European Forex Professional Weekly 2010-02-04

[Sive Morten]

EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
February 4, 2010​

Fundamentals

Recent US macro data was mixed. ADP Employment has shown better than expected results – “-22K” vs. -30K expected, and the earlier numbers were strongly revised upward from -85K to -61K. This issue makes possible a better than expected NFP release, and I think that it should be around +15 K. There is also a possibiliyy that previous data will be revised also. From the other side, ISM Non-manufacturing index has showed anemic results. Only four industries are expanding but eleven are contracted still. Employment component was optimistic and has reduced negativity a bit, but the overall picture shows that growth is still slow.
From the other side there are some macro events that can support dollar demand. Strong down break on Copper market, pace of recovery in emerging markets, Chinese tightening policy to prevent a bubble in their real estate market are showing that the world economy is in far from a healthy condition. Also, divergence between global manufacturing PMI and servicing PMI shows that the recovery is based on inventory growth while end-demand remains in question. The fiscal problems in the EU, large budget deficits in UK, Japan and the US coupled with unwillingness to reduce spending (because it can negatively influence on recovery) can lead to additional bid in safe-heaven.
Today, the market will be focused on ECB and BoE monetary policy prescriptions. But I think that there will be not much news. Trichet probably will talk about a plan for Greece, Spain and Portugal. But all major news is known already, the Greece plan was approved by the EU commission. So, I do not expect much from it.

Résumé: Fundamentals have not changed much. The basis risk for US is a stability of macro data. Problems in the EU are long-term and can’t be resolved fast; Japans economy depends much on exports mostly to the USA and Europe, so it is unlikely that it will become gain momentum in front of the US economy. So, circumstances adjust probability in favor of the USD. Besides, USD will get additional favor from a lack of stability in th world economic recovery. In the nearest term I still expect dollar strength at least till 1.3650 on EUR/USD.

Technical

Monthly (EURO FX all sessions CME futures)

The most interesting thing on the monthly time frame is that unconfirmed trend turns bearish. The breakeven trend point is 1.3970 level. In the case of the market closing below it we will receive confirmation. Prices broke through monthly support at 1.3950-1.4070 area. I’ve calculated monthly target for down move (if trend will turn bearish) – COP=1.2881. But if we will see some retracement up on monthly time-frame, we will be able calculate targets more precisely.
If February's bar will close higher than 1.3950-1.4070 area then some up retracement will remain possible. It is difficult to say something more definite for now, because we should look at lower time frames in this case.

Monthly

Weekly (EURO FX all sessions CME futures)

Market finally has reached COP=1.4004 just below 1.4068-1.4079 Confluence support. We have a strong down trend still, no oversold. Wash and Rinse of the support level that could be possible via GDP release didn’t hold. Prices passed through COP area and closed below it. The next target for a weekly move is an OP=1.3650 and weekly support level at 1.3744 that can be strong enough.

Weekly

Daily (EURO FX all sessions CME futures)

Market was in consolidation almost the whole week. But since yesterday the picture has changed drastically. I’ve opened long position at retracement, but I’ve left at OP = 1.3970 (click here to see my FPA demo account) but the market has reached XOP target at 1.4027 level and agreement (look at the 4-hour chart) and then shows a strong impulse down. At the same time, closing below 1.3970 level gave as a Wash and rinse 0.382 daily nearest resistance. Both of these movements increase the probability of a down move. Coupled with better than expected NFP data (that I’m waiting for) 1.3650 should be reached, I think. Daily and 4-hour trends turn bearish and daily oversold level is around 1.3650 level that allow market breath. (For now I have a short EUR/USD position on my FPA demo account).
Although this is a EURO research, I want to show you some JPY pictures… But attention – this is not a USD/JPY but a reverse JPY/USD futures graph, so the typical FOREX graph is reversed to current. All analysis is based on the JPY/USD futures graph. (For example, we have direct H&S here it means that it is a reverse H&S at FOREX).
First is a daily and weekly chart – we see H&S formation on both of them. For now we can assume that market will reach neck line – and there is pretty much room for that.
Next is some analysis of daily… Look for daily #2 chart. The market has reached an OP=112.14 during retracement and has shown a W&R of 0.618 resistance 115.54 level, then the down move has continued. The trend has turned bearish already, the weekly trend also bearish. (I have a long position on USD/JPY on my FPA demo account).
The nearest target for down move is around 105.44 on weekly basis. It will be very strong support – the neckline is also in this area. Look for weekly #2 chart.
This analysis of JPY is light and surfacing a bit, but it also shows some perspective, and confirms the current trend in EUR/USD pair.

Daily EURUSD

4-hour EURUSD

Daily JPY/USD Chart #1

Weekly JPY/USD Chart #1

Daily JPY/USD Chart #2

Weekly JPY/USD Chart #2

Trade EUR/USD possibilities (1):

Weekly

We have down trend, no oversold conditions. The nearest target is 1.3650 level, although 1.3744 area can be a significant support.

Daily

I expect better NFP, besides we have some technical signs that the down move should continue. I think that enter short (or will not enter) will be better just after NFP release. If data will be USD supporting you can enter at retracement and this position will have lower risk.


Current European Forex Professional Weekly Signal - Forex Peace Army Forum



(1) “Trade possibilities” are not detailed trade signals with specific entries and exits. They are expectations about possible moves of the market during the week based on market analysis.


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General Notice: Information has been obtained from sources believed to be reliable, but the author does not warrant its completeness or accuracy. Opinions and estimates constitute author’s judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipients of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein.

 

[Sive Morten]

I've closed my short EUR/USD position. Market has almost reach 1.3650 (1.3668 low) level and NFP will be released soon.
Besides, hourly chart has potentially short-term bullish pattern.

 

[PeteFX]

@Sive:

Concerning release of NFP, I´m getting confused about how the market will read this.
Yesterday we had worse than expected news from the U.S. (jobless claims etc.), usually this should have given support to EURUSD and even more to the GBPUSD, since GBP is not locked to the EURO and thus has some "freedom" of movement against it, concerning bearish news about Greece etc.
However what happened - both currencies were sent downwards, and all those smart "analysts" now try to tell us, that world economy recovery must be put in question due to the bad U.S.-figures, thus letting the USD act as safe harbor currency.
You may understand, that this again confirmes, that it´s not the news, which make the market, but it´s the market, which makes the news.
How are you reading such "news" in respect to the doubts, I mentioned? How is your approach concerning NFP?
Scenario 1: NFP better than expected - USD will move up further
Sceanrio 2: NFP worse than expected - USD will move up due to "safe harbor"-function?

 

[Sive Morten]

Hi PeteFX,
Well, I think that you are too narrow at the whole economic data. It's not a question of NFP along. Look at other markets - what do you see? Stocks - falling, Treasuries rising, Gold, Oil falling, dollar rising.
It means only one thing - risk reversion. Now you see run into quality due to large problems in EU. Dollar has very low rate, so it was very profitable - loan in USD, sell it for EUR (for example) and buy assets that nominated in other currencies that have greater rates (NOK, NZD etc). But now investors have to close their positions - and they have to return loans in dollars. that's why marginal positions in equities are in process of closing, commodities are falling. IT's a technical move - run into quality.
Concerning NFP... First, you should understand, that there is data that more important than other, and the direction of changing of this data is also important. Jobless claims not so important and it can't strongly influence on the rate.
I expect stronger NFP, but in current situation, if it will release in a row (or even worse a bit) with expectation, I do not expect trend reversion.
Understand, this is great money are moving the market currently, not data - this is capital flow due to serious problems in Europe.

Besides, you try compare short-term reaction on data release with long-term analysist thoughts. It's quit different things...

 

[Sentinel]

It means only one thing - risk reversion. Now you see run into quality due to large problems in EU. Dollar has very low rate, so it was very profitable - loan in USD, sell it for EUR (for example) and buy assets that nominated in other currencies that have greater rates (NOK, NZD etc). But now investors have to close their positions - and they have to return loans in dollars. that's why marginal positions in equities are in process of closing, commodities are falling. IT's a technical move - run into quality.

I see. Doesn't that also mean, as soon as the recession has eased, then risk appatite will return: people will sell USD to buy assets in other currencies with higher yields; which is USD bearish. On the other hand, when FED thinks recession had eased, this time they will start increasing rates to decrease money supply and that would be USD bullish. Isn't that a dilama?

P.S: By the way, I am sure that you also recognize it but "W&R of 0.618 resistance 115.54 level" is 111.54.

 

[Sive Morten]

Hi Sentinel (by the way, I've closed my Gold short position and I will be out of the market till NFP release).

All picture is not so simple. First, apetite for risk will return slowly, because problems are huge - Spain, Portugal and Greece are large enough. And this crisis is local - particulary in EU. US data not very strong but it shows that recovery underway still.

And when Fed starts to rise rates - the carry trade becomes not so profitable, even profitable at all, because the rate difference moves in the favor of USD. In this case
a) Carry positions start to closing (i.e. buying USD, selling EUR, for example)
b) USD buying begins in carry trade - for example for JPY.
So, USD growth are twofold - closing of old carry trade and opening the new one ,but now in favor of USD.

 

[PeteFX]

... On the other hand, when FED thinks recession had eased, this time they will start increasing rates to decrease money supply and that would be USD bullish. Isn't that a dilama?.....

This will probably trade out against similar measures of ECB and BoE.
Both are watching inflation figures very closely.
Especially ECB, which is still governed by Europe´s biggest inflation fearing guys (the German Bundesbank, due to inflation in the 20ies, when a bread costed billions of marks, a development, which was triggered by high compensation payments according to the treaty of Versailles, following the decease of WW1), has a very close eye on that, and they´re not supposed to delay interest rate raising, when it is deemed to be necessary. A rising USD is a perfect trigger of increased inflation figures (so called "imported inflation").

 

[Sentinel]

Hi Sentinel (by the way, I've closed my Gold short position and I will be out of the market till NFP release).

Thanks. Seeing a worse than expected NFP I was also about to close my Gold position for a second (which is in profit quite well, with your help of course) but as soon as I look the next line on the screen which is the unemployment figure, I changed my mind and kept it open. It had not took long for the market to overcome the negative mood of NFP and USD started to gain value once again. Gold almost reached weekly confluence (1044.20) but since the futures market is closed, I couldn't manage to close my position. And a retracement began than.

We are now at 1066.05 level which is very far from our target 1040. Daily, Weekly DEMA is bearish (Monthly DEMA is very close to turn bearish). We are not weekly OS yet. Also fundamentals are in favor of USD. So I am expecting a retracement rather than a trend revarsal.

As soon as you told before, Gold retraces deep so I expect this retracement to reach weekly confluence at 1112-1115 maximum. I think I will keep my position open with SL at 1115 and TP 1040 and add more short if market goes over 1100.

Gold Weekly Chart

 

[Sive Morten]

Well, I've exited at 1053 before NFP release - we have daily OS, besides market has reached as far as 1049 level.
Trend remain bearish still, so I'll try to look on Gold in detail on Monday. Probably you're right about potential enter from higher levels. But at the same time we should look at EUR and Dollar index...

 

[Sentinel]

Well, I've exited at 1053 before NFP release - we have daily OS, besides market has reached as far as 1049 level.
Trend remain bearish still, so I'll try to look on Gold in detail on Monday. Probably you're right about potential enter from higher levels. But at the same time we should look at EUR and Dollar index...

If we are OB at %85-%100 and OS at %0-%15, and as the lowest Oscillator reading is -45.0029 at 08.12.2009 then shouldn't we be around

-045.0029 X (85/100) = -38,2525

to be OS?