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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 Wednesday the 16th to Thursday the 17th of February 2011.
The “Monster” Trade. Now the AUD/USD at 1.004 is now on confirmed BUY signals. Sentiment wise, this AUD/USD is set for further gains, and the 1.000 level looks to be bested for good. With a STOP now raised to just under 0.995 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 NOW recommended as scaled in BUYS (0.2 contract at a time) on any weakness into key support zones such as 1.000 and 1.010. 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 again and now is retesting 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 bias long with a near SELL signal on the daily and working on a BUY in the weekly as long as it stays above the zero line. 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 still seems to be consolidating in this region. The AUD is seen here, http://www.stockcharts.com/charts/gallery.html?$XAD.
This week has been filled with wide range chop so far, and with the G-20 meetings soon, look for banks to game the markets by attacking stops and pushing through key defined pivot levels and then reverse those moves. Positions sizes are recommended to be light from now until next week. The USDX continues its chop around the 78.5 area again. The 77 area which is platform support and the rising monthly trend-line support is expected to break but not without more chop back and forth. Follow-through weakness did not occur on a weekly bearish engulfment pattern from last month, giving a glimmer of hope for dollar bulls that should the 78.5 area be taken out then 79.5-80.0 area would be next. The corrective rally materialized and is still stalled below the broken 50% retracement at 78.5 and now the declining 50-day moving average in the 79 area. We are in chop area. Should the monthly trend-line be broken (now at 77), which is expected as this is the third attack at this line (1st July 2008; 2nd Dec. 2009 and 3rd Oct.-Nov. 2010) we will employ the three times a bounce and then a failure rule. With each subsequent bounce becoming smaller, a fast move to 75 should be in the cards followed by a collapse to as low as 72, depending on where sentiment lies at that time. Witness a weekly PPO SELL signal in conflict with a daily PPO BUY that looks to be rolling over. So look either way for another week or two as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR is the inverse of the USDX and with the backdrop of a PPO daily SELL signal against a weekly BUY signal at the 50-day moving average, it seems a bounce here is more likely than a drop and now look for some bottom action on lesser time frames to go long. The current upside short term expected to be limited to the 1.37 area but can still blow out stops to the 1.395 area before 1.41 can be seen on future dollar weakness as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Serious swings and a reversal bar on the daily but stretched on the long side makes a long entry risky at this level so tight stops under yesterdays lows if played here. GBP bounced from the 50-day moving average and is extended with a SELL against the backdrop of a weekly BUY signal. All these cross-currents still make cable a cautious play, as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP.
The JPY is no longer supported by the 50-day moving average and has now rolled over into a SELL look for more selling (inverse buying in JPY denominated pairs). The same could be said for the weekly PPO that for now looks flat to bearish as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
Note: The G20 Meets towards the end of the week so some currency shakeouts are expected Thursday and Friday. Most of this week’s key tradeable reports are:
1. Thurs. Feb. 17, 2011 - (8:30am EST) US CPI and Unemployment Claims and (10:00am EST) US Philly Fed Manufacturing Index and Fed Chair Testifies.
2. Fri. Feb. 18, 2011 - (4:30am EST) UK Retail Sales and (7:00am EST) CAD CPI.
The swing trade for today’s Asian-London-U.S. session is to BUY the EUR/USD @ 1.3540 with a STOP @ 1.3515 and a TARGET of 1.3618 for 70PIPS.
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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