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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 market for Wednesday the 2nd to Thursday the 3rd of February 2011.
The “Monster” Trade. Now the AUD/USD at 1.009 is a BUY down to 1.000 as holding of the 1.000 level has confirmed. 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 0.990 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). 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 on a daily BUY signal and working on the weekly BUY signal 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 seems to be consolidating in this region. The AUD is seen here, http://www.stockcharts.com/charts/gallery.html?$XAD.
The Dollar has decisively broken through a strong floor of chart support near the 78 level on the USDX plunging all the way down towards 77 before it encountered some buying. There is some support on the chart near the 76.50 level which if it cannot hold should see it move down to challenge a major chart inflection point near the 75 level. The U.S. Fed and company have gotten their wish – they have succeeded in jamming the Dow and the rest of the equities markets higher and managed to knock the Dollar lower but try to do in a manner that is more of a controlled descent rather than an utter collapse…so far. I expected the chop to continue as the USDX should make a top just under the 50-day M.A. once again around 79.5 going into the Chinese New Year but is looking less likely by the day. This should have been an oversold bounce in a new U.S. dollar downtrend that should complete by early next week but now a complete breakdown is possible. This would fit with current sentiment in ongoing perverse fashion with current mid-east turmoil and fear of contagion and its effect on oil and the precious metals markets. The USDX has carved out a very wide range bound by the 200-day moving average (DMA) and now 50-day M.A. as a new ceiling with a new weekly PPO SELL signal to back up the earlier daily PPO SELL that is oversold on the daily so look both ways for the dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$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 was expected to be limited to the 1.37 area with a possible retrace to 1.34 before 1.41 but now a shallower retrace is expected (see daily trade) can be seen on future dollar weakness as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Recent sterling strength was whacked on poor UK GDP report and will look for stabilization at the 50-day M.A. for entry for now. Cable bounced from the 200-day moving average and PPO daily BUY against a new weekly BUY signal and we could look to cautiously buy on any weakness and not chase, as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP.
The S & P downgrades Japan’s debt and as warned here ad nauseam, traders should still continue to use caution in trading the yen as the JPY pairs are neutral and supported by slightly rising 50 and 200-day moving averages. With the backdrop of a PPO daily BUY signal is pushing the same for the weekly BUY signal expected soon. We are still in a wash and rinse scenario with a slight bullish bias for the time being as the Yen bounces along the 50-day M.A. as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
The remaining rate policy decisions and reports are combined with thin Asian trade due to Chinese New Year. They are:
1. Thurs. Feb. 3, 2011 - (4:30am EST) UK Services PMI; (7:45am EST) EUR Minimum Bid Rate decision; (8:30am EST) US Unemployment Claims and (10:00am EST) US ISM Non-Manufacturing PMI.
2. Fri. Feb. 4, 2011 - (7:00am) CAD Employment Change and Unemployment Rate and (8:30am) US Non-Farm Employment Change and Unemployment Rate.
The swing trade for today’s Asian-London-U.S. session is to BUY the EUR/USD @ 1.3750 with a STOP @ 1.3724 and a TARGET of 1.4000 for 150 PIPS with potential for key weekly down trendline at 1.4177 (also coinciding with key daily/weekly pivot and fib expansion level, i.e., a magnet area). Note: Chinese New Year so adjust position size for expected chop in thin trade.
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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