Central Banks

A U T O M A T E DTREND FOLLOWING

next financial and

AUDBULLS BACK IN COMMAND

OCTOBER - DECEMBER 2016

E Q U I T I E S T R A D I N G AT B U B B L E P E A K L E V E L S .B A N K S C A N ’ T O V E R C O M E S T R U C T U R A LHEADWINDS IMPACTING THE GLOBAL ECONOMY

M A S T E R I N GELLIOTT WAVE

TRADER MAGAZINE

guaranteed economic crisis

D I G I TA L CURRENCIES REVOLUTION

$60 OIL NEXT YEAR

FXCONTENTs

CENTRAL BANKS HAVE VIRTUALLY GUARANTEED THE NEXT FINANCIAL AND ECONOMIC CRISIS

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a simplified trend-following approach across six different Forex instruments47

07 EDITOR’S NOTE

CURRENCY WATCH

41 AUD Bulls Back in Command, But For How Long? Analyses the Australian Dollar’s strengths and vulnerability

USD DOLLAR OUTLOOK

18 Yearend Dollar view remains bullish, after a churning third quarter: asset rotation ending before yearend 2016

TECHNICAL ANALYSIS

23 Mastering technical analysis: Understanding Elliott Wave

TRADING SYSTEMS

56 Exploiting Order Flow for the Discretionary Quant: Part Two explores the concepts of Excursion and Expectancy

MONETARY POLICIES

11 Bank of England On Hold Until November: rate cut expected, to provide some fresh stimulus to growth

36 Central Bank Digital Currencies: A Revolution in Banking? Why blockchain technology could become the next banking revolution

FOREIGN EXCHANGE SYSTEMS

67 Venezuela’s Unique Foreign Exchange System: Everything You Need to Know about the DIPRO and DICOM exchange rates

COMMODITIES

50 $60 Oil Next Year: Oil will trade between $50 and $60’s a barrel next year as non-OECD demand grows

TRADING PSYCHOLOGY

63 3 Trading Psychology Lessons: teachings from Dr. Andrew Menaker which could deeply impact your trading

REGULATION

53 “License and Registration, Please” A how-to of becoming a market professional and accepting clients

TECHNICAL REPORTS

70 Currency Index:GBP-G10 index, long-termAUD-G10 index, long-term

70 Trends and Targets:USD Majors, Major CrossesEmerging & Asian MarketsEUR/USD, GBP/JPY, EUR/RUB, AUD/CAD

75 CONFERENCES & SEMINARS

INTERNATIONAL DATA

76 FX Spot Monitor77 Central Bank Rates78 Economic Data - FX Poll79 Markets View

80 ECONOMIC CALENDAR

MECHANICAL TRENDFOLLOWING S YSTEM

14WHAT TO TAKE FROM SEPTEMBER’S FOMC MEETING

Greenback likely to experience continued strength against GBP, JPY and NZD

FX TRADER MAGAZINE October - December 2016 3

28 FX TRADER MAGAZINE October - December 2016

Central Banks have Virtually Guaranteed the Next Financial and Economic Crisis

“When the music stops…things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”

Chuck Prince, CEO Citigroup July 2007

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Frederic Bastiat, 19th century French economist and author

“A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and markets have always known this fact.”

Daniel Kahneman

“Asset values aren’t out of line with historical norms”Janet Yellen 21st September 2016

“The ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense and large.”

Paul Singer during a recent Bloomberg interview

MONETARY POLICIESFX

PHOTO: L. TO R.: GETTY IMAGES, ZUMA PRESS, GETTY IMAGES, ZUMA PRESS

Central Banks can’t overcome the structural headwinds that are impacting the global economy

Equities are trading at levels consistent with the bubble peaks of 1929, 2000 and 2007

In this perfect set up for a financial crisis investors need to react now to protect their portfolios

by Stewart Richardson

FX TRADER MAGAZINE October - December 2016 29

We don’t usually start with quotes as some other commentators do, but this time seems a bit different, so please bear with us as we dive into the maelstrom. The third week of September was, in our opinion, a very i m p o r t a n t week for global central banking. If we are right, then investors really do need to think long and hard about how they allocate their money.

In the short term, the markets have displayed a “risk on” tone, which nowadays means US Dollar down and everything else up. This knee jerk reaction does not chime with our longer term thinking one iota, but that’s bubble investing for you – as Chuck Prince said in July 2007, as long as the music is playing, you’ve got to get up and dance. (For what it’s worth, the S&P 500 made the first of what was effectively a double top within days of Mr Prince’s now infamous comment before plunging more than 50%. Mr Prince retired on 4th November 2007.)

In his 2013 book “The Road to Recovery” Andrew Smithers explains in detail what he thinks is holding back the post Global Financial Crisis economy and offers up some thoughts as to what policymakers

should do. We highly recommend everyone read it, especially our venerated central bankers. As Mr Smithers says, it is essential to analyse the causes of previous crises so that we do not repeat the errors that led to them. Quoting from the book, “there have been three, and happily only three, examples of financial crises in

the past 100 years that have caused severe and sustained losses of output;

• The slump of the 1930s, which followed the Wall Street crash of 1929

• The stagnation of the Japanese economy, which followed their stock market crash of 1990

• The Global Financial Crisis and economic weakness that followed sharp falls in share and house prices

Each occasion had its own i n d i v i d u a l characteristics , but they were all marked by the existence of high levels of private sector debt and were triggered by sharp falls in

asset prices” So, to paraphrase, the last thing centrals bankers should want is to allow both debt and asset prices to get too high, as there comes a point when neither are sustainable. Nobody knows what the exact trigger will be, but when asset prices start falling, the risk of a financial and economic crisis becomes very real indeed. As

FXMONETARY POLICIES

All central bankers can do is smooth the cyclicality of the economic cycle, but what they cannot overcome are the structural headwinds that are now impacting the global

economy