Key points covered in this podcast
– Potential Fed rate cuts – how many basis points should we expect?
– USD outlook: Time to be bullish?
– Managing the interplay between technical and fundamental analysis
Mark Meadows is on the product team at TopstepFX, a proprietary trading firm that evaluates and funds retail traders. In this edition of our podcast Trading Global Markets Decoded, our host Martin Essex talks to Mark about the impending Fed cuts, both in isolation and in relation to international rates, USD outlook, and trading styles, covering the interplay between fundamental and technical analysis.
Benefit from our discussion with Mark Meadows and listen to the podcast by clicking on the link.
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Mark starts the conversation with the US dollar and why he’s been bullish on it for more than a year. ‘Even when the Fed hiked rates three times [in 2017] the dollar kept weakening. So there was that optimism,’ he says. Into 2018 and the Fed was the only central bank that had been hiking rates. Finally the market responded and EUR/USD topped out in February 2018 at 1.2500. ‘It was the convergence of that topping price action along with the changing story that lead to our first bullish dollar call around the 1.2000 or 1.1800 level as prices started to break down.’
There has been some cautionary price action since. ‘Ever since Q3 of last year there’s been a series of lower highs and lower lows,’ Mark says. ‘On balance we’re still tilting bullish, but if we can’t break the recent lows at 1.1800 then we’re actually going to go into this pattern of higher lows and higher highs, so could see a break back above 1.1400.’
How much of a rate cut will the Fed impose?
Will we see a cut of 50 basis points or 25? ’We’ll probably see the 25 basis points cut,’ Mark suggests. ‘The economic data is strong; US GDP growth is at 3.1%, jobs growth for June at 224,000, unemployment at 3.7%.
‘If you gave these data points to an economist in a silo they wouldn’t add up to cutting rates. But that aside, it seems like the market has pressured the Fed with a general sense of worry about the global economy in particular, which is a reason for the Fed to cut.’
Talk moves to international rates and $13.5 trillion in negative yielding bonds. ‘The curves of Germany, Switzerland, and Japan, are all in negative rates,’ Mark observes. ‘International institutions looking for the best value and how to yield the highest returns are seemingly taking a Barbell approach to risk, where they’re buying bonds which then pushed yields even lower, but they’re also buying tech stocks, leading to Nasdaq and S&P futures in the US reaching all-time highs.
‘This Barbell approach is driving all financial flows at the moment.’
Interplay between fundamental and technical analysis
Traders are advised to take a well-researched approach based on technical analysis, fundamental analysis, or a combination of both. How does Mark deal with this interplay? ‘I like to keep my charts very simple and to pay attention to recent swing highs and lows,’ he says. ‘I talk a lot about these patterns emerging in the charts, of higher highs and higher lows or lower highs and lower lows which determine upward or downward trends.’
‘Measured moves’ play a role too. ‘Say we saw the euro last move from low to high, from 1.1180 to 1.1450, so almost a 3 cent move,’ he explains. ‘If it does prove the euro at 1.12 starts to go higher, what I would do is look for another 3 cent move to above the recent high.’
He also looks at retracements and extensions, and marries that with the story unfolding in the market. ‘So again, we looked at what the market has done around important Fed announcements. In January EUR/USD was bid immediately after the announcement and then this demand for dollars kicked in and it was sold off.
‘So I follow the economic stories that the market has paid attention to and marry that with pretty simplistic trendlines, channels, measured moves I see on the charts, and I don’t go too much deeper than that.’
Check out Mark’s platform
Mark analyzes FX markets for TopStepFX traders and trades his own personal account, focusing on moves that could happen in the near or medium term. Read Mark Meadows’ blog and also find him on Twitter @MarkRMeadows.
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