Never Marry Your Remarks
If you look back in the beginning of last week you will notice the market doing some thing called buying the rumor, selling the fact.
The market anticipated the Fed to hold. No more rumor there. The action occurred around what the Fed would say afterwards, i.e. a hawkish statement. That's the rumor which was bought in to; (GBP shorting). From a near on 10/20 of around 8850, we watched it shorted the way to the 87's all thru London on the 23rd. Once the facts where known, the $ was sold off all the way to 9000.
All together I thought that the hawkish statement was in the cards. Turned out the announcement was neutral to market certainly interpeted it that way and that's my point: My idea about the announcement was wrong. After that, I changed my opinion and traded accordingly. BTW, I do not deel poor at all; a lot of people had the same opinion of the way the Fed announcement would be regarding the tone.
With an opinion is not like being married in which you stay with your spouse thru good times and bad, in sickness and in health. You do not do so with transactions and your remarks. With trading, you have to be able to change your thinking 180 degrees based on new fundamentals. You gotta trade whether that fact fits with what you thought or not. Good you're a genious if your view was right. If it was wrong, so what. Recognize that and do what has to be done. I developed an opinion that Friday's numbers could be as it was, according to what the Fed stated on Wed. That's precisely what happened and I was able to have a trade out of that. I'm not bragging, I'm just pointing out that you have to be able to think fast without allowing yout feelings get hurt and change your view.
How can things look heading into Monday's really importatnt core PCE? Well due to a variables on how it's calculated, core PCE tends to grow slower the core CPI number. Owner's equivilent rent contributes approximately half to core PCE vs core CPI. Medical prices are also figured differently, as gov't progr (where prices are regulated) play a part in core PCE and do not in core CPI.
Aside from that, we've got the Fed statments to work from. I'm pretty sure that the Fed knew the core PCE last Wed and that what they saw didn't frighten them. According to that, I see the core PCE coming then consensus out, however I'm temporing my view as you'll see below.
Considering that the BoE is still tipped to boost the rate and the Fed isn't, I'll still concentrate with this pair. Right now, there's a lot of GBP profits on the table, from traders who obtained long from the reduced 8700's and continued to buy following Wed right thru Fri.. When London opens Mon, I would not be surprised to see some profits obtained. No saying as to what amount we can see, but look what happened on Fri in London. Profits were taken down to approximately 8875 from 8910. Further GBP buying occured thru there as traders were convinced that the Fri #'s would be neg. They had been before closing around 8965, and the run-up continued all the way to 9000. There's plenty of profits left on the table for the taking. Here is what to look for:
If the market is of the brain that the core PCE is going to be neg, we can see profits taken down to approximately 8920-30. The idea is to loe a bottom and see if it holds, although I don't think if that's the believing 8900'll crack. The above will be confirmed, if it does hold. You might wish to consider going long in this point and holding it thru 13.30 GMT once the core PCE is declared. You'll be doing what a lot of professional money is currently performing.
If no profit taking happens, to my thinking that the market is absolutely convinced that the core PCE is going to be neg, so I would go long here. It hold for a while and ought to move thru 9000.
If a free-fall happens, all bets are off. They'll be selling cable onto a popular rumor that the core PCE will be inflationary. From what the Fed stated Wed I doubt that's gonna happen, but when it does, you will know what it means.
That's what I mean by not getting married to an opinion. Yes, I feel that the core PCE is going to be neg, but if the free-fall happens...