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Hi everyone,
In this e-mail I am going to give you my view on the markets for Sunday the 5th to Monday the 6th of June 2011 and the week.
WEEK AHEAD: This week we expect the US dollar will continue to weaken against a weakening Euro and Yen. Market participants have come to expect bad news like last weeks’ employment report to drive off the risk trades and send safe haven flows into the US, no such thing happened. The Dollar's feeble response to the weak ADP numbers earlier in the week was a harbinger of things to come. The problem is the US economic data has become so bad, that traders are not moving money into the US Dollar even on news that otherwise would have driven safe haven flows in its direction. Traders are now convinced that the string of consecutive poor news is leaving the hawks at the Fed with no arguments for their case and has brought the doves there into the ascendancy. In other words, interest rates in the US are going to be forced to stay at ultra low levels for a long time to come and while QE2 is coming to an end this month, further monetary accommodation is coming forthwith. At least that is what the market is attempting to signal to the Fed as to its wishes. The news initially caused a move back to the Dollar however, it is now trading well below the 50 day moving average and has fallen back below all of the major shorter term moving averages as well. The 10-day moving average has made a bearish downside crossover of the 20-day M.A. and both look to be getting ready for a bearish downside crossover of the 50-day M.A. The technicals have completely soured for the greenback and once it broke the 74 level on its daily chart it is going back down to 73, a level which is extremely, and I do mean, 'extremely' critical from a technical support level. This week’s flow of data is very rate policy heavy with most to be reported later in the week. This should provide a window of currencies trading strong against the USD. This week will offer more on the data front with the UK and US GDP Reports later in the week. The Dollar now at 73.9 with the possibility of more U.S. Dollar selling is possible given the weakness of last week’s data as more concerns about the EU faded last week. Expect more U.S. Dollar printing to continues after QEII is set to end in June and continue under a new QEIII. For short term trades I maintain a bias for a collapse to as low as 72 and 70 and 67 with short covering rally fits. Finally, in the broader context, the monthly chart shows that the rising trend line that is now broken and a falling trendline broken on the weekly charts and so a somewhat mixed picture longer term. The USDX is now under a weekly PPO BUY signal with an ongoing daily BUY and we are currently flat, as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR/USD (and other EUR crosses) continues to ralley after brief consolidation at the 50-day Moving Average and appears poised to take out the 1.472 level and target 1.500. The EUR is the inverse of the USDX and with the backdrop of a PPO on a daily BUY signal against a new weekly SELL signal turning into a BUY, resistance at 1.472 and 1.50 as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
New long entries in the GBP/USD are possible but caution is advised as a PPO daily BUY against the backdrop of a weekly SELL signal looking to turn to a BUY while still in bullish alignment and turned up from 161 as LONGER TERM THIS CHART IS BULLISH (unless the 200-day M.A. gives way below 159). Make cable a long play on shallow pullbacks with defined stops, as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP.
The JPY was overbought as USD/JPY and a pullback has occurred as expected from these extreme levels to create another run in the opposite for another set of extreme levels which will be defended at all costs with newly printed yen from the BOJ and so a nimble sell (BUY for USD/JPY in the 80.0 area) as can be played as a return trade to near/between the 50 and 200 day moving averages to go long (short USD/JPY @ 82) is expected for the time being as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
The AUD is another daily PPO SELL on a weekly PPO BUY rolling over into a SELL if more weakness continues but is really expected to consolidate here before the next move higher after the 1.075 is cleared and more consolidation before it moves to possible 1.13 - 1.15 on a safe-haven/interest rate differential bid as a long entry as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XAD.
This weeks tradeable/impacting reports and events are rate policy heavy with most to be reported later in the week. They are:
1. Mon. June 6, 2011 - (8:30am EST) CAD Building Permits and (10:00am EST) CAD Ivey PMI reports.
2. Tues. June 7, 2011 - (12:30am EST) AUD Cash Rate and RBA Statement.
3. Wed. June 8, 2011 - (8:15am EST) CAD Housing Starts; (9:00pm EST) NZD Official Cash Rate and RBNZ Rate Statement and (9:30pm EST) AUD Employment Change and Unemployment Rate.
4. Thurs. June 9, 2011 - (7:00am EST) GBP UK Official Bank Rate and MPC Rate Statement; (7:45am EST) EUR ECB Minimum Bid Rate and (8:30am EST) US Trade Balance and Unemployment Claims and CAD Trade Balance.
5. Fri. June 10, 2011 - (4:30am EST) GBP UK Manufacturing Production and PPI and (7:00am EST) CAD Employment Change and Unemployment Rate.
The swing trade for next two day Asian-London-U.S. sessions is to BUY the GBP/USD @ 1.6384 with a STOP @ 1.6345 and a TARGET of 1.6550 for 160 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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