US Durable Goods Disappoint – QE Extension Today? Oct. 29, 2014
Bad News Is Good, The New Normal-Front Running The FED
With really no other choice for investors, front running the Fed has been the most profitable trading strategy for the last several years. Who can blame them since the safest assets (US Bonds) yield nothing leaving them no where else to go but into riskier stocks trying to make money on their investments. The sad part of the story is the whole purpose (we have been told) of QE (money printing) was to give banks incentive to make quality loans to businesses so as these companies grow it creates jobs, people go back to work, the economy grows and all gets better. Well it looked good on paper anyway.
When we take what looked good on paper out in the field things hardly ever work exactly as the paper looked because any little thing that was overlooked as we drew the paper can and usually is a big factor when applied in the field because that what seemed like a small detail missed is now effecting several operations of major equipment that now all has to be modified to make things work as they should. The only way to prevent such things from happening one needs a very good engineer making the initial paper, find any flaws and correct them long before any equipment starts its trip to the field. I digress a bit.
Now lets put this in context of economics and what we have going on today. First of all there is not an economist out there that even comes close to the quality of a good mechanical engineer. They are all academics that have studied certain economic theories and decided that one camp suits them best and stick with it until it fails. They are also politically influenced because either their paychecks or career depend on it. For example one only has to look at the documentary called The Four Horsemen about the beginning of the financial crisis to see that a certain well known economist was paid to write a paper for the Iceland government saying how the risky actions the big banks were taking were actually good for the economy. This was about 6 months to a year before Iceland went under. Oh and he was paid in the neighborhood of $80K for this analysis if memory serves. What a chump.
Now even though I can easily say I loathe such people because they are driven by greed with no thoughts of repercussions. In their defense I have to admit there one single thing that the very good engineer never has to deal with in drawing up the mechanical plans. An economist has to guess, on a regular basis, the N variable which he/she will never know the true value of. The human element. The fact is, considering economics, people are unpredictable most of the time. On to the charts.
EUR/USD Runs 60+ Pips on Bad Data.
Of course this would make sense if it were just a USD weakness move but when we see the USD/JPY hold steady while the EUR/JPY runs off to the upside as well its risk appetite. Not to mention US equities had a great day.
Considering the FOMC later today I do not expect this to continue. Of course I could be wrong and Janet Yellen come out and extend the QE program after the meeting but as I said in yesterdays commentary, they know the recovery is weak at best and the Durable Goods data shows that. They need to try and get some tools via points on interest rates to use later so they can at least extend the timeline of when the next QE starts. And who knows maybe the ECB will go full blown retard before letting them delay even longer.
In a normal situation I would have a slight bias for the next push up today but all things considered its best to remain open on direction. If I am correct and the Fed does end the QE program the EUR/USD is going to drop late in the day. Otherwise the best level for the long is down at 1.2713 but if they really think (or know) that the Fed will extend the program they could stop it a bit higher at 1.2718. The best potential short is up at 1.2752 but the potential for them running stops to the highs at 1.2763 before a drop is high so I will be careful and wait for a great entry at the lower level.
GBP/USD Makes Third Push up, Reversal Ahead?
The GBP/USD gave back all the gains from the US bad data during the late NY session yesterday. With them running short intraday pushes lately this pair has more potential for the reversal than extending upward today. It also agrees with the fundamental picture of the Fed ending QE. This will be my preferred pair to trade today. Having said that the levels are a little dodgy since the probability of them running to the highs is lower. If they hold the Asian range tight as I expect then the daily high at 1.6146 will be the first place I look for a set up. Otherwise if its not clear there I will wait for the test of 1.6161. This level is weak but does have reaction in the past so with a clear set up and good entry I will take the risk there and treat is as an aggressive entry and minimize the loss on a push to the highs. There is still the potential they do push it up but again we only have the current Asian lows or 1.6094 as decent levels. If I do take the long today I will want to out before the Fed release.
EUR/JPY Runs With Risk Trade Closing On Highs
The EUR/JPY ran with the risk trade yesterday showing the first push to the upside from the chop. Again in a normal situation I would be bias for the long but on a day like today I will be more open for the short than usual. It would be best to catch this short with a stop run to yesterdays highs during the Asian session as long as the UJ agrees. Its not looking too bad so far but will need a couple more candles to show the set up. Otherwise if it does break to the upside above 137.89 this morning I will leave it alone and watch the GU during London.
Forex News Today
The calendar is bare until the FOMC late in the day so we arent likely to see much movement other than potential end of month flows before then. Be careful out there today.
Any NZD cross traders need to keep an eye on the RNBZ rate and statement a couple hours after the Fed has their say.
Food For Thought
Its been a long time since I posted a Max Keiser video but yesterdays episode was a must see. Especially for those who dont know how the populace has been manipulated by big business and the government for decades. What came to my mind as I watched was something my dad told me when I was about 7 and watching TV. A commercial came on and as with my children today I started singing the catchy tune. My dad tells me in a calm manner. See they already gotcha. The whole purpose of the catchy tune is to get you singing it so it sticks in your mind the next time you are in the store, drwing you to buy the product with the best tune rather than the best product for you. Well it wasn’t that detailed since I was only 7 but over the years I see exactly what he meant. The problem is as Max describes, when it comes to the government it is far far worse. Since, I have learned that they employ study groups with the sole purpose of manipulating the masses to do and feel what they want. Having said that I do believe people are waking up but will take time before enough are enraged enough to do something. Enjoy.
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