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GreenForexTrading.com
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 Sunday the 5th to Monday the 6th of December and the week ahead.
Missed the big one on last Friday's expectations. A big miss in the US Employment report. Payrolls rose by only 39,000 employees in November, versus +150,000 that had been expected. There were net upward revisions of 38,000 to prior months, so that the net increase in jobs was 77,000. Still, that was horrible. The unemployment rate did not go up just 0.1%, it went up 0.2%, to 9.8%; and it was actually 9.82%, so it was not as if the rate was rounded up...the rate legitimately rose. The labor force participation rate held at a 24-year-low of 64.5%; and note that when the labor force participation rate rises, it tends to increase the Unemployment Rate at first since at first the new people in the labor force are merely looking; there is a possibility that we haven't seen the cyclical high in Unemployment yet. The 2009 high was 10.1%. Whether we get there or not, however, the simple fact is that over the last year or two, despite a massively higher stock market, enormous federal expenditures, and a couple of quantitative easing in the form of QE1 and QE2, the Unemployment Rate is roughly unchanged from a year ago and 0.4% higher than eighteen months ago.
The now real-and-present danger is extension or lack of extension of the Bush era tax-cuts. The lame duck Congress really has no reason to act and provide cover for the incoming GOP House. While one would expect the incoming Congressmen to retroactively "fix" the rates, which is not entirely clear either since many of them was elected on a platform of fiscal conservatism and having your first vote be one that increases the deficit by $300bln is not exactly an easy call. But even if they did retroactively restore the Bush rates, fix the AMT, and extend unemployment benefits, is there any guarantee that the President would sign all of those bills? And even in the best of cases, the mess it would create (and the additional withholding that would be taken in the early weeks of the year) would itself be disruptive. QE2 was, in my opinion, partly implemented because the Fed (whose Chairman made yet another appearance on "60 Minutes" this weekend to announce that QE3 is NOT out of the question) was aware that such a train wreck was a non-negligible possibility, and needed to "do something" as the only ones who were not paralyzed heading into the elections. They deserve no credit for coming up with the genius of QE2.
Fundamentally, the major development of recent days that caused markets to soar is the realization that the addled leaders of Europe are set to put aside any principles or laws that stand in the way and backstop the European bond markets, before following the glorious example set by the US and wholeheartedly embracing the instant solution to all problems large and small (apart from insignificant matters like high unemployment) - QE heavy. They are going to step in and support the markets and print as much money as it takes. This is of course great news for the markets - the interests of the elites and of speculators are to be protected at all costs - and the costs will be pushed onto the ordinary guy in the street in the form of roaring inflation. The recent hiccup in the markets was caused by the crisis in Europe raising the specter of deflation once more and it is kind of ironic that the moment the sense of crisis started to ease, the euro surged against the dollar - ironic because of course the prospect of Europe embracing QE as the solution to its woes ought to send the euro into a tailspin, but as we had anticipated the current euro rally is not due to that, but rather due to near-term relief that the European monetary union is not going to fall apart. So, now that we can look forward to the printing presses being cranked up with gusto on both sides of the Atlantic. Got gold and silver with those PIPS?!
WEEK AHEAD: There are many rate decisions and a few reports that I note this week that will factor in some trading sessions going forward. This week is rate policy heavy and data light so sentiment is key going forward. There is no economic data due on Monday. We will increasingly be trading, anyway, on political rate developments over the next few weeks: tax policy here and machinations in the EU around the Irish bailout (e.g., will the Irish accept the terms?). Also, as we get closer to the end of the year, we will get 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 Friday, falling 1.4%. It is already 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 area being the limit of upside if this case is to be valid. The second is if the 82 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.
An argument can be made that the EUR is a bit overvalued and think that GBP is more attractive currency. A choppy decline of the EUR/USD was expected to continue to the 1.350 area but now the 1.29-1.30 region tested a longer term advance is expected to resume. This decline could just as easily end 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. Tues. Dec. 7, 2010 - (4:30am EST) UK Manufacturing Production and (9:00am EST) CAD Overnight Rate Decision.
2. Weds. Dec. 8, 2010 - (3:00pm EST) NZD Official Cash Rate.
3. Thurs. Dec. 9, 2010 - (7:00am EST) UK Official Bank Rate and (8:30am EST) US Unemployment Claims.
4. Fri. Dec. 9, 2010 - (4:30am EST) UK PPI Input and (9:55am EST) Prelim UoM Consumer Sentiment.
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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