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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 Tuesday the 10th to Wednesday the 11th of August 2010.
The dog days of summer continue. The expected U.S. Interest Rate/Quantitative Easing decision turned out to be just as I called, “really flagrant money printing” and the dollar sold off hard, which should surprise no one and now the question is “was that it for the countertrend rally?”. So now we look for confirmation of continued downside USD action with another round of US dollar selling or another daily reversal that would indicate a more intermediate term bottoming need be formed here. Caution is still warranted for the next day or two. The market is still near the bottom end of the range for every single USD pair, and if a strong reversal does not take place, then some sideways action at these key levels is possible to unwind the oversold nature before the next leg down continues. The immediate outlook sounds bleak for the US with the job's number worsening and massive money printing, but within this seemingly extreme sentiment could be the key in keeping the dollar afloat for a little bit longer. And again, another reason to bias for a major reversal soon is that statistically speaking, after several weeks in a row of USD weakness, the chances of a rebound is more likely than ever as small news events could spark a snowball effect of profit taking and rebalancing of portfolios. In the last two days, USD short term moves near key supports and retrace levels such as the weekly 50% retrace level and key weekly pivot at 1.3223 have been chopped through both ways with impunity and the monthly 50% retrace level is still in play along with the weekly 61.8% level just underneath at 79.7. This can be seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. At this point you probably want to keep it light and place your trades accordingly. All charts courtesy of www.stockcharts.com.
The declining action in the USD can also be confirmed against the advancing action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$XEU. It is interesting to note on a relative strength basis that the EUR advance has occurred mostly on a decline of the dollar as a weighting of currencies is examined and can be shown by comparing the fact that the EUR still has some way to go before reaching its 200-day M.A. while the USD has already broken through its 200-day moving average. This expressed weakness in the EUR will be the basis for another “Monster Trade” initiation in the future.
The JPY broke above the 200-day moving average; after bouncing hard at the lower 50-day moving average being the anti-dollar but merely retraced and went ballistic and now look for consolidation with a short term neutral bias as the 50-day/200-day M.A. bullish cross area catches up to garner support for the JPY, 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 extended above the 200-day MA. I am staying away from GBP as the fundamental outlook shows more gain for this currency. But in the event of a major USD reversal, GBP will drop, but it will probably be the most resilient currency against USD.
The main report that will factor in today’s trade is the AU Employment Change at 9:30pm EST). Chop is always possible and scalp trades might be preferred as sentiment/reaction is gauged. A fast break move (now a continuation) is possible in the USD but traders should be aware of key daily and weekly retracement levels, especially given the thin summer trade.
The “Monster Trade” initiation. With EUR/USD ripe for a rebound we will gauge sentiment as the USD flirts with recent new lows and key levels so look for this in upcoming newsletters that we will scale into.
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 is no swing trade for today’s Asian-London-U.S. Session is to SELL the EUR/USD @ 1.3123-1.3127 area with a STOP @ 1.3157 and a TARGET of 1.3004 for over 120 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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