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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 year past and view on the market for Monday the 10th to Tuesday the 11th of January 2011.
The swing trade for yesterday’s Asian-London-U.S. session to BUY the EUR/USD @ 1.2900 with a STOP @ 1.2860 and a TARGET of 1.3000 for 100 PIPS fell short of the target for up to 50 PIPS depending on how the trade was managed.
We have a Monster Trade update since first recommended at 1.000.
The “Monster” Trade. NOTE: The AUD/USD has corrected and retested a key pivot area at 0.990 and FAILED. If not STOPPED OUT, the AUD/USD is now on HOLD at 0.9850 with a STOP just under 0.984 as this decline could be a final washout coming from AUD trade balance release and any further decline would invalidate the rationale for the trade (see below). The AUD/USD is still expected to yield 1000 to 1500 PIPS over the next 2-3 months, maybe even sooner but a wait and see approach towards some bottoming action is needed for re-entry or adding to existing positions if not stopped out. 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”? In the AUD/USD sideways action of recent weeks has served to further unwind the earlier overbought condition while forming a Head and Shoulder bottom continuation pattern on the 4-hour chart with the neckline coming in the 0.996 area. 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 and has retested that area again. 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.
It has been reported that the U.S. dollar index fell as the euro rose due to the fact that “… the European Central Bank was reportedly in the market buying Portuguese bonds and as investors took some profits on the greenback’s strong gains last week.” I dunno, could strong technical resistance have something to do with traders closing positions? Our 6-month chart for the USDX shows that this is indeed the case, as the rally of recent days appears to be sputtering beneath the falling 200-day moving average, there is certainly scope for renewed decline although further gains are still possible as the recent gains in the U.S. Dollar have come on very weak volume, it is not expected to last perhaps making a final push to key fib and pivot area of 82-83 in the USDX. 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 a sustained move above 80.5 that could possibly lead to further strength to the 82-83 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, then that should lead to breakouts of many currency pairs after some period of consolidations. This week players are back in force and we will let them show their intentions should you decide to trade this week although watching position size is still advised. That being said, let’s look at the charts. The USDX has carved out a very wide range bound by the 200-day moving average (DMA) and now 50-day M.A. 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 1.287 area has happened. Technically a bounce is possible here in key support zones while the EUR is very oversold, but do not bet the farm on that. Should the EU hold it together higher prices would be expected on U.S. Dollar weakness. I am neutral in this area in the EUR but should this key area give way then continuation shorts to the 1.250 area could be played as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Recent sterling strength has given way to weakness on Dollar strength. The GBP bounced from the the 200-day moving average and PPO daily BUY against a weekly SELL signal leaves us still neutral, as seen here, http://www.stockcharts.com/charts/gallery.html?$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 the Yen attempts to recapture the 50-day M.A. 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 along with some banker speak with more reports later in the week. They are:
1. Tues. Jan. 11, 2011 - (8:30am to 2:00pm EST) US FOMC Banker speak...be careful.
2. Wed. Jan. 12, 2011 - (5:00am EST) EUR Industrial Production.
3. Thurs. Jan. 13, 2011 - (4:30am EST) UK Manufacturing Production; (7:00am EST) UK Official Bank Rate; (7:45am) EUR Minimum Bid Rate and (8:30am EST) US PPI, Trade Balance and Unemployment Claims.
4. Fri. Jan. 14, 2011 - (4:30am) UK PPI Input and (8:30am) US Core CPI and Retail Sales.
The swing trade for today’s Asian-London-U.S. session is to BUY the EUR/USD @ 1.2935 with a STOP @ 1.2905 and a TARGET of 1.3088 for over 140 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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