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Hello Everyone,
In this email I am going to give you my view on the market for the Asian/London sessions in the market for today, spanning Wednesday the 21st to Thursday the 22nd of July 2010.
The USD looks to have put in a short term bottom near key support and weekly 50% retrace, as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The all sell the USD signal is now on hold as key weekly support and 50% Fibonacci retracement levels are in the 81.5-82.2 area as a solid bottom and look for a retrace to minimum 84.5 area with a retrace to test prior support now turned resistance in the 85.0 area also corresponding to the 0.382 Fibonacci retrace level of the 88.7 to 82.1 decline. Expect a real collapse if the 82.1 level does not hold. Expect some chop in these areas before the next trend is confirmed and we will look to reestablish core positions in the “Monster Trade” to continue to initiate core positions on any USD strength to play its eventual weakness.
In terms of technical considerations in the EUR/USD, two potentially bullish situations are taking place. The main intermediate term trend is now up and a move to and through the 1.245 – 1.246 pivot area has occurred and now a retest of that area is expected before the intermediate trend reasserts itself with the continuation of another 2 - 3 week rally that should take out the 1.300 level earlier tested this week. This level should offer some scant resistance before moving to the areas defined in the “Monster Trade”. Euro holding a test of a minor interim retracement levels so far and is the basis for the “Monster trade” now on HOLD. The topping action in the USD can also be confirmed against the bottoming action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$XEU. We will play both ways with no bias for now; anticipating trades back to defined retracement levels. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
The JPY broke above the 200-day moving average; after bouncing hard at the lower 50-day moving average and went ballistic being the anti-dollar but merely retraced and went ballistic and now look for another reversal here and look for JPY weakness from this point to back to the 50-day/200-day M.A. bullish cross area, as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY. The GBP as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP, is pausing after accelerating after clearing its 50-day MA which also coincides with the 50% retracement of the prior April-May decline. The solid break above the 148.1 area set up the GBP for a quick pop and the expected to move to the 155 area was achieved with a top print at 154.71, while a small retrace/consolidation is expected here the potential for a larger decline exists with the price oscillator (PPO) giving a sell signal.
There are a few key reports today that will factor in today’s trade, most EU PMI manufacturing reports so chop is possible and scalp trades might be preferred as sentiment/reaction is gauged. A fast break move (now a continuation) is still possible to key daily and weekly retracement levels, and traders should continue to be aware of these levels, especially given the thin summer trade where volume is light and trends are quick to reverse and the markets react in spurts to even the smallest hint of change.
The “Monster” trade on HOLD. The expected pullback of the USD hitting a key 0.382 retrace earlier last week did not occur and was blown right through and while the cash register was rung early, and if you still have PIPS, continue to ring the cash register. I no longer recommend scale in BUYS (0.1 contract at a time) on weakness in the EUR/USD until much lower levels are retraced and hit, now in the 1.255 to 1.265 range with looser stops than usual, around 1.247 (so explains the very small position size). The target areas are the longer term weekly retracements in the 1.278 HIT; 1.313 to 1.351 areas. NOTE: All position trade stops are HARD stops, NOT mental stops. Remember, hard stops for overnight positions, mental stops for day trades.
About Scaling In
Scaling in simply means breaking up the initial entry position into multiple parts and deploying them at selected intervals, instead of firing the entire trade magazine all at once. The only reason we might resort to scaling is if we have good reason to believe our expected support zone may have become obsolete.
We usually take an initial position in our expected support zone with a fairly tight stop. Obviously if we get stopped, we were early to the trade. Early is just another word for “wrong.” If stopped, we reassess and adapt to the new market reality. If we were not early, and our position shows us that we are right, then we add to that position once the trade has managed to “prove” itself by advancing out of the support zone box, raising our trailing/trading stop in the process. The two or more portions make up a full position. When we speak of scaling, it means we have become willing to break up the trade entry into two or more parts, with the first part at the very top of the expected support box and the second part within it. Rarely will we ever take a new position outside our expected support box.
The swing trade for today’s Asian-London-U.S. session is to BUY the GBP/JPY in the 131.0-131.1 area with a STOP @ 130.8 and a TARGET of 131.82 for 70 PIPS.
That's it for today. Remember that I trade in the Live Forex Trading Room between 1am-6am Eastern Time. I will be hosting my regular 3-4 hour session and assessing and exploiting PIP opportunities as they arise.
Enjoy trading and good luck everyone!
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