CABLE GOES “SPLAT”!

“Err, it looked really good a second ago!”

How many months have the BOE [Bank of England] “hacks’ been barking that a rate increase is “in the cards” real soon? And so, making sure that nobody in the civilized world didn’t know it was coming, meaning of course banks are short and retail specs are long, here comes the BOE today with a rate increase, that surprised nobody, but nonetheless crucified a few shorts first via some “buy stops” … and then the “sure to go higher” Cable ice cream cone fell out of the kid’s hand and went … SPLAT! … on the ground.

“I dunno, but the words “buy the rumor, sell the fact” come to mind rather quickly”. Blame quickly shifted to the two dissenters, in the 7 – 2 vote for higher rates, thus denying a 9 – 0 tally many FX “analysts” [that would be former traders who can’t trade] considered necessary for a “rate hike cycle” going forward into the months and years ahead.

But as history has shown with GBPUSD, getting ahead of the curve is a dangerous proposition … “I guess the analysts forgot this part … however, the market reminded them today”! … none other than the BOE itself has produced a couple of interesting charts [via ZH] that prove my point. Directly below, the first is market rate hike expectations going all the way back to 2009, and quite literally shows that every quarter analysts got it wrong, since today’s rate increase is the first in 10 years.

“Ok, so we’re all wrong 8 years in a row … I don’t think that’s a “trend”, do you?

Proving once again, that every time you leave the rake in the yard, and then go out in the grass to play, you step on the rake [again] and hit yourself in the face, I present the second chart, which were analyst’s expectations back in March of this year.

So, with everybody convinced, thanks to the “smartest-guys-in-the-room”, that rates in the U.K. got no place to go but up … ergo, Cable has to … just frickin’ has to … go higher … it didn’t. “Honey, cancel that red Porsche order; I’ll be over at the Kia dealer … no, not the new ones, the used ones”!

The point I want to drive home today, outside of the fact the interest rate announcement was an event to avoid, is simply to reiterate that trading [especially a non-correlated market like GBPUSD] has nothing to do with reality, and everything to do with perception; more specifically, how “perceptions” in the market ebb & flow like flood waters. As I point out in the new “Scalper’s Algorithm” manual in detail, the psychological makeup of a non-correlated market has in it the “normal” collective behavior of “fear & greed” which feed it constantly, and is the same today as it was 500 years ago when Sokyu Honma traded rice warehouse receipts. All of this is “stripped” away in correlated, manipulated markets, as the manipulators will not allow it; what you end up with is “speed of light … crickets”, with no chance to get in.

There are 4 markets that I have identified as “non-correlated”; in order of preference, 1) GBPUSD, 2) EURUSD, 3) USDCAD, and in the non-dollar crosses 4) EURGBP. While it is true, that to a certain extent the “Loonie” [USDCAD] is seen as a commodity currency via the crude oil market, that correlation is more medium and/or long-term, and not day-to-day, tick for tick. There is also one market that is lightly correlated in the non-Dollar crosses and that is GBPJPY; here, we suffer some correlation that is offset by much higher intraday volatility in the pair. If you’re going to trade it, cut your leverage some and give yourself a little more room, or else random order flow will take you out too quickly. All-in-all, there are 5 markets; AUDUSD, NZDUSD, & EURJPY didn’t make the “cut” cuz they don’t have consistent enough day-to-day “intraday” volatility. USDMXN didn’t make it either cuz the “net” costs to trade it are too high.

Some might be surprised that EURGBP made the list; and while you can say that the Pound rallied/fell today right along with the Euro, that type of correlation has no “causation” other than general U.S. Dollar strength or weakness. It would be like saying that on days when the sun comes up Cable moves …wonderful correlation, but what does it mean and represent? [Hint: Nothing!] Another consideration for EURGBP, is the fact that a ± PIP in EURGBP translates into an almost 50% higher Dollar value versus GBPJPY, for a PIP gained or lost; that kind of changes the dynamic of the cross!

I’ll have more on the new manual tomorrow … right now, I’m downing an icy cold Corona with lime … doctor says I need more vitamin C in my diet … you can’t argue with science, can you? And, last time I checked, vitamin C is water soluble, so no matter how much you take, you can’t really have too much! Oh, the wonders of science.

Dog says, “blah blah yada yada” let’s go! … until tomorrow … I’m outta here.

Have a great day everybody!

-vegas

OUR TURNKEY FOREX “PAMM/MAM” IS NOW OPEN AND OPERATIONAL; SEE “PAMM/MAM MONEY PROGRAM” IN “DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND START YOUR JOURNEY FROM WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!