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Hi 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 4th to Thursday the 5th of August 2010.
ALERT!!!! What appears to be happening is two-fold:
Most importantly, were the comments coming from several US Federal Reserve officials, who have laid to rest any fears among the hedge fund, hot-money crowd, that a tightening of monetary policy in any form, fashion or shape will take place anytime soon. That was the signal for hot money to pour back into the commodity sector as well as the equity markets. Basically, the Fed has given investors the green light to take commodities and equities higher as well as bonds. We could very well be on the verge of a Federal Reserve-induced commodity buying binge once again as the Fed works feverishly to avoid deflation. They should be careful what they wish for.
Secondly, capital flows will move towards the latter and away from the former which removes an important floor of support beneath the Dollar. The Euro is gaining on the Dollar in more of an aversion to the low interest rate environment guaranteed by the Fed. The Dollar is extremely oversold and could pop higher almost any time but barring any further dire news out of the Eurozone, it is most likely that its rallies will be short-lived.
The USD’s tested the 200-day M.A. and has exhibited a weak bounce as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The all sell the USD signal is now closed and a significant retrace is expected to the 83.5-84.5 area. Scaled in sells of USD denominated pairs are now preferred as they would be expected to yield substantial PIPS. A low risk entry, perhaps in the USDX 80.0 area with a target at the top of the range at 83.5-84.5 area is worthy of scaling into and a stop near the 79.5 area. A longer term plan is to sell the 84 area into an expected collapse in the fall into the low 70’s. Either way, volatility gets another boost and we should continue to initiate core positions on any USD strength to play its eventual weakness.
For the EUR, in summary, the weekly chart is set up for a strong retracement to 1.2784, with the Euro holding a test of a minor interim retracement levels so far. The EUR pairs are expected to be overall weaker than the corresponding correlated GBP pairs. The topping action in the USD can also be confirmed against the bottoming action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$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 consolidation with a short term neutral to sell bias as price or the 50-day/200-day M.A. bullish cross area catches up to each other and garner further longer term 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, was expected to consolidate after clearing the 200-day MA and just went ballistic. A pullback is expected as the GBP is very extended. The “Monster Trade” below is now CLOSED as described below.
CLOSE the “Monster Trade” With GBP now in the 1.59 area we recommend taking profits as sentiment catch-up expected and the USD flirting with recent new lows at the 200-day M.A. I recommend CLOSES and NO NEW BUYS. Although our TARGETS in the 1.6200 to 1.7000 areas have not been hit, the move has been faster than expected and the GBP/USD is somewhat extended so you cannot go broke taking a profit as a pullback is to be assured. CLOSE!!! Great trade if you took it from the recommended 1.54 area when first initiated a little over 10 days ago for over 500 PIPS even though position size may have been small.
A fast rebound is possible in the USD with the given extent of the decline so far with the USDX near the 200-day M.A. level at 80.5, traders should be aware of fast counter-move possibilities, especially given the thin summer trade.
The swing trade for today’s Asian-London-U.S. session is to SELL the EUR/USD in the 1.315- 1.316 area with a STOP just above 1.319 and a TARGET of 1.3084 for over 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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