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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, Monday the 1st to Tuesday the 2nd of November 2010.
The swing trade for yesterday’s Asian-London-U.S. session to SELL the GBP/USD in the 1.608-1.609 area gave up to 90 PIPS depending on how the trade was managed.
The dollar has room to move higher here, but prices need to follow through higher, and we are just not seeing that yet. I still expect a Head and Shoulder neckline underside retest in the 79-80 area, which also coincides with key Fibonachii retracement levels and the declining 50-day moving average. We may have to endure some serious price swings to get there first. 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?$USD. The EUR pairs were expected to be overall weaker than the corresponding correlated GBP pairs however there still appears to be rotation of relative strength between the two currencies from day to day. Longer term a real collapse is expected, but this first week should confirm a bounce with a continuation into a 2-year cycle low by the end of the month. At the moment as stocks are being bid up as bonds and the Dollar are sold off. While I expect this to continue longer term we are ripe for a countertrend bounce in bonds and possibly the dollar and will look at retrace levels to scale in positions. Overall, economic data continues to be abysmal from a strong dollar currency standpoint.
Despite possible occasional positive reports other fundamental indicators, the overall economic situation in US and corresponding US Fed’s policy will hold the USD under pressure. At the same time, the EU problems did not disappear and an argument can be made that the EUR is a bit overvalued and think that GBP is more attractive currency. Nevertheless, if negative data continues to come from US, EUR/USD can run further. I believe that the ECB will continue to try to talk the EUR down in the 1.400 region.
A choppy decline of the EUR/USD was expected to continue to the 1.350 area before a longer term advance is expected to resume however a longer term consolidation looks to be developing. This consolidation could end possibly by bumping into the rising 50-day moving average before the EUR moves higher, possibly to the 1.442, 1.495 and 1.600 areas. The EUR chart seen here, http://www.stockcharts.com/charts/gallery.html?$XEU shows these areas now on a sell signal. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
An ABCD technical pattern is seen in the GBP that seems to temper Sterling's strength. Recent pound strength has been sort of feeble compared to previous real rallies seen. Although we have seen cable at 160, we would warn of the key round numbers to 161 being a key trap in which a decline unfolds. It's been over a month and below you can see why we view the recent strength as simply 400 pip range bound activity. 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?$XBP, and traders should take a wait and see approach although a trading range is expected it could be fast and be ready to jump on either way if it moves.
For the JPY intervention is still in the cards and a daily rising trend-line, be wary of the wash and rinse instead of a fast move in either direction that would normally be expected before the turns but looks to be rolling over longer term. Traders should continue to use caution should the JPY pairs be traded for the time being as seen on the chart given here
http://www.stockcharts.com/charts/gallery.html?$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 and then reversed again and reversed again. No one said this was easy, and the direction changes in this currency show it. Like the EUR, heavy, choppy consolidation, is highly to continue before the range is broken, most likely to the upside. The AUD is seen here,
http://www.stockcharts.com/charts/gallery.html?$XAD.
With US mid-term election results anything goes before Wednesday so caution is advised as results come in. Most of this week’s key reports are spread throughout the week with a heavy dose on Friday. They are:
1. Tues. Nov. 2, 2010 - (4:15am EST) CHF Retail Sales.
2. Wed. Nov. 3, 2010 - (8:15am EST) UK Services PMI; (8:15am EST) US ADP Non-Farm Employment Change; (10:00am EST) US ISM Non-Manufacturing PMI and (2:15pm) US FOMC Statement<<< QE II-lite or heavy?
3. Thurs. Nov. 4, 2010 - (8:00am EST) UK Official Bank Rate; (8:30am EST) US Unemployment Claims and (8:45am EST) EUR Minimum Bid Rate decision.
4. Fri. Nov. 5, 2010 - (5:30am EST) UK PPI; (7:00am) CAD Employment Change and Unemployment Rate and (8:30am) US Non-Farm Employment Change and Unemployment Rate.
This is a going to be a wild week in the market. Keeping position sizes small and using protective stops is crucial during times like these. We will take profits quickly on some of any positions taken and/or move stops to breakeven for the balance just in the case of a crash or blow-off move. Overall, I am neutral on the market for the next couple days going into the major, possibly trend changing events/reports till the end of the week. That being said…note the swing trade below:
The swing trade for today’s through tommorrow’s Asian-London-U.S. session is to SELL the EUR/USD @ 1.395 to 1.396 area with a STOP @ 1.4000 and a TARGET of 1.3565 for over 400 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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