USD Mixed amid EU Political Uncertainty

USD is trading mixed against the majors - weaker against the commodity currencies (CAD, AUD, NOK, NZD) and stronger against most European FX. Uncertainty arising from elections in Europe saw an increase in risk aversion which is seeing UST yields lower. The decline in Treasury yields is also a result of Fed policy expectations as hopes for QE3 are supported following Friday's weak employment report. Despite the option of QE3 being on the table, we maintain the view that it will take a significant deterioration for the Fed to provide more stimulus. While both risk aversion and QE3 hopes depress Treasury yields, they have adverse effects on the USD. Risk aversion is supportive of the buck as investors seek safety in Treasuries and QE3 speculation weakens the dollar as it suggests the Fed would print more to increase purchases. The dollar index is trading back above the top of its narrow cloud and tested the pivotal 80.00 level. The cloud top, base, and Kijun line all converge around 79.40 to provide key support in the near term.

EUR weaker across the board after weekend elections in France and Greece. French elections were as expected with Socialist candidate Francois Hollande winning the vote while in Greece, the New Democracy won 108 seats failing to secure a 151-seat majority. Now, the ND party has 3 days to form a coalition and if they are unsuccessful then the task falls to the next party, Syriza, and lastly the Pasok party. This raises uncertainty at a time when Greece is expected to adhere strict austerity measures in order to obtain aid from the Troika. On the data front, German factory orders surprised to the upside in March with a m/m increase of +2.2% (cons. +0.5%). EUR/USD fell below the 1.30 big figure to nearly 1.2955 before rebounding to current levels of around 1.3045.The pair remains in a long term bearish channel and the 1.30 daily support zone is looking increasingly vulnerable with today's intraday breach of the level.

JPY is trading softer against most of the G10 currencies after comment from Finance Minister Azumi who said that Japan Is ready to take appropriate action if needed. He said that the JPY rise may be partly caused by EU politics and that Japan is closely watching for speculative moves and is ready to act immediately on the yen if needed. This cause traders to reduce yen longs as the threat of action increases and USD/JPY bounced off of support at the 100-day SMA which is around 79.65. The pair continues to trade in a medium term bearish channel. We are long term bulls on USD/JPY but note that consolidation is likely while the pair trades within its weekly cloud which sees the cloud top around 80.45 and cloud base currently around 78.10.

CHF mostly weaker after Swiss CPI and labor data. The Swiss unemployment rate in April was 3.1% as expected - slightly higher from the seasonally adjusted 3.0% and lower than the unadjusted 3.2% in March. April price data showed yearly deflation of -1.0% (cons. -0.9%) while monthly CPI indicated slower than expected inflation of +0.1% (prior +0.6%, cons. +0.2%). The franc is currently weakest against the GBP while USD/CHF is testing the 100-day SMA around the 0.9200 figure as support.

Emotions In Motion

You have to be able to control yourself. You can't let emotions get in the way of your thoughts and actions... Warren Buffett

One of the most difficult aspects of trading is emotional management. For many months, we have struggled through market and economies that are news-driven, volatile, and filled with uncertainty. For many, it’s been a real emotional roller coaster. . To say "don't get emotional" is pointless because everyone has emotions around money.

What can you do about your emotions as they apply to trading and investing? Of all the books and papers I have read or written on trading psychology, there is one aspect that stands out most clearly to me. This is the condition of living in the past. I believe that this is one of the most significant obstacles to trading success.

Why? Because the brain remembers. The brain imprints loss or gain in a “memory” area called the temporal lobe, and generates fear or greed as a result of it. The larger the loss or the gain, the greater the neuronal imprint becomes. Losses are imprinted as fear and gains are imprinted as greed. Both are equally destructive to further success with trading.

The real culprit is memory. It is the memory of losses or gains that stay with the unsuccessful trader, causing continual mental sabotage and inability to move forward.

The best traders forget about a loss the minute they take it and move on. They are confident in their system and their ability to execute it. It is not about the money for these people. It is about finding a system that will bring them more profits than losses. The best traders know how to take losses and not become depressed, angry, jealous, disgusted or defeated. They know how to take gains without gloating, boasting, or becoming euphoric. They see only the trade they are about to enter---not the trade that just ended or the one that might be coming in the future. All past trades are out of sight and out of mind. All future trades are an illusion.

This is a really difficult thing to do, but it must be done in order to move forward. If you are unable to detach from the past and the future, you will continue to be a victim of fear and greed.

Fear doesn't form in a vacuum. It is a learned response to a particular event or probability. In the case of trading, when you have a trade that goes bad, the regret and frustration can carry over into the next trade. Often, the fear is so consuming, that you don't enter your next trade. Of course, Murphy's Law dictates that the trade you don't enter is the one you should have entered, which only compounds the existing emotional anguish.

Greed creates the opposite problem. With a couple of consecutive winning trades, the ego enlarges and invincible feelings overcome logic. This will ultimately lead you to trades that you normally would not have entered. Finding good trades is hard enough, while finding poor trades seems to get much easier after a couple of winners. Emotions cause 'perceptual distortion' where we only see the part of the picture that our beliefs allow us to see.

The instruction is to know who you are in this present moment. You are the problem and you are the solution. Living in the past or the future does nothing but stir up emotions that impact adversely your trading and other aspects of your life. It is said that fear blinds one to opportunity and greed blinds one to danger. Make every effort to be fully present and you may be surprised at the outcome. It’s the best way to defeat the enemy within you.

The ability to be in the present moment is a major component of mental wellness…Abraham Maslow

 By Janice Dorn, M.D.,Ph.D.