry rather than the original take profit.

I know. I know. The horror! I am breaking one of the sacrosanct rules of people who never-actually-trade-with-real-money-but-like-to-peddle-trite-theories-of-risk-and-reward. Yes, of course, I am increasing my risk and capitating my reward. Yes, of course, such tactics require much higher win percentage to be profitable. And yes, of course, they can lead to disaster if you don’t properly balance the ratios. But instead of having a religious argument about risk and reward just do the following.

Open a demo account. Place 50 random trades with 5 pip stop and 10 pip take profit and then place another 50 trades with 10 pip stop and 10 pip profit, then another 50 trades with 20 pip stop and 10 pip profit. You’ll notice something interesting — the win/loss ratios are not proportional. At 5TP/10 stop, you could lose 90% of the time but at 20st/10tp you may win 55% maybe even 60% of the time. You will still lose, but much less and it will take much longer than through the “traditional” way of trading.

Why?

Because of something called path dependence. In the la-la world of trading gurus where trend spotting is easy (once it’s already happened) and price moves linearly from point A to point B, using 2-1 risk reward ratios is…obvious! But in the real world where every price tick is subject to random variables the path is never smooth nor linear. Add to that the fact that the market, like a skilled poker player, is almost always trying to trick you into the wrong move and your accuracy at any given price is actually more like 25% for to 75% against versus the 50%/50% that is commonly assumed.

That’s why single entry tactics are the height of arrogance, especially in day trading where the stops are small and the margin for error is tiny. On the other hand, our day trading tactics are designed for the maximum possibility of success in a real market environment that is more like the undulating waves of the ocean, than the hard certitude of a concrete floor. Over the years these tactics have made me more pips than all my day trading strategies combined. Why? Because randomness rules.