Good morning traders. Trust you all had a good weekend and are now ready for another week of seriously hard graft. I smile when people think / say trading must be a doddle. Jeez… if only they knew eh :).
First off we finished the week in good style on Friday with a nice reversal short from R1 for our model strategy and a long from the 1.1280 level I talked about in the Friday post for the Max strategy.
So if you took both that would be upwards of +50 for the day and / or +26 for our model strategy. Updated performance here.
Macro Update (a little context)
Before we go into my thoughts on the macro picture I´d like to state my personal view about the efficacy of undertaking fundamental analysis as it relates to day trading.
There are plenty of very credible analysts out there who write about this for a living. In the main some of them like Marc Chandler (@marcmakingsense) and John Hardy (@johnjhardy) of Saxo Bank write very insightful pieces and do a great job in my opinion. If you want to really dig into the macro stuff, you could a lot worse that to follow these guys on twitter.
From my perspective I do it because it helps to frame my thinking for my trading. Once I’ve thought through the bigger picture I feel better informed and I can look at the scenarios that could play out based on that thinking.
From a day trading perspective however, I try to make sure that I´m not too biased towards my views at the fundamental level. Confirmation bias is a big issue for traders.
When we are day trading we need to be much more mindful of the daily context and the reaction levels that look promising.
Fundamental views can take a very long time to play out. For example, while I might think the euro is going lower over the next few months, I use that thought only to give some color to the higher time frame charts. It rarely effects my short term day trading. I could quite easily be much more inclined to see that we are in for an up day based on the flow and price action context.
The upshot of this for anyone wanting to learn or to improve their trading is that while fundamental analysis is a great exercise for longer term framing and helps you to understand the environment you are working in, the charts and daily pa are really the only context we need to trade in the short term.
I wanted to cover this point as I was talking about it with a friend of mine the other day and I guess its relevant for anyone reading my posts.
On that note, here’s my current bigger picture thinking.
The Bigger Picture
With the ECB and the FOMC minutes out of the way we should have a better picture of where we should be headed in the eurusd. Well, that´s the theory.
Equities seem to be headed for new all time highs in the US and that should mean there is less pressure to hold USDs as a safe haven which in turn should open up the euro and other major currencies for higher prices against the greenback.
There is no reason to doubt the political will in the States to facilitate this and with Trump out of the woods re the Mueller Investigation and seemingly in a better position to start his campaign for a second term, a business friendly US White House should be good for the stock market.
But, the opposing view to this is that we are well into the bull market cycle and it is reasonable to expect that stocks could be in for a downturn, sharp or otherwise.
In which case this undermines our idea that the USD won’t be held as a safe haven. Add this to the IMF´s latest projections on global growth (particularly downgrades in the US and Europe) and you start to see the minefield we have to navigate in trying accurately to predict anything over the longer term.
From our perspective re the eurusd we still have Brexit hanging over us, a very dovish ECB, political uncertainty in France (which I think tends to be overlooked somewhat), and the rising populist movement in Italy (and elsewhere) who are still capable of tripping up the EU bandwagon politically and economically. Given this background there’s not much to suggest any fundamental reason to push the euro higher.
In summary then, my view is uncertain at best. We may get a short term rise in the euro but nothing fundamentally has changed so over time we could be looking at lower prices and or carving out a lower banded range.
That’s the best I can do right now. I guess I could just have cut to the chase and said – I don’t know lol. But as I said earlier trying to think through the macro environment helps me as a trader and even if I don´t have a clear view, its worth the thought process!
The 240m Chart
Looking at the 4h chart we tagged the 50% Fib precisely last week and backed off. The Fib itself has no magic qualities but residing as it did with the 1.1320s level we were targeting it was a decent reaction point.
We now have clear support at 1.1280s and lower at 1.1250s.
We don’t have much on the data slate until Thursday when we have EZ manufacturing PMI´s which could be a catalyst for a decent reaction.
The Hour Chart
Levels as per.
As we start the week price is just above the 1.13 big fig and we have completed the target from the inverse head and shoulders pattern. As this has acted as the range low for some time what happens here is important. A clear push up would suggest 1.1350 comes into range as a first port of call.
Breaking and restesting from the underside and pushing back down suggests the rally may have run out of steam for now. The levels are clear for max strategy scalps and for our model strategy. As noted 1.1280 and 1.1250s are the main levels on the downside with 1.1325 and 1.1350 to the upside..
My plan is to trade whichever is triggered first to get a flavour of what might unfold for the week.
Have a good one.