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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 Monday the 9th to Tuesday the 10th of August 2010.
The swing trade for yesterday’s Asian-London-U.S. session to BUY the EUR/USD @ 1.3235 did not fill early enough to be watched and was scratched. Note: We did play the expected sell-off to 1.3230 of this pair in the Live Trading Room prior and yielded up to 60 PIPS depending on how the trade was managed.
The dog days of summer continue and it now looks like the U.S. Dollar's last hurrah as key level pivot level was broken and now the expected countertrend rally has begun. The major news will be the U.S. Interest Rate/Quantitative Easing (Q.E., just a fancy term for flagrant money printing out of thin air) decision release, which could surprise and spark another round of US dollar selling. Considering how bad the NFP report was from a sentiment standpoint, which makes me believe that the 1.3450 to1.3500 level could be a top for EUR/USD pair, but not for awhile with USD Index at four month lows and now reversing through a key pivot level, it is very possible that a rebound of USD strength, maybe caused by this week's FOMC statement providing support. The market is already at the bottom end of the range for every single USD pair, and it is just now looking like it is initiating a strong reversal. The immediate outlook sounds bleak for the US with the job's number worsening, but floating funds into Euro and JPY is just not the answer at this time. Another reason to believe we are on the verge of a major reversal is that statistically speaking, after several weeks in a row of USD weakness, the chances of a rebound is more likely than ever. Another USD short term bottom near key support and weekly 50% retrace level was reversed through again and now taken out, and the monthly 50% retrace level while still in play with the weekly 61.8% level just underneath at 79.7, these levels just might have to wait a bit more before being challenged. This can be seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
The declining action in the USD can also be confirmed against the advancing action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$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 and being the anti-dollar 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?$XJY.
GBP as seen here, http://www.stockcharts.com/charts/gallery.html?$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 could factor in today’s trading sessions going forward is the US Fed Funds Rate decision to be released at 2:15pm EST. While the interest rate is expected to be the same, the decision to further continue with Q.E. while at the same time removing the “accommodative stance forever” phrase from the release. 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 swing trade for today’s Asian-London-U.S. session is to BUY the EUR/USD @ 1.3120 with a STOP @ 1.3087 and a TARGET of 1.3210 for 90
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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