The entire week was extremely quiet, with very narrow trading throughout the week as the markets were void of any significant news impact. But last night at the Jackson Hole Symposium, both Fed chief Janet Yellen and ECB chief Mario Draghi injected volatility back and more importantly, changed the dynamics of the EUR/USD.
EUR/USD surged from 1.177 to as high as 1.1941 before closing at 1.192 – a first Weekly break and close above 1.19 in more than 2 years since 2015.
On the H4, it was a clear cut successful textbook-style inverted H&S breakout, with the 2015 high acting as the neckline to breach.
Technically, EUR/USD should be poised for a continuation to the upside in the subsequent days to weeks as there are no near term resistance for now, except to crack and close above 1.2 perhaps?
Upon opening bell, EUR skyrocketed to the moon, strengthening massively against all other currencies, after news broke that Emmanuel Macron and Marine Le Pen are through to the second and final round of the Elections.
I had a bullish inclination on the EUR/USD end of last week. Even though it was in the right direction in the end, I did not enter the trade because of the huge uncertainty of holding it over the weekend.
If I was wrong, the magnitude of losses due to this large gap would’ve caused some damage.
My opinion for now is not to touch any EUR pairs for these 2 weeks due to the Elections and any surprise outcome will not respect any technical or fundamental understanding.
The gap has already done its damage to accounts and chart patterns; give it time to settle down and reshape.
EUR/AUD is possibly forming the right shoulder of the H&S pattern.
If it is successful, this should take us all the way down to 1.38742 region.
Note that it has rejected nicely almost exactly at the same zone as the left shoulder.
Going down another time frame lower, we can see that the upward momentum is increasing at a decreasing rate.
Looking top-heavy and possibly ready for a good reversal, especially from C-D-E.
Furthermore, it has rejected the top of the left shoulder region at least 5 times, which should be telling.
The focus for the upcoming week will centre around GBP, with the other pairs taking a backseat.
UK Prime Minister Theresa May is expected to kick start the United Kingdom’s departure from the European Union.
It will happen on 29 Mar and I’m expecting spreads to be widened more than usual and GBP-related pairs to be highly volatile – perhaps why GBP/JPY has yet to make a clear directional push, being extremely choppy.
No clear bias from me, just another wait-and-see situation.
The DXY is still trapped within the 99-100 zone, with declining or less-significant movement for the USD-related pairs over the past week.
Trading USD-pairs should be tricky again for this week.
I’m still biased towards a break of the textbook head and shoulders neckline overall.
JPY-pairs are currently making a recovery after being pummeled pretty badly through the past week, with USD/JPY leading the way with a convincing superficial rejection of 110.6 area.
I am expecting the recovery across the JPY-pairs to be short-lived before it gets punched back down again.
Overall sentiment is very bearish for me.
As for EUR-pairs, not much comment on it, except that the EUR bulls have run its course and its about time it retreated a little.
On the financial newsfront, not much going on except for the Brexit-launch on 29 Mar.
Meanwhile, keep your risk in check and trade safe.
Currently have no positions open since the start of the week, most of my shortlisted pairs have been invalidated and waiting for new signals to show up.
Another week of patient waiting and sitting on my hands.
JPY pairs were hammered yesterday while the rest are all still stuck in limbo – no decisive movement yet.
DXY is now back down to <100 after last night, currently trading in a tricky range between 90-100 again.
Although my general bias is a medium-term bearish outlook for the Dollar, but do be careful when trading USD-related pairs for now as it is not going to be a smooth ride. Unless either 90 or 100 is broken decisively, expect erratic behaviour every now and then.
On the other hand, NZD is having its monthly RBNZ cash rate announcement tomorrow at 4:00 AM Singapore time, so do watch your risk on that front as well – from my experience, NZD movements tend to be pretty powerful when it comes to cash rate releases.
No clear bias on NZD from me.
What should I do with my profits? – This is a question I have come across pretty often and I think it is an important aspect of trading that I’d like to discuss.
There are two ways to go about it: Compound your profits or withdraw it.
Compound your profits
According to Albert Einstein,
Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.
Compounding your profits is one of the best ways in which a trader can grow his or her account at an accelerated rate.
However, the true effect of compounding your money only becomes meaningful when you have a large amount of capital.
For example, a $1,000,000 account compounded at a monthly growth of 5% per month will yield $1,710,339.36 at the end of 12 months – a growth of $710,339.36.
Compare that with a $1000 account compounded with the same parameters, yielding $1,710.34 – a growth of $710.34.
You can take advantage of this useful tool to project your compounding: http://www.forex21.com/forex-compounding-calculator/
This is why some of the small-capital traders don’t see the need to compound their profits because it would take too long to grow it to an ideal size and hence, they turn to option two, withdrawing their profits on a regular basis.
Some traders, because of the above reasons, withdraw their profits to use as extra pocket money – perhaps to buy something material to reward themselves with, or to just treat their family and friends a nice dinner with.
It is healthy to withdraw your profits every once in awhile and spend them on something meaningful – like a meal for your family or a gift for loved ones or yourself.
It is a visual manifestation of your trading performance, which reminds yourself that your profits are real.
For example, you have made more than enough to get the computer you always wanted. From now onwards, whenever you use the computer, you will be reminded of how you traded your way with discipline to earn it. The feeling is definitely indescribable.
Don’t underestimate this experience as it is one of the biggest form of motivation for you to work harder in your trading endeavors and scale greater heights.
After all, we should all reward ourselves once in a while for a good job done.
The only drawback to this is that you will not be able to compound your profits and grow your account meaningfully. So it will be a growth-withdraw-starting balance cycle all the way.
In the end, there is nothing wrong with choosing one over the other. It comes down to the individual’s objective and what the money deposited in the trading account means to the trader.
Last night’s FOMC was largely predictable by most traders – in the sense that all sentiments of a rate hike has been fully priced in over the past few weeks.
In my previous post, Where is DXY (Dollar Index) headed now? and Weekly Analysis, I mentioned that DXY will still give way to the downside despite a rate hike of 25bp.
Indeed, USD/XXX pairs all fell pretty harshly.
Being a strong believer of technical analysis, there was simply NO reason for USD to climb, despite what Yellen said.
Previously, I have also shared with you how the gurus trade the big news – Weekly Focus/News Trading Strategy.
Similarly, I positioned myself well in the day and took a +4.35% equity gain out of last night’s movement.
This managed to push my equity to further highs, which also crashed through my psychological growth barrier.
Moving forward, there is still the BOJ, SNB and BOE decisions later on in the day.
No immediate plans to trade today since too much volatility on multiple currency fronts is not what I am looking for.
Shall take a step back and wait for new opportunities to present themselves.