Please note, that this article comes from my archive. Check the actual date in the header.
In my opinion, money do not exist. I believe in sunshine, air, water and gravity. But I do not believe in money. At the same time, I believe in the fact that majority of people believe in money.
I do not predict currencies. How can you predict behaviour of something which does not exist? But at the same time I’ve spent more than 10 years of my life observing people’s reaction to different events in financial world. Currency exchange is not driven by economical event, it’s driven by people’s emotions, expectations, etc. I imagine financial markets like a virtual matrix. Let me put on my helmet and plug in before I proceed…
We had a disappointing NFP report last Friday. Dollar gained at the end of the day. Why? It’s because market participants always look ahead. Currency speculators closed their positions before long weekend in US and before huge important event for the worldwide financial markets - ECB meeting and press-conference this Thursday. We need to realize that we are facing new season ahead. There is a sign on the market, that the direction of the first trading day after the Labour Day in US determines the direction for the whole autumn. So today is September the First in that sense.
Euro Central Bank, like many other central banks worldwide, had a long period of unprecedentedly low interest rates after financial crisis in 2008. ECB used to support economy by injecting billions and billions of cheap funds into the system, adding liquidity. Credit market has been full of supply with comparatively low cost and European bonds had very low yields.
Political concerned have been eased after French election in April, while economic reports for Eurozone have been showing sustainable strength in recovery process. It’s been awhile that we did not hear anything about loans turmoil from Greece, Spain, Portugal, Italy. German election this autumn seems to be rather predictable. Why would German people wish to change something if they had lowest unemployment rate in history, strong wage growth, industrial production, consumer confidence, etc?
These are main fundamental factors that pushed EURUSD up 13% year-to-date and + 10.7% since April 21. Of course we should mention weakness in the other side of Atlantic. Political concerns and disappointment in Trumps’ ability to make significant changes together with more dovish Fed, than it has been expected in November 2017, pushed USD lower across the board, not only against Euro. But if you looked at the structure of worldwide economy, you would not find much alternative besides these two most stable regions. Asian economies traditionally exports capital, preferring to invest in regions, which have most consumption of their goods. Emerging markets are much more weak, than they used to be before financial crisis, which is not adding stability and confidence for big capital flows. Black gold has lost it’s shine and dropped lower than 50 dollars per barrel because of slow demand worldwide. Need to continue?
According to Bloomberg survey, 67% of economists agree that Draghi will express concerns about too fast EUR appreciation. I’ve noticed even rumors about possible verbal intervention during the upcoming press-conference. I do not have anything against mr.Draghi dovishness, I understand that he must protect export oriented part of the Eurozone economy. But let’s face the truth, since when Draghi dovishness stopped speculators? Do you remember his last rate decision and his last comments in July? Markets just did not buy it. EURCHF soared 360 pips in a week after that, creating rumors that someone big made a huge shift in long-term perspective. My point is that ECB does not have much choice rather than to stop Quantitative Easing and to start tightening cycle. It’s impossible to stay at 0.00% level of interest rates for ever!
I can agree with the fact, that markets are positioned rather aggressively in the sense of EURUSD longs. But weren’t the markets too aggressive in EURUSD shorts trying to reach the parity in 2016? I suppose, that the EURUSD range 1.2000 / 2500 is normal for the pair, but not overbought. We already had a test of 1.2000 / 2060 level on a rocket launch last week. And it’s normal, that the price pulled back. Moreover, my experience tells me, that levels like this stand usually two attempts. I mean we could see a pullback with second attempt failed and a breakthrough on a third. It’s just a question of time. The only thing I’m completely sure, is that the market players will pay attention to every single word from Draghi’s mouth during the press-conference, trying to catch any possible hawkish sense. They need a fundamental driver to continue the uptrend. They could be disappointed by Draghi, but not by Eurozone economy attractiveness.
I have closed my previous longs last Tuesday on a rapid surge above 1.2000 last Tuesday. It was too fast and unexpected. I have re-entered to the market with long-term strategic EURUSD longs on a pullback to H4 SMA89 in 1.1820 /1830 area. I bought myself a ticket for the show this Thursday. I have very low volume of these longs keeping in mind the Risk Management rules. I’m confident that the trends like EURUSD had from April do not reverse just like this, without any reason. I have enough experience to manage positions under water in worst case scenario. My account balance would have enough room for more longs in case if my expectations were right and the market reacted on Draghi by adding more aggressiveness in long positioning.
End of Part I, to be continued…
Let the profit be with us!
Please note, that this article comes from my archive. Check the actual date in the header.
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