The final two sessions of the week started with the regular global pattern of trade that seems destined, before anything else can be considered, to have to test bids at the high and low of the previous session. The move is a consequence of low participation levels that easily allow large swings in small timeframe, and a reflection of the fact that inter-bank internals are just not aligned right now for institutional orders to easily flow and hold.
The sporadic bursts of high energy moves that disappear as quickly as they arrive will be the norm at least until September. As a prime example of the pattern of trade, European equity markets dropped and then regained 1.5% in two consecutive 30-minute candles at the open that pulled forex pairs around as the 2am ET Dax futures market got underway.
Then, at 08:30 ET the U.S. initial Jobless Claims numbers record a worse-than-expected read of 500k, and another 1.5% Dax candle was formed in two minutes, while the S/P put in a 2% move lower from 1095 to 1075. The dollar will be pulled all over the charts, in different directions on different pairs as commodity related Aud and Cad lose, interest rate yield related Chf and Jpy gain, while Gbp and Eur absorb the noise that has speculators undecided whether they should be long or short the E.U. and U.K.
The majors are sitting within the trading ranges of the week, with a net gain across all of about 30 pips on the day, with the exception of swissy. Eur/Usd is using the 100 Day SMA area at 1.2780 as support, but is really struggling to break 1.2950. Gbp/Usd maintains its six day slog that has it glued to 1.5650. Usd/Cad was the one pair that had tested the short side of the dollar and held ahead of the Jobless debacle, but reversed all that went before in reaction to the move out of commodities. Chf and Jpy remain at the violent beck and call of global yields, and will now hammer the dollar in response to Treasury yields collapsing.
Aud/Usd resembles a heartbeat monitor in the near term, with the 200 Day SMA at 0.8950 hold things up. Cad, Chf and Jpy remain at the violent beck and call of U.S. Treasury yields and commodity direction that will be going separate ways in trade today.
The instability of the global markets and the huge question marks over global growth and economic debt ratios have combined to create a near-term trading environment that needs to bank early, reduce exposure and expectancy, and have traders prepared to take set-ups in-line with 4-hour chart trends wherever possible. However, the lack of liquidity and the ability to melt-up or melt-down with impunity does not allow too much room for error.
Summer-time trade has specific nuances, and as traders witnessed in 2008 sub-prime and 2009 credit-crisis summer-time trading, it resembles a theme park roller coaster ride most days. The 2010 debt-growth crisis will be no different, but as soon as August is finished the swing towards a trend is very likely to be dramatic. The question is whether the bubble in Treasury Note values (or Treasury yield collapse) will burst, or whether equity markets will follow the yield curve lower as inter-connected global markets scramble for fair value when big volume eventually hits.
Forex pairs are holding steady as the equity and bond algorithm gladiators do battle with each other, jousting their way through each session looking for an edge that will set one or the other off on another liquid burst of energy-based trade that at this time just cannot find the energy to break and hold. It is unquestionable that right now forex is following the global equity and bond trail, with few reasons for currency traders to expect a break of the previous session high or low, unless it is timed to coincide with the 2am, 7am, 11am ET daily realignment of futures contracts.
Patience, control, acceptance, and a plan, are the keys to trading longevity, and are the hardest traits for most to master. However, once it is accepted that a patiently controlled trade plan order will be at the mercy of summer-time automation once it is placed, it is easier to be at peace with whatever outcome the market gives. Traders who in these environments do not patiently plan, and do not accept that risk of failure increases with summer-time volatility may just find themselves chasing their tail as global trade pulls fair value from pillar to post each day.
The yield famine across the global market will pass, and liquidity will return, and trends will form; it is just very unlikely that it will happen in August. Trading patterns right now are for those who accept there is a price to pay to sit at the trading table and play, and accept that not all hands that are dealt will be winners; this market ideally suits those who work their pot odds out ahead of time, and accept the outcome without crying.
Going all-in with summer-time trade is not a healthy option, instead traders should look to keep exposure tight by reducing lot size, keep expectancy checked by banking early, and be looking for year-end results rather than looking for daily P/L.
Traders need to keep things tight, work to a plan, accept that losing trades are a part of the work environment, and trust that what has proven to previously work is very likely to be proven once more. Chin up, shoulders back, and getting through the last two weeks of August in good shape is the near-term plan that will aid the year-end results.
Full-time traders learn a lot about themselves each day, mainly their ability to absorb success and accept some defeats, and should always ensure that they can look themselves in the mirror and know 100% what kind of person is inside.
Trading is a career that offers little compassion, and traders have to have an internal anchor that sets a high standard of who they are as people, each and every day. Mother Market will constantly question the resolve of all who enter her domain, and without a steadfast constitution and an understanding of who they really are, Mother Market offers daunting place for traders to work some days.
Without an anchor traders run the risk of rising and falling emotional states of mind that can easily get out of control. Set a standard, just a little higher than you truly believe you can actually achieve, and watch each day as that standard sets the tone for accepting whatever unfolds in the global trading arena.