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GreenForexTrading.com
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Hi everyone,
In this e-mail I am going to give you my view on the markets for Sunday the 6th to Monday the 7th of February 2011 and the week.
The “Monster” Trade. Now the AUD/USD at 1.013 is now on confirmed BUY signals. Sentiment wise, this AUD/USD is set for further gains, and the 1.000 level needs 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. 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 bias long with a new BUY signals 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 seems to be consolidating in this region. The AUD is seen here, http://www.stockcharts.com/charts/gallery.html?$XAD.
WEEK AHEAD: Last week the US Dollar fell across the board following a surge in global risk appetite followed by an equally aggressive bounce back to key resistance near the 78.5 area. The USDX has reversed lower after briefly probing below the 77.0 pivot area, which served as former platform support and the rising monthly trendline support. The corrective rally materialized below the broken 50% retracement at 78.5 and so far has stalled just under that level. Should the trendline be broken, which is now expected, then a fast move to 75 could be in the cards. While a weekly bearish engulfment pattern was confirmed with last week's follow-through weakness, there is a glimmer of hope for dollar bulls. Often when price-action closes at the lows of the week, it is often representative of a short-term selling exhaustion. Also, the latest CFTC Commitment of Traders report demonstrated that euro speculators had flipped to a small net-long position earlier in the week. This suggests the completion of short-covering for the EUR/USD and could limit gains in the near-term. This strengths the carry trade of the Dollar/Euro and as such, the euro should continue to outperform while European peripheral yield spreads narrow and yield differentials vs. the US continue to widen. This would fit with current sentiment in ongoing perverse fashion with current mid-east turmoil and fear of contagion and its effect on oil and the precious metals markets. The USDX has carved out a very wide range bound by the 200-day moving average (DMA) and now 50-day M.A. as a new ceiling with a new weekly PPO SELL signal to back up the earlier daily PPO SELL that is oversold on the daily and minor reversal bars to confuse the trade so look both ways for the dollar as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR pulled away from the declining 50-day moving average and another pullback to the 50-day M.A. looks in process in the 1.34-1.35 area. With the backdrop of a PPO daily BUY signal against a new weekly BUY signal all would seem clear but technically a pullback here is what was expected and now look for some bottom action on lesser time frames to go long. The current upside was expected to be limited to the 1.37 area but was exceeded just to blow out stops (never said this was easy) with a possible retrace to 1.34 before 1.41 can be seen on future dollar weakness as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Recent sterling strength was whacked on poor UK GDP report and will look for stabilization at the 50-day M.A. for entry for now. Small reversal bar on the daily but expect reversal failure here. Cable bounced from the 200-day moving average and PPO daily BUY against a new weekly BUY signal and we could look to cautiously buy on any weakness and not chase, as seen here, http://www.stockcharts.com/charts/gallery.html?$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 that looked to be rolling over into a SELL could easily flip to BUY on a day or two of strength as is the same for the weekly SELL signal could also be a BUY in the next day or two but for now looks flat. 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.
Most of this week’s key reports are light mixed with a key interest rate policy at the end of the week. They are:
1. Mon. Feb. 6, 2011 - (8:30pm EST) CAD Building Permits.
2. Tues. Feb. 7, 2011 - (8:15am EST) CAD Housing Starts.
3. Wed. Feb. 8, 2011 - (7:30pm EST) AUD Employment Change and Unemployment Rate.
4. Thurs. Feb. 9, 2011 - (4:30am EST) UK Manufacturing Production and (7:00am EST) UK Official Bank Rate and MPC Rate Statement and (8:30am EST) US Unemployment Claims.
5. Fri. Feb. 10, 2011 - (4:30am EST) UK PPI and (9:55am EST) US Preliminary UoM Consumer Sentiment and Inflation Expectations.
The swing trade for today’s Asian-London-U.S. session is to SELL the EUR/USD @ 1.3650 with a STOP @ 1.3684 and a TARGET of 1.3480 for 170PIPS. Note: a scaled in entry from 1.3624 is possible with a 10PIP stop is possible with a 1.3650 possible re-entry.
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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