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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 8th to Monday the 9th of August 2010 and the week.
The dog days of summer continue. The major news last week was the U.S Non-Farm Payroll/Employment release, which surprised to the downside and sparked another round of US dollar selling. It is interesting to note that the sell-off was somewhat muted considering how bad the report was from a sentiment standpoint, which makes me believe that the 1.3450 to1.3500 level should be the top for EUR/USD pair this week or next, and with USD Index at four month lows, 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 a matter of time before a strong reversal to take place. 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 soon is that statistically speaking, after several weeks in a row of USD weakness, the chances of a rebound is more likely than ever. A small news event could spark a snowball effect of profit taking and rebalancing of portfolios, therefore use extreme caution at following the current trend (Sell USD) this week. Another USD short term bottom near key support and weekly 50% retrace level was now taken out, and the monthly 50% retrace level is in play 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?$USD. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
The declining action in the USD can also be confirmed against the advancing action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$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 went ballistic 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.
There are some reports that I note this week that could factor in some trading sessions going forward. They are:
1. Tue. Aug. 10, 2010 (2:15pm EST) US Fed Funds Rate.
2. Wed. Aug. 11, 2010 (9:30pm EST) AU Employment Change.
3. Thurs. Aug. 12, 2010 (6:45pm EST) NZ Retail Sales.
4. Fri. Aug. 13, 2010 (8:30am EST) US Core CPI and Retail Sales.
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 @ 1.3235 with a STOP @ 1.3210 and a TARGET of 1.3300 for 65 PIPS. Note: I do expect a small sell-off of this pair prior so that too could be played as it is currently at 1.3277 as I write this.
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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