ridethepig | Macro Flow & Restraint(1) The relationship between "macro flows" and "restraint"
The former encourages plans from our opponent by enticing them into positions. What does it mean: suffering from the sad case of the last buyer? The concept of static and dynamic weaknesses. When it becomes appropriate to undo our opponents structure?
Restraint can be imagined without the traditional presence of barriers in the orderblock; but real total economic restraint, loss of market access (regardless if you are for or against Brexit this is a fact in the short-term) reigns over whole stretches of the economy and gives the currency breathing difficulties. This is an important from the advantage of trapping our opponent.
To what extent, you may ask, does an economy suffer from the said disadvantages? It is not simply enough to state that market isolation can be easily captured in the FX board and can be highly unpleasant to defend. This is because the monetary suffering is impossible to be offset by the fiscal side despite Sunak's loose budget.
Equally it would be efficient to connect the highs with the opportunity of false hope for our opponent to break higher (e.g ridethepig | UK Elections ). The main cause of the suffering is that in an election advance there is always the formation of hope, a certain tendency to paralysis is made apparent with smart money all over the 1.35xx highs and loading sell positions.
With a high of the range now located at 1.35, the formation can develop with macro sellers targeting 1.21, then 1.15 and finally 1.05 in cable via Brexit. But there is no support in the diagram, and thus the attempt to transfer the flow is absent (see brexit at the door ). What we are recognising here is the principle weakness of buyers to take 1.35 which we will dissect as dynamic weakness and make it impossible for buyers to construct the break.
Rule: when our opponent possess the opportunity to go overboard, their structure is weakened and becomes worthwhile looking to push them into advancing before a strong rejection.
With this in mind, in the UK elections after 1.35 was rejected, sellers must then attempt to provoke buyers into continuation with action - hence the chop fest in January. As long as buyers were allowed to hold onto 1.30xx/1.29xx, meanwhile smart money are loading the whole time while it is as obvious as a limp - when sitting down! The weakness only becomes visible once 1.30xx/1.29xx was broken.
As well as static weakness, there is also the concept of playing GBP dynamically around event risk. Unlike the UK elections, the Chancellor reshuffle laid out bare when you "blag" the fiscal side, that is turn the taps on full blast and flood GBP supply side:
Here the static weakness of the monetary and fiscal side is a great one: when both sides align GBP sellers gain advantage.
Rule: When GBP buyers showed static weakness over the past few months it was time to advance against them and not be afraid of doubling down with momentum. While Covid-19 has taken the spotlight, the Brexit problem only half vanished. One part of the rose may disappear into thin air, but the petals left will suffer all the more.
Now consider the position in the following diagram ( GBP Market Commentary 2020-01-14 ). Sellers encouraged with the technical break which would mean that the exploitation of the restraint at the highs may not be all that difficult.
Next came EURGBP :
And now GBP allowed itself to be tempted into an interesting attack the result of which would only be to open up the board and expose the hopeless position of those expecting a second referendum or soft exit. Reality continues to sink in....
Here the "win" for GBP sellers is coming in a no less imaginative style to the same highs we traded back in 2019 ...
GBP sellers are therefore right in their choice and direction, the waiting strategy paid. The flank on elections paid. Ending hopeless expectations of a fairy tale exit paid. However, the "advance" was also possible because of the macro flow constituting weakness in the liquidity ladder. Sellers sacrifice the late buyers, an exchange at 1.35 captured all participation...
...where we can achieve our "restraint" and then look to target the same lows as in 2019.
Another rule: Isolated event risk and compact flows should be challenged (= attacked by opposing swing). An opposing swing complex, which has not advanced but rather in development stage, should, on the other hand, first be goaded into action before being challenged, in other words let it exhaust first !!!
(a) The only true strength of Macro flows
As we have witnessed, a swing with restraint attached to it contains a specific latent weakness, which flags up only when the said swing advances. In our case it was with the break of 1.30xx/1.29xx to the downside. We will call this, as we have mentioned dynamic weakness . When on the contrary, the swing stands still (or is resting), it can be quite strong. After the squeeze towards 1.35xx cleared the board with a lot of effort to force buyers. I mean by this that GBP buyers scarcely have enough positional means to be able to force any decision since Brexit and this is because price dictates as always! On the other hand, this would be easier if we had cleared 1.21x last week.
(b) A review of the best known swing structures...
The strongest formation for swing trading comes from event risk and macro drivers; retail should hang on to the later as long as possible. After the Brexit referendum in 2016, it has been one-way traffic for GBP. Thus it is a strategic requirement for GBP sellers to force Buyers into traps. He should do this where possible and without the help of monetary policy as BOE was hijacked till the virus. Because after the monetary side bends a knee, a challenge would no longer be possible, nor would there be any chance to occupy the highs. In the diagram, you will notice how many players commit in error to the wrong side with desperation forcing them to get stuck. This goes against our principle rule (mentioned earlier!!), according to which we should first provoke into some action.
One of the most beautiful blockading and restraint swings I have ever traded, I hope it has helped...thanks as usual for keeping the support coming with likes, comments and etc!
