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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 24th to Tuesday the 25th of January 2011.
We have a Monster Trade update since first recommended at 1.000.
The “Monster” Trade. Last week’s key Chinese data has passed as the key 0.985 level holds. Now the AUD/USD is on HOLD at 0.985 and has not reacted much to a very poor PPI or CPI reports. Sentiment wise, this is a positive, and the 1.000 level needs to be bested for good. With a STOP no raised to just under 0.985 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. Adding to existing positions is recommended on the next daily close above 1.000. Again, add in 0.2 increments at a time. 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?$XAD.
Last week the US Dollar fell across the board following a surge in global risk appetite. Initiated by a record high in a German confidence survey that helped drag the safe-haven greenback lower, triggering more losses against trade-weighted baskets of currencies. The USDX has reversed lower after briefly probing above the key 78.8 pivot, which served as former platform support and the neckline of the latest double top formation. The bearish price-action also marks the first close below the midpoint of the November advance. The next downside target is 77.8, where the 61.8% weekly retracement lies. If a corrective rally fails to materialize above the broken 50% retracement at 78.5, then the double top target around 76-76.5 could be in the cards. Ironically, this measured move coincides with long-term trend-line support that originates from the all-time lows. While a weekly bearish engulfment pattern was confirmed with this week's follow-through weakness, there is a glimmer of hope for dollar bulls. Often when price-action closes at the lows of the week, it is often representative of a short-term selling exhaustion. Also, the latest CFTC Commitment of Traders report demonstrated that euro speculators had flipped to a small net-long position earlier in the week. This suggests the completion of short-covering for the EUR/USD and could limit gains in the near-term. This strengths the carry trade of the Dollar/Euro and as such, the euro should continue to outperform while European peripheral yield spreads narrow and yield differentials vs. the US continue to widen. That being said, let’s look at the charts. The USDX has carved out a very wide range bound by the 200-day moving average (DMA) and now 50-day M.A. as a new ceiling with a new weekly PPO SELL signal to back up the earlier daily PPO SELL for the dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR pulled away from the declining 50-day moving average and another pullback to the 50-day M.A. in the 1.33 area is increasing as much as a continuation move is possible. With the backdrop of a PPO daily BUY signal against a new weekly BUY signal all would seem clear but technically a pullback here would allow a safer entry to go long and should happen before further gains to the upside can happen. The current upside is expected to be limited to the 1.37 area before 1.41 can be seen on future dollar weakness as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Recent sterling strength is not affording a pullback for entry for now. The UK GDP due later could be the trigger for a short term sell-off. Cable bounced from the 200-day moving average and PPO daily BUY against a new weekly BUY signal and we could look to cautiously buy on any weakness, as seen here, http://www.stockcharts.com/charts/gallery.html?$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 mixed with some interest rate policy throughout. They are:
1. Tues. Jan. 25, 2011 - (4:30am EST) UK Preliminary GDP; (7:00am EST) CAD CPI and (10:00am) US Consumer Confidence.
2. Wed. Jan. 26, 2011 - (7:00am EST) US New Home Sales; (2:15pm EST) US Fed Funds Interest Rate decision and FOMC Statement and (3:00pm EST) NZD Official Cash Rate decision and RBNZ Rate Statement.
3. Thurs. Jan. 27, 2011 - (8:30am EST) US Core Durable Goods Orders and Unemployment Claims and (10:00am EST) US Pending Home Sales.
4. Fri. Jan. 28, 2011 - (5:30am) CHF KOF Economic Barometer and (8:30am) US Advance GDP.
The swing trade for today’s Asian-London-U.S. session is to SELL the EUR/USD @ 1.3723 with a STOP @ 1.3554 and a TARGET of 1.3650 for 70 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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