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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 Tuesday the 7th to Wednesday the 8th of December.
There is no swing trade for today’s Asian-London-U.S. session.
Still in December spastic moves that have nothing to do with anything but illiquidity. I do intend to keep an eye on funding markets heading into year-end. I doubt that there will be any big problems in funding over the turn, and I am sure the Fed will be ready to smooth any rough sailing (after all, as the recent document dump shows they'll help almost anyone).
I have stated for weeks that the dollar was carving out a short term bottom; and projected an upside target of near 80. The dollar topped off at 81.48, which is close enough. Now, the dollar looks set to put in a short term correction that should last about a week or so. The dollar got hit pretty hard on last Friday and is chopping around in a wide range testing support at its first Fib retracement level. Going forward, the dollar has room to move higher here, but prices need to follow through higher, and two possibilities now exist. The first being the underside neckline test which is where the USDX is now poised to bump into the 81 area with further wash and rinse and would need to see some confirmation of topping action to confirm with the 82.5 area being the limit of upside if this case is to be valid. The second is if the 82.5 area is exceeded then a larger consolidation pattern (a triangle wedge) would be in play with 86 as the target. This month should tell us where we will go. We may have to endure some serious price swings to see which plays out 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?$USD. The EUR pairs were expected to be overall weaker than the corresponding correlated GBP pairs however there still appears to be rotation of relative strength between the two currencies from day to day. Overall, economic data continues to be abysmal from a strong dollar currency standpoint but given EUR problems of late, it is a case of pick your poison.
For the EUR/USD a retest of the 1.340 level has occurred and the market has since backed away. Holding above the 1.330 – 1.334 area leaves possible retests of 1.340 open over the short term. The 1.325 area is the level that needs to give way on the downside for markets to test last week's lows. At this moment in time it is hard to say which way the currency will be pumped but the declining red channel from the highs needs to be respected and that is where we are at currently. We ultimately need to remain under the 1.340 - 1.345 resistance area so that downward action can materialize. We are in no position to get ahead of the trade and state a turn in direction at this point. We are 250-300 PIPS off of the lows from a 1200+ point decline. This could develop either way but the price action of this bounce seems more like a trap then a rally. I am not casting this in concrete but just simply giving my unbiased take on it. An argument can be made that the EUR is a bit overvalued and think that GBP is more attractive currency. This decline could just as easily retest here at the 200-day moving average as the EUR moves higher to test the underside of the 50-day moving average at 1.37 and then possibly another pullback to 1.32 before the key 1.442, 1.495 and 1.600 areas are expected to be seen longer term (should Ireland, Portugal and Spain hold it together). The EUR chart seen here, http://www.stockcharts.com/charts/gallery.html?$XEU , shows that these areas are now on a sell signal but is close to a 38.2% retrace level and attempting to generate a buy signal. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Recent sterling strength has given way to weakness on Dollar strength. The GBP is still in bullish alignment with the 200-day moving average and a bounce is expected upon confirmation of a small reversal bar as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP, and traders should take a wait and see approach although a trading range is expected it could be fast and be ready to jump on either way if it moves.
For the JPY intervention look to have been put on the back-burner as recent Dollar strength has mitigated the need for such action and any trades taken on the JPY would be as a buyer so as not to inadvertently fight the Bank of Japan. Be wary of the wash and rinse instead of a fast move in either direction that would normally be expected before the turns but looks to be rolling over longer term. Traders should continue to use caution should the JPY pairs be traded for the time being as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
On the commodity currency front, the Aussie looked on the verge of collapse but then reversed the reversal and looked like it wanted to make a head and shoulder top on the daily but could soon be considered invalid; and while the fundamentals do not support such an outcome, based upon an interest rate differential to the Dollar; it would be unlikely that any such carry trades be unwound, this is the currency to watch. More than likely, more consolidation is favored rather than going full sell of the Aussie here. Like the EUR, heavy, choppy consolidation, is expected 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.
Most of this week’s key reports are data light and rate policy heavy. They are:
1. Weds. Dec. 8, 2010 - (3:00pm EST) NZD Official Cash Rate.
2. Thurs. Dec. 9, 2010 - (7:00am EST) UK Official Bank Rate and (8:30am EST) US Unemployment Claims.
3. Fri. Dec. 9, 2010 - (4:30am EST) UK PPI Input and (9:55am EST) Prelim UoM Consumer Sentiment.
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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