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GreenForexTrading.com
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Hi everyone,
HAPPY NEW YEAR!!! This is a resend to benefit new subscribers since little has changed since yesterday. Changes are highlighted/underlined.
In this e-mail I am going to give you my review for the year past and view on the market for 2011, the month of January, and the week ahead and today, Monday the 3rd to Tuesday the 4th of January 2011.
2010 & DECEMBER REVIEW: The biggest economic story of 2010 in regards to the currency markets was and still is ... debt; and its effects on the overspending bureaucrats and enabling central bankers. In the falling apart EU, the contagion started in March 2010 and continues as country after country line up for bailouts in a perverse game of musical chairs...Greece, Ireland sending the Euro on a wild ride.
The second main economic story of 2010 was the continued flagrant “successful” monetization of over 2/3 of the U.S. Federal government’s yearly deficit (read that as debt payment by money printing) by Ben Bernanke and the Federal Reserve. Not only that, they did it with minimal market disruption, and in the case of the equities markets, Fed monetization actually improved those markets with really expensive lip-stick on a pig, a totally cooked and roasted pig that is. U.S. Fed monetization gave a false sense of corporate health and vigor to the U.S. stock market. Monetization of the bulk of the U.S. Federal government deficit in 2010 was not a one-off as it will continue unabated for the foreseeable future, can hyperinflation be that far behind? That was the story of America’s finances in 2010: The United States officially became a banana republic - with nuclear weapons. I use the word “successful” as that remains to be seen as achieved monetization with minimal market disruption is the goal but in fact commodity markets are screaming otherwise as the third economic story of 2010 has been the sharp rise in commodity prices coupled with month after month of sustained U.S. Dollar selling in the middle of the year followed by the expected short-term bottom/bounce accompanied by a cacophony of central banker speak and choppy trade into year-end.
2011 FORECAST: In the falling apart EU, the contagion continues as country after country line up for bailouts in a perverse game of musical chairs...Greece, Ireland soon Portugal or Belgium and then the biggie ... Spain. When Spain (not a question of if, but when) goes into crisis, perhaps as soon as March 2011 but no later than October 2011, at this rate of falling dominoes, you can kiss the whole EU goodbye. Unless Brussels gets its collective shit together and realizes it has to cut the weaker economies loose from the euro, and exhibit leadership (very unlikely given past events) in the face of crisis, and let the euro remain the currency of the stronger economies of France, Holland, Germany, while the weaker countries go back to their original currencies, and immediately devalue so as to kick start their economies, the EU is toast. However, it is expected that the European Union and European Central Bank leadership proves to be moronic, flaccid and arrogant, considering past actions in regards to the Greek and Irish crises then expect the shit to hit the fan when the bond markets panic and tank leaving Spain locked out of any funding. This is a key event of 2011: the survival in its current form of the European Monetary Union; odds are high the euro goes the way of the dinosaur.
The U.S. is not in much better shape. Treasury bond yields ought to rise, as the Federal government continues to spend like there is no tomorrow and slowly but inexorably positions itself to take over state and municipal liabilities, especially pension liabilities (which are what is really killing state balance sheets). On the other hand, since the Federal Reserve is the buyer of over 2/3 of the debt the Treasury Department issues, the Fed ought to be able to squeeze yields whichever way it wants to—which is exactly what it seems to have done. During 2010, the 10-year Treasury bond yields fluctuated between 2.4% (in October) and 4.0% (in April) and now are at 3.5%. This would seem to prove that the Fed has the yield curve well in hand and therefore, if this really is the case, then the Treasury bond market is useless as a market indicator. Just like the equities market, Treasuries are now the rigged game that means nothing. So expect more monetization/in your face money printing, of the bulk of the U.S. Federal government deficit in 2011 as 2010 was not a one-off and it will continue unabated for the foreseeable future. Yes, hyperinflation is assured only question is can the UK be first as described below, with the U.S. that far behind? What asset class is reacting more or less rationally to what has been going on in Europe and the United States? Again >>> commodities. Got Gold and/or Silver? So it looks like 2011 is gonna blow. So as the Chinese say we may live in interesting times lest none of these story-lines come to fruition (unlikely) — so let 2011 suck, but at least make PIPS and that will be exciting!
MONTH OF JANUARY: The result of all this money printing is basic economics an increase in supply yields a drop in price. As long as the market is convinced that the U.S. Fed is going to be engaging in another round of Quantitative Easing (known as QE-II, i.e., money printing 2), the Dollar is going to fall, not only against the other currencies of the globe, but against the metals, which is why gold and silver prices are rising. The saying is, "If the market doesn't shake you out, it will wear you out" and it seems we are getting both...that being said, there is more at work here than just regular market movements. With the light volume in the market last month in December, we know there is price manipulation which is helping to boost prices and exaggerate market movements. While a bounce in dollar strength could be expected coming out of last weeks’ decline, there does not appear to be much if anything standing in the way for the USDX to fall to 75, where if it takes that out as easily as it has previous “floors”; and if it is heading to 72 then we can expect to be heading for our first currency crisis of the year. A bounce is expected to complete though before such a collapse is expected this month. Again, what asset class is reacting more or less rationally to what has been going on in Europe and the United States? Commodities and the related commodity currencies...and by extension, the “Monster Trade”.
We have a Monster Trade update since first recommended last week at 1.000.
The “Monster” Trade. NOTE: The AUD keeps grinding higher and if not in an initial scale in entry is recommended with additions should any weakness occur. With the added firepower of U.S. Dollar weakness, the AUD/USD has started a correction giving pullbacks to enter our BUY at 1.010 with the expectation that 1.000 can be tested and that the 1.000 area should be considered another area to scale in more BUYS. As given earlier, an initial entry can be placed at 1.015 and buy points can be added later on weakness with AUD/USD now at 1.010, I still recommend scaled in BUYS (0.2 contract at a time) on weakness in the AUD/USD in the 1.000 to 1.015 range or better with looser stops than usual, around 0.9800 (so explains the very small position size) with expectation to BUY more in scaled-in fashion should the price drop further down to as much as 0.985 you should still be BUYING as it is expected to yield 1000 to 1500 PIPS over the next 2-3 months, maybe even sooner. Again, 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.
Why the “Monster Trade”? Little has changed since the last updates were posted on the 5th December, but what change there has been has increased immediate upside potential in all U.S. Dollar denominated pairs, in particular as the AUD/USD with the notable exception possibly being the GBP/USD as explained below. In the AUD/USD sideways action of recent weeks has served to further unwind the earlier overbought condition. The interpretation of the pattern in the AUD/USD presented in the last update, which was that it is marking out an upwardly skewed bullish "running correction”, remains unchanged. All that has happened in the past few weeks is that it has reacted back across the up sloping channel to arrive at support near its rising 50-day moving average. As we can see on the chart this reaction has resulted in a further easing of the medium-term overbought condition as shown by the PPO indicator, which is now neutral on the daily moving up while the weekly is moving towards a BUY signal. The noted convergence of the short-term downtrend channel earlier last month was an indication that the AUD/USD would soon break out of it to the upside to resume its advance and make new highs, which it has. The AUD is seen here, http://www.stockcharts.com/charts/gallery.html?$XAD.
WEEK AHEAD: If the AUD/USD is set to rise in the near future, it follows that the dollar is probably, although not necessarily, set to drop. Our 6-month chart for the USDX shows that this is indeed the case, as the rally of recent days appears to be spluttering beneath the falling 200-day moving average, there is certainly scope for renewed decline. In the absence of more unrest in Europe the QE campaign should work its magic and drive the dollar lower again, reducing the real debt burden of the US - provided that it falls far enough and fast enough of course. The dollar was given a stay of execution last two months due to the chaos in Europe, but with the U.S. intent on eroding its value via more rounds of Q.E. the outlook is not exactly bright for next year and with the USDX clearly overbought in a downtrend the downside potential is huge....thus the given monster trade.
The USDX is now at the line in the sand with any sustained move above 80.5 that could possibly lead to further strength to the 82 area. The 80.5 area is still the key area to watch this week for any signs of a reversal move or renewed/further weakness in US Dollar. Should such a reversal take hold, that will lead to breakouts of many currency pairs after some period of consolidations. This week players come back and let them show their initial intentions should you decide to trade this week and watching position size is still advised. That being said, let’s look at the charts. The USDX has carved out a very range bound by the 200-day moving average (DMA) and now 50-day M.A. support is looking to give way for the next major direction OF DOWN for the dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR moved higher into resistance at the 1.340 level for a test of the underside of the declining 50-day moving average at 1.35 now that another pullback to the 1.31 area has happened. Technically, the key 1.442, 1.495 and 1.600 areas are expected to be seen longer term (should the EU hold it together) but we are neutral in the EUR as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
On to the Sterling, I had always thought that the US dollar would hyperinflate and collapse before any other major currency. Lately, I am not so sure. The bottom line is that the UK’s huge deficit is not sustainable. It will lead to ever greater amounts of so-called “quantitative easing” by the Bank of England, and inevitably this money printing – the turning of UK government debt into British pound currency – will sooner or later lead to hyperinflation. Government spending and borrowing in the UK look even worse than the dire levels being reached in the US. Therefore, the dubious distinction of being the first currency to hyperinflate in the months ahead may end up going to the British pound. Recent sterling strength has given way to weakness on Dollar strength. The GBP bounced from the the 200-day moving average and PPO daily BUY against a weekly SELL signal leaves us neutral, as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP.
Traders should continue to use caution should the JPY pairs being neutral also bound by the 50 and 200-day moving averages and a PPO daily BUY signal against a weekly SELL but moving up soon for a weekly BUY but we are still in a wash and rinse scenario with a slight bullish bias for the time being as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
Most of this week’s key reports are spread throughout the week with more reports later in the week. They are:
1. Tues. Jan. 4, 2011 - (4:30am EST) UK Manufacturing PMI and (2:00pm) US FOMC Meeting Minutes Release.
2. Wed. Jan. 5, 2011 - (8:15am EST) US ADP Non-Farm Employment Change and (10:00am EST) US ISM Non-Manufacturing PMI.
3. Thurs. Jan. 6, 2011 - (4:30am EST) UK Services PMI; (8:30am EST) US Unemployment Claims and (10:00am EST) CAD Ivey PMI.
4. Fri. Jan. 7, 2011 - (7:00am) CAD Employment Change and Unemployment Rate and (8:30am) US Non-Farm Employment Change and Unemployment Rate.
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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Risk Warning! Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Past performance is not indicative of future results. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. All information posted on this website is of our opinion and the opinion of our visitors, and may not reflect current situations and occurrences. Please, use your own good judgment and seek advice from a qualified consultant, before believing and accepting and acting upon any information posted here or on this website.
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