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The swing trade for yesterday’s and today’s Asian-London-U.S. session to BUY the EUR/USD @ 1.3640 was stopped at 1.3610 and is to be reloaded at 1.3580 with a new STOP @ 1.3560 for a TARGET of 1.3862 for over 200PIPS. Beware of chop.
Hi everyone,
In this e-mail I am going to give you my view on the markets for Monday the 21st to Tuesday the 22nd of February 2011.
The “Monster” Trade. LOAD UP... with the AUD/USD at 1.014 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 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 to as LOW as 1.010 as scaled in BUYS (0.2 contracts at a time) on any weakness into key support zones such as 1.005 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 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 bias long with a near BUY signal on the daily and working on a BUY in the weekly as long as it stays above the zero line which looks to be happening. 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.
The U.S. Dollar is still poised on the edge of the abyss. The US Dollar has bounced AGAIN and is still testing its multi-year trend-line. We are literally approaching the “bounce or die” moment for this currency. If the US Dollar breaks below this line it’s GAME OVER for the currency. We will be seeing an inflationary collapse followed by potential hyperinflation. The one thing which could potentially reverse this situation right now is the political elections in Europe. When we talk about “solvent” Europe we’re largely talking about Germany which is currently in the process of seven state elections. If the first, in Hamburg, is anything to go by, the German people are sick of both the bailouts and the European Union and want to ditch the Euro entirely. German Chancellor Angela Merkel’s party got completely trounced in the first election in Hamburg over the weekend taking in only 20% of the vote. Merkel now has a choice, stick with the Euro and commit political suicide or ditch the Euro and demand the less solvent members leave. If Merkel opts for the second choice, then the Euro in its current form is finished and a collapse will begin. Seeing as the Euro currently accounts for over 50% of the US Dollar index, a collapse there could result in a sharp US Dollar rally, NOT because the US’s financial position improved, but simply because it’s the Euro’s turn to collapse first. However, once that process ends, it will be the US Dollar’s turn on the chopping block. The markets are already preparing for this with inflation hedges exploding higher across the board. Bottom line BUY commodity currencies or the commodities themselves...or better yet power money like physical you can hold in your hand Gold and/or silver.
On the fundamental front the G-20 meetings were an abysmal failure as the Bernank looked to rationalize the continuous printing of greenbacks and traders took notice and the dollar dump has begun. Look for banks to game the markets by attacking stops and pushing through key defined pivot levels and then reverse those moves. Positions sizes or stops are recommended to be light or tight from now until next week as it is month-end time to dress up the corpse. The 77 area in the USDX which is pivot support and rising monthly trend-line support is expected to break but not without more chop back and forth. Follow-through weakness did occur on a small weekly bearish engulfment pattern from last week, and little hope for dollar bulls that the 79.5-80.0 area would be retested. The corrective rally materialized and stalled below the broken 50% retracement at 78.5 and now the declining 50-day moving average in the 79 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 to go long U.S. Dollar denominated pairs on any weakness in the USDX this week although expect chop 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 that now looks to be setting up as a BUY signal against a weekly BUY signal at the 50-day moving average, and the bounce here looks to continue and now look for some bottom action on lesser time frames to go long. The current upside short term target of 1.37 areas has been achieved but the EUR can still blow out stops to the 1.355 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 but approaching longer term moving average support as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
Note: The G20 meets ended last week as a bust for the banksters so some last ditch, desperate currency shakeouts are expected this week being the last week of the month. Most of this week’s key tradable reports are mixed with some interest rate policy throughout. They are:
1. Tues. Feb. 21, 2011 - (8:30am EST) CAD Retail Sales and (10:00am EST) US CB Consumer Confidence. Note: At 5:00pm EST RBA Gov. Stevens speaks and chop/volatility is expected for the AUD/USD “Monster Trade” so again watching position size and stops are recommended.
2. Wed. Feb. 22, 2011 - (4:30am EST) UK MPC Meeting Minutes and (10:00am EST) US Existing Home Sales.
3. Thurs. Feb. 23, 2011 - (8:30am EST) US Core Durable Goods Orders and Unemployment Claims and (10:00am EST) US New Home Sales.
4. Fri. Feb. 24, 2011 - (4:30am EST) UK Revised GDP; (5:30am) CHF KOF Economic Barometer and (8:30am) US Preliminary GDP.
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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