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ForeX forX-tra Gr€€n
Hi everyone,
In this e-mail I am going to give you my review for the month past and view on the market for the month of September, the week ahead and today, Sunday the 5th of September 2010.
REVIEW: August ended with the weaker dollar and relative strength in the commodity pairs. It was a month of typical thin summer choppy trade. Overall, sentiment looks to have turned on the US dollar. August continued the trend of mostly bad news for the dollar. From last Month’s newsletter:
“... in the USD, but given the extent of the decline so far with the USDX at key weekly 50% retrace level at 81.5 traders should be aware of fast counter-move possibilities, especially given the thin summer trade.”
The shortly after the dollar went to the 61.8% retrace level at 80.1 before reversing in a spike to as high of 83.5 and now weakening at 82.0. Some good moves in the middle of August but mostly directionless chop. It was a challenging month and still PIP positive.
MONTH OF SEPTEMBER: The primary trend is now expected to be down for the U.S. Dollar, but this week should be the call, as most traders will be back from vacations. US Dollar denominated pairs as buys for the interim as a fast break move (now a continuation) should develop. In this environment any more expected continuing weak data from the U.S. could be met, perversely it would seem, with initial USDX buying and then followed by further declines. With the USD’s closed under our key pivot of 83.4 and is now at 82.0 with 81.5 and then 81.0 the next targets, as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The all sell the USD signal is back in force with new daily retrace levels that could be used for points of entry. A real collapse is expected but this first week should confirm. At the moment as stocks are being bid up as bonds and the Dollar are sold off. While I expect this to continue longer term we are ripe for a countertrend bounce in bonds and possibly the dollar and will look at retrace levels to scale in positions. See below “About Scaling In” and continue to initiate core positions on any USD strength to play its eventual weakness.
The U.S. data continues to be abysmal from a strong currency standpoint. In summary, the weekly chart is set up for a strong retracement to 1.300 with 1.330 expected. The Euro held a test of a minor interim retracement levels so far. The EUR pairs are expected to be overall weaker than the corresponding correlated GBP pairs. The topping action in the USD can also be confirmed against the bottoming action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$XEU. The “Monster Trade” initiation is given below. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
For the JPY while a long bias exists as the 50-day/200-day M.A. are now aligned and are now confirming an uptrend, a break of the daily rising trend-line could lead to a fast down move. Traders should be willing to look at both sides of this currency 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 hanged up near the 50 and 200-day moving averages and will take a wait and see approach although a bounce is expected it could be fast and be ready to jump on if it moves.
The “Monster Trade” initiation. With EUR/USD sentiment should catch-up expected and the USD flirting with recent new lows while a key 0.382 retrace capped of the advance in August leads to this trade. I recommend scaled in BUYS (0.1 contract at a time) on weakness in the EUR/USD, in the 1.285 to 1.287 range with looser stops than usual, around 1.2750 (so explains the very small position size). The target areas are first the daily retracements to the 1.305 and 1.333 areas with the longer term weekly retracements in the 1.351 and 1.388 areas. NOTE: All position trade stops are HARD stops, NOT mental stops. Remember, hard stops for overnight positions, mental stops for day trades.
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.
Why the “Monster Trade”?
Time to see EUR move against the USD. Expect to see the EUR/USD to hit the 1.333 area and 1.40 levels shortly, as both negative outlooks in U.S. should push demand higher for anything but the Dollar and with the Commitment of Traders reports shows extreme levels of most spec positioned long the Dollar and they are usually wrong at key turning points. This rationale in the EUR pairs will be the basis for another “Monster Trade” initiation.
WEEK AHEAD:
The week ahead should offer some opportunities as the expected initial down move in the USDX begins. Other currencies look to be capitalizing on USD weakness but they could easily reverse from key hourly, daily and weekly resistance levels. With major rate releases from GBP, CAD, and AUD all scheduled for the week, the directional bias for the weekly trend is hard to determine and many cross-currents are expected. In many cases we will look to go long these dollar denominated pairs as defined technical set-ups are apparent. . Again, a fast break move (now a continuation) is possible in the USD traders should be aware of counter-move possibilities but should be less frequent as the week continues as thin summer trade gives way to major position squaring.
There are some activities and reports that I note this week that could factor in some trading sessions going forward. This week is data light and policy heavy so sentiment is key going forward. They are:
1. Tues. Sept. 7, 2010 (12:30am EST) AUD Cash Rate Decision.
2. Wed. Sept. 8, 2010 (4:30am EST) UK Manufacturing Production and (6:00am) CAD Overnight Rate Decision.
3. Thurs. Sept. 9, 2010 (7:00am EST) UK Official Bank Rate Decision and (8:30am EST) US Unemployment Claims.
4. Fri. Sept. 10, 2010 (4:30am EST) UK PPI and (7:00am) CAD Employment Change and Unemployment Rate.
There is no swing trade for today’s Asian-London-U.S. session.
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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