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GreenForexTrading.com
ForeX forX-tra Gr€€n
Hi everyone,
In this e-mail I am going to give you my view on the markets for Monday the 17th to Tuesday the 18th of January 2011.
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 0.985 and is now a cautious BUY again. The impact of the floods is worse than thought earlier and together with the Chinese tightening moves, sentiment wise they are affecting to neutralize strong Australian fundamentals. This week will be key (see report schedule below) as long as the 0.980 level holds. The AUD/USD is now on BUY at 0.985 to 0.995 with scaled in BUYS (0.2 contracts at a time) with a STOP just under 0.980 and any further decline would invalidate the rationale for the trade (see below). Should the AUD/USD decline any further this trade will be closed for the time being as the AUD/USD is still expected to yield 1000 to 1500 PIPS over the next 2-3 months, maybe even sooner. Re-entry or adding to existing positions if not stopped out is recommended with scaled in BUYS (0.2 contracts at a time). 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 indicators, which are now neutral on the daily and weekly as long as they stay above the zero line and generate BUY signals soon. 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 but seems to be consolidating in this region. The AUD is seen here, http://www.stockcharts.com/charts/gallery.html?$XAD.
Longer term, if the AUD/USD is set to rise in the near future, it follows that the dollar is probably, although not necessarily, set to drop. Our 6-month chart for the USDX shows that this is indeed the case, as the rally of recent days failed beneath the falling 200-day moving average, there is certainly scope for renewed decline although a bounce to perhaps the 80-80.5 level is still possible. In the absence of more unrest in Europe the QE campaign should work its magic and drive the dollar lower again, reducing the real debt burden of the US - provided that it falls far enough and fast enough of course. The dollar was given a stay of execution last two months due to the chaos in Europe, but with the U.S. intent on eroding its value via more rounds of Q.E. the outlook is not exactly bright for next year and with the USDX clearly overbought in a downtrend the downside potential is huge....thus the given monster trade.
The USDX is now at 79.3 having sliced through the 80.5 area after failing at the 200-day moving average. The 80.5 area is still the key area to watch for any signs of a reversal move and more strength in the U.S. Dollar or to contain that strength for renewed/further weakness in US Dollar. Based on last week’s impulsive price action and slingshot buy set-up triggered on the 30-min chart, I expect the USD weakness to continue after a brief pullback that should lead to breakouts of many currency pairs after some period of consolidations. This week players are back in force and so far they look to be selling the U.S. Dollar. That being said, let’s look at the charts. The USDX has carved out a very wide range bound by the 200-day moving average (DMA) and now 50-day M.A. for the dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR continues to chop in wide fashion now again into resistance at the 1.340 level for another test of the underside of the declining 50-day moving average and another pullback to the 1.31 area is possible as much as a continuation move is possible. Technically a bounce in here at key support zones could continue to press the remaining shorts and caution advised on increasing volatility. Should the EU hold it together higher prices would be expected to the 1.37 to 1.41 areas on future U.S. Dollar weakness as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Recent sterling strength has given way to weakness on Dollar strength. The GBP bounced from the 200-day moving average and PPO daily BUY against a new weekly BUY signal and we could look to cautiously buy on any weakness, as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP.
As shown from the quote earlier, traders should still continue to use caution in trading the yen as the JPY pairs are neutral and also bound by the 50 and 200-day moving averages. With the backdrop of a PPO daily BUY signal against a weekly SELL signal, 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. 18, 2011 - (4:30am EST) UK CPI; (5:00am EST) EUR German ZEW Economic Sentiment and (9:00am EST) CAD BOC Rate Decision and banker speak.
2. Wed. Jan. 19, 2011 - (4:30am EST) UK Claimant Count Change and (9:00pm EST) CNY CPI and GDP. Note: this Chinese data could affect the “Monster Trade”, hard stops are required.
3. Thurs. Jan. 20, 2011 - (8:30am EST) US Unemployment Claims and (10:00am EST) US Existing Home sales and Philly FED Manufacturing Index Reports.
4. Fri. Jan. 21, 2011 - (4:30am) UK Retail Sales and (8:30am) CAD Core Retail Sales.
The swing trade for today’s Asian-London-U.S. session is to SELL the EUR/USD @1.3334 with a STOP @ 1.3356 and a TARGET of 1.3272 for 60 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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