In This Issue

• Powell’s bias

• The week’s setups and how they played out

• Tactical trading case study

• Key levels for the week ahead

• Subscriber Poll: Share your ideas for future issues!

Powell Bias vs The Full Puzzle

Powell's bias is one piece of the puzzle. Price action and market positioning are others. Looking at all the pieces delivered 3,961 points while the obvious trades failed.

Everyone saw the same setup after Powell's dovish speech: sell USD, buy crypto dips, chase risk. Fed cutting in September, crypto rallying from oversold, equities moving higher.

But BTC broke down from its pivot at 112,161. ETH showed bearish divergence at 4,670. USD didn't give a sell signal despite Powell's comments.

Those who sold USD Monday morning got stopped out when it rallied 100 points first. Those who bought crypto dips watched their positions sink further.

I read the full puzzle instead. Here's how the levels played out...

Last Week’s Setups

• BTC 112,161 → +3,461 points
  Breakdown level held precisely → extended to 108,600 and beyond.
  

• ETH 4,670 → +400 points
  Bearish divergence flagged → price slid to 4,270.55.
  

• USD Index 98.70 → +100 points
  Rallied to flagged resistance → failed and reversed 100 points lower.

Total: 3,961 points from flagged levels while obvious trades failed.

Note: These measure market reactions from flagged levels, not trading results. Implementation varies by individual approach.

Why Tactical Beats Obvious: USD Case Study

The "obvious" Monday trade: sell USD because Powell was dovish.

• Narrative approach: -100 points (stopped out on the rally)

• Tactical approach: Wait for USD to retest 98.70 resistance (Friday's high before Powell). When it failed to break above, it offered a clean 100-point move lower with clear invalidation.

Same thesis, opposite outcomes.

USD Index remains range-bound with volatility compressed to March 2024 levels. The last time vol was this low, USD first dropped 1.4% before rallying 4.4%.

 The EUR/AUD Miss: Why Perfect Analysis Isn't Enough

I've been flagging EUR/AUD's channel pattern for weeks - price failing to break back above resistance, then selling off. The setup was there.

I missed the reversal bar at the resistance level. I realized it one bar later but with the invalidation level above the reversal bar high the risk reward became unfavorable and this wouldn't have been a good trade.

The insight: Just as we wouldn't sell USD on Monday because the technicals didn't support the trade, even with the right technical setup the risk/reward wouldn't have supported the EUR/AUD trade. A 1:3 risk/reward with the right entry would have been closer to 1:1 with the bad entry. You want as much alignment as possible - fundamentals, technicals, AND risk/reward.

 The Week Ahead

Key levels I'm watching into September — focus is on how price reacts at these zones, not the narrative around them.

• BTC 105,380: Fibonacci support flagged multiple times. Watch for reversal signs; a close back above 112k could hint at a near-term base.

• GBP/AUD 2.0475/85: Four-month support area. Watch for clean breaks vs bounces

• USD Index: Range-bound with vol compressed to March 2024 levels. Expansion likely - direction will come from how it reacts at range boundaries.

• ETH 4,231: The 200 period MA on 4hr chart. A close below would be the first time since early July.

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Meridian Compass is brought to you by Mark Schaefer, a quantitative portfolio manager with over 30 years experience developing and trading systematic strategies in global futures and FX at major banks and hedge funds.

IMPORTANT DISCLAIMER

This newsletter is for educational purposes only and does not constitute investment advice, trading recommendations, or solicitation to buy or sell any financial instruments. All content represents the author's personal opinions and experiences and should not be construed as professional financial advice.

Trading involves substantial risk of loss and is not suitable for all investors. Past performance does not guarantee future results. All trading examples and performance figures are for illustrative purposes only and may not reflect typical results.

The author may hold positions in currencies discussed in this newsletter. Readers should conduct their own research and consult with qualified financial advisors before making any investment decisions.

By reading this newsletter, you acknowledge that you understand these risks and agree that the author and Meridian Compass are not liable for any trading losses or damages that may result from using this information.