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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 Sunday the 11th to Monday the 12th of July 2010 and the week.
The USD’s closed under our key pivot of 85.0 after a very weak bounce and break near 84.5 and now looks poised to bounce again, as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The all sell the USD signal is now in force. A small retrace to test prior support now turned resistance in the 85.0 area is possible but a real collapse is expected if not this week then going into next week. At the moment as stocks are unloaded globally and low interest rate currencies such as the USD and JPY are be repatriated but that appears to be over for the time being. A low risk sell entry, perhaps at the top of the range at 85.0-85.5 area is worthy of looking at. Either way, volatility gets another boost and we should continue to initiate core positions on any USD strength to play its eventual weakness.
In terms of technical considerations in the EUR/USD, two potentially bullish situations are taking place. From a weekly long term standpoint, the main trend is down, but the currency was able to pierce through a retracement zone at 1.2164 and now above the 1.233 area. The main intermediate term trend is now up and a move to and through the 1.245 – 1.246 pivot area has occurred and the intermediate trend reasserts itself with the continuation of a 2 - 3 week rally with the 1.278 region as the next potential upside target area that is now in play although one more final pullback is possible before that target is hit. The U.S. data continues to be abysmal from a strong currency standpoint. The prior EUR/USD 1.1876 – 1.232 range is still support. In summary, the weekly chart is set up for a strong retracement rally to 1.2784, with the Euro holding a test of a minor interim retracement levels so far and is the basis for the “Monster trade”. The topping action in the USD can also be confirmed against the bottoming action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$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 M.A., 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 to the 151.5 level and continues to be expected to move to the 155 area after what appears to be another minor correction in an otherwise strong uptrend of the last month.
There are some reports of significance this week that should be a factor in some trading sessions moving forward. Relative strength plays of correlated pairs are preferred in the Live Trading Room for now with a core position being the “Monster Trade” below. The break of the critical 85 area could leave little doubt as to the intermediate trend. A fast break move (now a continuation) is possible to key daily and weekly retracement levels, and traders should continue to be aware of these levels this week, especially given the thin summer trade.
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 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; 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.
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 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 portions make up a full position. When we speak of scaling, it means we have become willing to break up the first tranche of the 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/USD in the 1.501 - 1.502 area with a STOP @ 1.4982 for a TARGET of 1.5083 over 80 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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