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NOTE: This was written some 3 hours ago and since then key levels in the EUR/USD have been gutted like a knife through butter. A pullback to 1.395 is now expected (although panic US Dollar short covering could make a drive to the 1.375 area first) before a larger decline can proceed. Use the following for reference only as we hope tomorrows update will be more actionable.
Mr. Green
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 17th to Monday the 18th of October 2010 and the week.
ALERT!!! A DOLLAR COLLAPSE IS ON HOLD. A REVERSAL TO UPSIDE IS NOW EXPECTED IN THE USDX. THE LEVEL OF 76.2 WAS TESTED AND REVERSED THROUGH AND ENDED THE WEEK AT 77.0 TO PRINT A WEEKLY KEY REVERSAL. NEW USDX LONGS ARE EXPECTED TO BE INITIATED ALONG WITH QUICKLY COVERING SHORTS. EXPECT FOLLOW THROUGH CONFIRMATION WITH ANY TRADE ABOVE 77.2 BEFORE 78-80 IS EXPECTED TO BE RETAKEN. THE ULTIMATE USDX TARGET OF 71 IS EXPECTED TO FOLLOW SHORTLY AFTER THE 78-80 LEVEL IS TESTED. POSITION YOURSELF ACCORDINGLY.
UPDATE ALERT!!! “Mini-Monster Trade” With the EUR/USD now around 1.395 I recommended Scaling In SELLS (0.2-0.3 contract at a time) on strength in the EUR/USD in the 1.394 to 1.405 range as now a deeper pullback is expected short term. Shorter term retracements in the 1.375 and 1.350 areas with an outside shot at 1.321. Expect increased volatility, but positions can still be added at this point all the way up to 1.405 with STOPS in the 1.416 area. The rationale is given below. 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.
Note: Another full blown crisis is brewing in the revealing fraud that is the US mortgage market and should crush US banking system. Yes, it is expected to become very serious and should provide the catalyst for the expected dollar decline into December, for now the lamestream media is ignoring it, hoping it does not surface before midterm elections...will they succeed?...stay tuned.
All countries are now in a war with each other to have the weakest currency, with the false belief that having a strong currency destroys their export markets. When history looks back to the time period we are currently in, our world leaders (especially our elected representatives in the US) will be considered the most incompetent and corrupt in world history. Talk of currency wars have heated up as several events have converged to make the public increasingly aware of the on-going competitive devaluations around the globe. Currency intervention is now occurring at an alarming rate, making Forex Trading that much more treacherous as seen here ... http://ftalphaville.ft.com/blog/2010/10/13/368416/25-interventions-in-a-one-week-band-redux/. Again, I have one thing to say here ... GOT GOLD (or silver)?
Parabolic moves typically signal the end of a rally as the final skeptics and last buyers try to hop on a trend, so Friday’s move put me on alert. I am now expecting some kind of correction that will cool things off and provide the next buyable dip in dollar denominated pairs and if I am wrong and the train continues to run from here, then I will reassess and change positions. Interestingly, the dollar index tested the uptrend line from the 2008 lows. A successful bounce from this trendline signaled by the USDX closing above 77 could send the dollar hurtling right back to the 200DMA resistance. Earlier I had expected more of a Head and Shoulder neckline underside retest, however, the USD selling just continued without an underside retest, but now we must be positioned for that retest possibility. The daily close-up shows once again how important the 200-day moving average (DMA) is in flagging the next major direction for the dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD. The EUR pairs were expected to be overall weaker than the corresponding correlated GBP pairs however there appears to be rotation of relative strength between the two currencies from day to day.
“Mini-Monster Trade” rationale: The EUR looks interesting here. Hourly trend was bullish and confirmed the daily price action until we had a strong sell-off on Friday. Since most price action on last week was a Wash and Rinse chop we do not want to see deep retracement, moreover a move above the highs. Also note, that hourly trend will remain bearish until the 1.4064 area. I prefer that hourly trend is on my side to enter short. All this stuff means that we can place stop somewhere between 1.407, that is 0.618 Fib resistance and 1.416 that is weekly pivot resistance. To place stops above the highs make no sense to me. Second, I suppose that the base area to enter short is 1.400-1.404, due to the two Fib resistances and previous lows at 1.400. I think that if bears are strong, they should hold this area and with a reported 3% US Dollar bulls left I think the bears are going to win this one. Once entered, the market should move below weekly pivot at 1.3959; and better below 1.3914 and loose trailing stops should be used. Aggressive traders, may enter short from 1.400-1.404 area with stop somewhere in 1.410 - 1.415 area (the Daily Trade below is real aggressive with a tighter stop), just keep an eye on two events – market should move below weekly pivot and market should confirm below 1.3914. Aggressive positions have advantages and disadvantages. Advantages – tighter stop, better price. Disadvantages – greater probability of loss, because market has not closed below the weekly pivot and is not confirmed with a drop below 1.3914. This decline is expected before a longer term advance is expected to resume, possibly to the 1.442, 1.495 and 1.600areas, as seen in the chart that can be seen here http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
The GBP is still in bullish alignment with the 50 and 200-day moving averages as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP, and traders should take a wait and see approach although a trading range is expected it could be fast and be ready to jump on either way if it moves.
For the JPY intervention is still in the cards and a daily rising trend-line, be wary of the wash and rinse instead of a fast move in either direction that would normally be expected before the turns. Traders should still use caution should the JPY pairs be traded for the time being as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
On the commodity currency front, the Aussie looked on the verge of collapse but then reversed the reversal 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. 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.
Most of this week is report data light but gasbag, pontificating Central Banker speaking heavy; so be careful as they speak to move markets prior to the G20 at the end of the week. The reports are:
1. Tues. Oct. 19, 2010 (5:00am EST) German and EU Economic Sentiment and (9:00am EST) CAD Overnight Rate decision.
2. Thurs. Oct. 21, 2010 (3:00 - 4:30am EST) French, German and EU Manufacturing PMI and (4:30am EST) UK Retail Sales.
4. Fri. Oct. 22, 2010 (All day) G20 meetings and (7:00am EST) CAD CPI and Retail Sales.
The swing trade for today’s Asian-London-U.S. session is to SELL the EUR/USD @ 1.4020 area with a STOP @ 1.4065 and a TARGET of 1.3915 for 100 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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Mr. Green
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