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GreenForexTrading.com
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Hi everyone,
In this email I am going to give you my view on the market for the Asian/London/US sessions in the market for today, spanning Thursday the 7th to Friday the 8th of October 2010.
ALERT!!! A DOLLAR COLLAPSE IS ON HOLD. POSSIBLE REVERSAL TO UPSIDE IN THE USDX BUT ALSO IN THE CONTEXT OF … IF CURRENT LEVELS DO NOT HOLD AT 77.5 AND 78.0 IS NOT RETAKEN SOON, THEN A QUICK DROP TO 75 BEFORE THE ULTIMATE USDX TARGET IS 71 BY NOVEMBER. Many traders had been buying the Euro and the Aussie at will in expectation of a new round of quantitative easing by the U.S. Federal Reserve. Regardless of last and this week’s data that would show strength. Just as the Euro passed 1.400 level, it was not long before Trichet was brought forth to bemoan the foreign exchange markets as “we do not like the Euro getting so strong”. This sent a bunch of weak kneed Euro longs to bail out; but the fact is that unless the Europeans are willing to actually do something about their current monetary policy, (actually lower interest rates instead of holding them steady) there is no fundamental reason to stop bidding the Euro higher against the Dollar. The problem here is that the Europeans are not engaging in the currency devaluation wars with sufficient desire that the market wants and so the market is bidding their currency higher as yield hungry investors are grasping at anything that gives them a better rate of return than they can expect on US debt. That is one of the reasons that the Australian Dollar is so strong – overnight news revealed more strength in their economy with many now believing that the next move for their Reserve Bank will be to actually RAISE rates instead of lowering them. With this reversal there should be some short term continuation but the market will soon get tired of the noise coming out of Europe and get back to bidding the Euro higher soon enough. Europe is in the exact same boat as the impotent Bank of Japan is – they are powerless to fight the trillions that the Bernanke-led US Fed is going to create with their next round of Quantitative Easing, QE2. The supply of dollars is basically going to infinity so unless the European Central Bank and the Bank of Japan engage in serious intervention over and over again, or decide to out print the US Fed, they are going to lose and lose big. To add further insult to the BOJ, the Yen just made a 15 year high against the Dollar. Today is the first sign of some technical trouble for the dollar denominated bulls. Most dollar denominated currency pair chart patterns are one of a downside reversal. Although the way this market has been responding to dips in price, it would take a serious close down below some key levels in these pairs or a rise above 78 in the USDX to give me much reason for concern for the expected dollar crash. Position yourself accordingly, although THIS COULD BE THE START OF A DEEPER RETRACEMENT expected soon. October so far continues the sustained U.S. Dollar selling. The Dollar in order to keep investors from falling into a funk then watch the USDX crash through another support level. First it was critical support near 80, and that gave way easily. Then it appeared it might hold 79 for at least a little while after it popped on the approach towards that level, only to give way to 78 and now at present levels near 77.5.
Despite possible occasional positive reports other fundamental indicators, the overall economic situation in US and corresponding US Fed’s policy will hold the USD under pressure. At the same time, the EU problems did not disappear and an argument can be made that the EUR is a bit overvalued and think that GBP is more attractive currency. With more data expected from the US, EUR/USD can run further, in spite of the clockwork forcast given here that the ECB will start talking EUR down.
The U.S. Dollar weakness looks overdone after touching a five-month low against the Euro which looks tired at current price levels, but is not likely to turn bearish longer term until support at 1.3510 is violated. The primary trend is still down for the U.S. Dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The all sell the USD signal is ON HOLD with new daily and weekly retrace levels that could be used for points of entry on either side of the trade. Longer term a real collapse is expected, but this week and next should confirm a bounce with a continuation into a 2-year cycle low by the end of the month. At the moment as stocks are being bid up as bonds and the Dollar are sold off. While I expect this to continue longer term we are ripe for a countertrend bounce in bonds and possibly the dollar and will look at retrace levels to scale in positions. Overall, economic data continues to be abysmal from a strong dollar currency standpoint.
For the EUR, in summary, the weekly chart is set up for a strong retracement to 1.333 expected. The Euro held a test of a minor interim retracement levels so far. The EUR pairs are expected to be overall weaker than the corresponding correlated GBP pairs. The topping action in the USD can also be confirmed against the bottoming action in the EUR as mirror images of each other and the EUR chart can be seen here http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
The GBP as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP, is hanged up near the 50 and 200-day moving averages and will take a wait and see approach although a bounce is expected it could be fast and be ready to jump on if it moves.
Traders should still use caution should the JPY pairs be traded for the time being as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
On a new currency front, the Aussie made yet another new high and looks like it wants to make a run towards parity with the US dollar. It is rapidly approaching levels last seen prior to the onset of the credit crisis back in 2008. Unlike the Euro, the AUD/USD was able to post a daily closing price reversal top. The sell-off in the U.S. equity markets helped to lead the charge lower. Technically, the Aussie Dollar is now trading inside a larger range of 0.946 to 0.991. This makes 0.956 to 0.967 a retracement zone target. This is really nothing compared to the bigger picture. The longer rally from 0.877 to 0.991 makes 0.935 a potential downside target once the reversal top is confirmed, although highly unlikely at this point. An up-trending Gann angle at 0.930 could slow down the pace of the expected decline. The AUD as seen here, http://www.stockcharts.com/charts/gallery.html?$XAD, is hanged up at recent highs.
The reports that should be noted for today’s session, Fri. Oct. 8, 2010 (4:30am EST) UK PPI and (7:00am) CAD Employment Change and Unemployment Rate and (8:30am) US Non-Farm Employment Change and Unemployment Rate.
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!
The swing trade for today’s Asian-London-U.S. session is to SELL the EUR/USD @ 1.3967 with a STOP @ 1.4007 and a TARGET of 1.3862 for 100 PIPS.
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