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GreenForexTrading.com
ForeX forX-tra Gr€€n
Hi everyone,
In this e-mail I am going to give you my review for the month past and view on the market for the month of July, the week ahead and today, Sunday the 4th of July 2010.
REVIEW: What a month it was as expected volatility increased in several markets with the USD denominated pairs showing an expected terminal breakout yielded the expected PIPS followed by the expected choppy breakdown into the previous base and expected breakdown which is where we are today. The last week of June was a breakdown week as forecast and coincided with some dismal U.S. data releases in the US market while other key currencies remained loosely range-bound or played correlation catch-up. The primary trend is expected to be down for the U.S. Dollar and Japanese Yen in the intermediate term leaving these denominated pairs as buys for the interim.
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MONTH OF JULY: Going forward sentiment has definitely turned on the U.S.Dollar and the chop is over! The last newsletter (June 29-30), “…(choppy) trading environments usually presage a new direction or upcoming powerful move and so the markets will try to shake as many players out before the real big move comes, whatever that may be…with a chop in this range for some time that could knife through it later this week with key manufacturing and employment reports due.” The USD’s closed under our key pivot of 85.0 after a very weak bounce is now near the bottom of the range near 84.5, as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The all sell the USD signal is now in force. A small retrace to test prior support now turned resistance in the 85.0 area is possible but a real collapse is expected if not today then going into next week. At the moment as stocks are unloaded globally and low interest rate currencies such as the USD and JPY are be repatriated but that appears to be over for the time being. A low risk entry, perhaps at the top of the range at 85.0-85.5 area is worthy of looking at. Either way, volatility gets another boost and we should continue to initiate core positions on any USD strength to play its eventual weakness.
In terms of technical considerations in the EUR/USD, two potentially bullish situations are taking place. From a weekly long term standpoint, the main trend is down, but the currency was able to pierce through a retracement zone at 1.2164 and now above the 1.233 area. The main intermediate term trend is now up and a move to and through the 1.245 – 1.246 pivot area has occurred and the intermediate trend reasserts itself and the continuation of a 2 - 3 week rally with the 1.278 region as the next potential upside target area is now in play. The U.S. data continues to be abysmal from a strong currency standpoint. The prior EUR/USD 1.1876 – 1.232 range is still support. In summary, the weekly chart is set up for a strong retracement rally to 1.2784, with the Euro holding a test of a minor interim retracement levels so far. The topping action in the USD can also be confirmed against the bottoming action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$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 now look for a reversal here and the USD-JPY correlation to reassert itself and look for JPY weakness from this point to back to the 200-day MA. 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 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 to the 151.5 level and continues to be expected to move to the 155 area in short order.
The “Monster” trade. This USD weakness must be sold on any residual strength as I no longer expect a reversal to the upside, but HARD STOPS ARE REQUIRED, just in case. For the month of July, I recommend scale in BUYS (0.1 contract at a time) on weakness in the EUR/USD in the 1.240 to 1.255 range with looser stops than usual, around 1.233 (so explains the very small position size). The target areas are the longer term weekly retracements in the 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.
Why the “Monster Trade”?
One has to look back to the action of the USD to note that a failed terminal wedge pattern in the USD index prior to the failed breakout from the 87.4 area to 88.7 followed by the fall back into and below the wedges prior price action as part of a head and shoulder top. This, combined with skewed bullish dollar sentiment as given by the last two months of COT (Commitment of Traders) data and a play against the neckline in the 85.0 area of the USD index gives a USD intermediate term target of 81.3 in the USD index (also near the 81.4/50% area of retracement of the USD weekly advance for the last six months from 74.2). That’s a lot of PIPS!!!
WEEK AHEAD:
I have no forecasts for the week ahead as some pair moves have been limit up through resistance and are ripe for a retest of the prior breakout levels, and so continuation moves are more risky unless a pullback occurs. Other currencies look to be capitalizing on USD strength but they could easily reverse from key hourly, daily and weekly support levels. There will be quite a few reports to navigate this week with the majority released towards the end of the week. Either way, it should be a volatile week with opportunities that we hope to take advantage of in the Trading Room as events become clearer.
There is no swing trade for today’s Asian-London-U.S. session and the Live Trading Room will be closed this July 4th holiday.
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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