TRADER MAGAZINE

OCTOBER - DECEMBER 2017

FED IS E XPECT ED TO OVER-T I G HT EN WITH RISKS OF A SEVERE MARKET CRISIS

inflation

ELLIOTT WAVEMAJOR TRENDCHANGE FORECAST

myster y

Y ENBEARISHTREND

EUROZONEPOLITICS

AVOIDINGMARKETST R A P S

TRADING THEMARKET DNA

H O L LY WO O D BAD BANKERS

US DOLLAR7-YEAR TRENDC O M P L E T E D

FXCONTENTs

HOLLYWOOD BAD BANKERS:

Has there ever been a movie where someone who works in finance is the good guy?

31

Elliott Wave Theory predicts a change in direction that will profoundly impact the FX market

1705 EDITOR’S NOTE

FUNDAMENTAL ANALYSIS

21 YEN Bearish Underlying Trend: Bank of Japan’s monetary policy should result in a further weakening of the yen

44 Eurozone Elections and the Euro: What does Angela Merkel’s victory mean for the EU?

34 Safe Haven Trades: Amidst growing geopolitical tensions, investors focus has shifted towards Yen, Bitcoin, Gold and Swiss Franc

CURRENCY WATCH

26 US DOLLAR: Seven Year Bull Market Completed. What kind of top is forming?

TRADING STRATEGY

47 A look at the relative simplicity of market DNA: How to use the market structure to frame a trade within the previous daily range

TRADING PSYCHOLOGY

62 Patience Pays…Literally: How to avoid the market traps by shifting your focus from finding trades to performing good analysis

RISK MANAGEMENT

55 Risky Business: Risk management, from theory through real trade examples

TRADING SYSTEMS

59 Support and Resistance of Random

vs. Real FX Prices: Comparing S&R levels between random and real FX price series using statistics

MONETARY POLICIES

53 The Mysterious Decline in Inflation: Fed officials’ diverging views on inflation decline highlight the necessity for the FED to rebuild credibility 09 FOMC and Bank of Japan: September meetings analysis

TECHNICAL ANALYSIS

64 Majors Reports:EUR/USD, GBP/USDUSD/JPY, AUD/USD

66 CONFERENCES & SEMINARS

67 ECONOMIC CALENDAR

MAJOR TREND CHANGES 37

INFLATION MYSTERYHow can the Fed have the right monetary policy when they are targeting a self-imposed target on an economic dynamic that they do not understand?

FX TRADER MAGAZINE October - December 2017 3

How will the Fed deal with aMYSTERIOUS INFLATION?

the Fed are targeting

a self-imposed target

on an economic

dynamic that they

do not understand

Trump’s t a x

prop osa l s m i g ht

proba bly on ly

increase the Federal

Government deficit

At some point we ex-

pect a sharp increase

in volatility and lower

prices for pretty much

everything

The Fed are struggling to understand the fundamental drivers of one of their policy goals

by Stewart Richardson

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation […] but our understanding of the forces driving inflation is imperfect […] more broadly, the conventional framework for understanding inflation dynamics could be misspecified in some fundamental way”

Janet Yellen 26th September 2017

FX TRADER MAGAZINE October - December 2017 37

FXMONETARY POLICIES

MONETARY POLICIESFX

Janet Yellen explicitly said recently that the Fed does not understand the fundamental forces driving inf lation. With price stability being one of the Fed’s mandated goals, we would have thought that the Fed would need to have a pretty clear u ndersta nd i ng of fundamental forces that drive inf lation. In fact, we seem to hear an awful lot these days from the Fed (and all developed country central banks for that matter) about how they must get inf lation back up to their 2% target; a target they set themselves in January 2012. It’s as if inf lation is THE most d e s i r a b l e e c o n o m i c outcome, over and above say productivity growth, wage growth and financial stability to name a few. How can they possibly have the right monetary policy setting when they are targeting a self-imposed

target on an economic dynamic that they do not understand? Of course, the answer is that they cannot possibly have the correct monetary policy setting. Post GFC monetary

policy has been a huge experiment conducted by central banks without any proof that it would help the real economy, nor a true understanding of what the negative consequences would be. We think it’s correct to say that financial markets

have benefitted from this grand experiment significantly more than the real economy, and that the unintended consequences are only likely to be seen once monetary

policy has been normalised.

We should note that we certainly have no better u ndersta nd i ng of the f u n d a m e n t a l forces driving inf lation than the Fed does, but we do want to take issue with the almost maniacal desire on the part of central banks to keep inf lation moving ever upwards.

Chart 1 shows global inflation from an historic perspective and also over the last 100 or so years. Many of you

will know that the Fed was created in 1913, which strangely coincides with the time when inflation became a permanent feature of developed countries. Furthermore, although we would have to expect periods of war to coincide with higher inflation, the

How can the Fed have the right monetary policy when they are targeting a self-imposed target on an economic dynamic

that they do not understand?

38 FX TRADER MAGAZINE October - December 2017