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EUR/USD Wrap Up form Forex-Nation.com

Discussion in 'Market Predictions and Reports' started by Forexwatchman, Feb 27, 2010.

  1. Forexwatchman

    Forexwatchman Sergeant

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    Standing at the crossroads

    First let me give a quick recap to yesterday’s market action and then I will get into my analysis for the upcoming week. Some highlights from yesterday’s news:

    · Bloomberg reports Germany may use KfW bank to buy Greek debt
    · EU says Greece needs another EUR 4 bln in budget cuts
    · Chicago PMI rises to 62.6 from 61.5; stronger than expected
    · Reuters: Long dollar position on IMM* largest since Lehman collapse
    · S&P 500 rises 0.1%
    · Oil up 1.51 to $79.68; gold little changed at $1116
    · AIG reports large loss, says may need more government aid
    · US Q4 GDP revised to +5.9% from 5.7%, consumer spending weak
    · University of Michigan consumer sentiment index falls to 73.6 from 74.4
    · US existing home sales fall 7.2% in January
    · S&P says US’s AAA rating “hanging in there”

    EUR/USD traded with a cautious tone in early US trade, based mostly on continued EU pressuring on Greece for deeper deficit cuts and on risk aversion after AIG said it may need more US funds. Once US economic data was out of the way prices began to recover somewhat, with the market also reacting a Bloomberg story which outlines a potential German plan to buy Greek debt. That, combined with month-end euro demand and short-covering sent EUR/USD up from the 1.3560 area to a high of 1.3683 shortly before the European close. Central banks were sellers into strength today once again, just as they were buyers of weakness early in the session. Rumor has it that stops continue to build in the 1.3700 area.

    EUR/USD has had a real hard time closing above our major trendline, doing it just one time on Feb 16, making yesterday’s break an important development. We closed above the line on February 16 at the 1.3780/90’s level before plunging to close the next day at 1.3600. this is a trade setup that I went over in my posts for that same week back when I was still very sure of my dovish stance on the pair. Although that wasn’t much of a signal then, this more recent one truly is a warning sign for the bears, as is the fact that EUR/USD penetrated the 61.8% retracement of the 1.2448/1.5146 rally, that I also went over in earlier posts, twice in the last six sessions but has yet to close below it. As it stands now I am slightly bullish, but it doesn’t take much to turn that around, and this week will certainly be the most crucial week of trading in three weeks.

    So here’s where I stand as a trader going forward. Since January I have argued that the US Dollar was likely to recover against the Euro and other key counterparts on extremely one-sided bearish positioning and sentiment. Looking back I wish conditions were still so easy to read now as they were then, yet the tables are still clearly turned in the Dollar’s favor with the CFTC Commitment of Traders data showing Non-Commercials at a record net-long the US currency against the Euro. This week’s fundamentals will be the deciding factor on which way this currency pair decides to go, and I doubt the ranges we’ve been seeing will continue after this coming week.

    On Monday US Personal Income and Spending data comes out at 8:300 as well as the later-morning ISM Manufacturing survey at 10:00 am. If we see large disappointments in either one of those numbers it could potentially set the tone for the rest of the week’s trade. Recently we’ve had poor Consumer Confidence numbers painting a dreary picture for the future of domestic consumption, but spending and income numbers are forecast to show reasonable gains through the first month of 2010. Consensus expectations likewise point to reasonable strength in ISM Manufacturing data. Bear in mind though that lofty expectations beget disappointments and we could see considerable volatility surrounding said event risk.

    After that we look for Wednesday’s key ADP Employment Change survey data (8:15 am) as well as the ISM Services report (9:15 am). The former is expected to show that private companies shed 10,000 jobs from Payrolls through the month of February—the best such result since January of 2008. As we continue to see smaller job loss numbers in the ADP report and official Nonfarm Payrolls data, it leaves hope that we may continue to see improvements, but any sizeable declines could easily derail expectations for future recovery. The ISM Services Employment Index will certainly be looked upon to shed some light on the state of the jobs market and help foreshadow what we may expect for Friday’s NFP numbers. Said index remains below the expansion/contraction 50.0 mark at 44.0, and it will be critical to see whether conditions improved for the all-important US Services sector.

    Finally, as most everyone is aware, the US Nonfarm Payrolls report promises a great deal of volatility not only in the US Dollar, but major financial markets are likely to see sharp price moves on any especially surprising results.

    It seems that financial markets are at somewhat of a crossroads. One could certainly make the case that steady improvements in economic data suggest that the worst is now past. On the other, heady gains in the S&P 500 and other key financial market risk barometers leave the door wide open for pullbacks. The week ahead should provide ample clarification on several key themes for the S&P 500, which is very highly-correlated with the US Dollar. Good luck to you!!!
     
  2. Forexwatchman

    Forexwatchman Sergeant

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    In yesterday's economic news we saw that the US ISM manufacturing index dropped to 56.5 in January from 58.4 in December. This slide disappoints market forecasts that the index would basically hold steady at 58.3. Personal Spending and Personal Income also came out and showed that despite the fact that income rose slightly in January, elevated unemployment and tight credit conditions is forcing income to weaken more so than usual. Consumer spending, which accounts for 2/3 of the growth in the U.S, rose slightly above expectations reaching in January 0.5% compared with the previous revised 0.3% and the expected 0.4% Sub indices in the income report showed that the saving rate of consumers dropped slightly in January reaching 3.3% from the previous reported estimate of 4.2%, while personal income excluding transportation costs declined to -0.2% compared with the previous 0.1% rise. Also disposable income dropped by -0.6% from 0.2%.

    With a rise in consumer spending for the fourth consecutive month comes a sense of caution that economic conditions in the U.S might be pushed to their limits already, and we could see some pullback in the upcoming months as the rise came over expectations. Also Home Depot, Macy’s and other major retailers are forecasting a continuous rise in spending activities in the U.S over the upcoming months, so it remains to be seen if the U.S. can keep up with the current pace without as much economic stimulus from the government.

    With the huge amount of liquidity that was pumped into the financial markets by the government, inflation remains weak in the U.S despite the rise in manufacturing activities, energy prices and global economic conditions and therefore investors will probably continue to feel optimistic in trading as it assures them that the Fed will not raise the benchmark interest rate at any time soon to control inflation. Therefore investors will turn their back in commodities especially Gold as it’s the perfect hedge against inflation but with no inflationary threats there is no need to invest in Gold, taking them most probably to target stocks along with risky investments.

    EUR/USD has reached a new low 1.3437, but failed to close below the strong support line on the hourly chart at 1.3463. We had several great trade opportunities yesterday with a crossover of our MA's on the hourly as well as a classic 68.1 fibo level retracement that re-signaled last nights fall to new lows. Check out Forex-Nation for more.

    With the market anticipating a rescue package for Greece to be unveiled tomorrow, we may continue to see ranging markets. Greece has a cabinet meeting on Wednesday where they will likely announce a fresh package of budget reforms. The next step after that would be for Greece to ask the EU for help and then the EU offering guarantees on Greek debt. My guess is that process unfolds before the week is out and Greece comes to market quickly to rollover some of its fast expiring debt. Greek interest rates are tumbling in anticipation of a bailout later this week, a supporting factor for the EUR/USD.

    The market should get a short-term lift from the Greek news but it may soon go hunting for another target like Portugal or Spain, putting the EU to the test. Tomorrow has one significant news event to off with the release of the ADP Non-Farm Employment Change at 8:15 am so watch for that.
     
  3. Ricex

    Ricex Sergeant

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    The sights are already zoning in on the great british pound imho, the pressure is mounting Mr King.
     
  4. Forexwatchman

    Forexwatchman Sergeant

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    The Greek tragedy continues like a bad afternoon soap opera, as Finance Minister Papaconstantinou announced that they (Greece) did what they could, but have exhausted the limits of their own measures. He went on to say that Greece can’t rule out the option of going to the IMF for financial aid. That would be a huge blow to the credibility of the Euro zone and would gravely undermine the single currency. Yet another veiled threat to the EU to stop posturing and get on with the inevitable. Papaconstantinou did say that Greece has no immediate need for borrowing “in the next few days". Well isn't that comforting! Following along with the posturing we've been seeing, Germany's Finance Minister shot back with comments to the effect of Greece must implement reforms and “do its homework” before it seeks help. Now Moody’s places 5 Greek banks on review for downgrades. The banks on review are:

    1. National Bank of Greece
    2. EFG Eurobank
    3. Alpha Bank
    4. Piraeus Bank
    5. Emporiki Bank of Greece

    In other euro related news:

    Euro zone final February services PMI revised down to 51.8 from flash 52.0

    Euro zone January retail sales -0.3% m/m, -1.3% y/y vs median forecasts -0.4%, -1.6% respectively. December data revised up nicely, to +0.5% m/m, -0.5% y/y from previous flat, -1.6% respectively

    Spain’s services PMI falls to 47.1 in February from 48.8 in January, way below median forecast of 49.3 and truly a bad sign of the times there

    None of this was good for the euro, and it should help underpin risk appetites once the focus shifts from Greece, if it ever does. The pairing had a brief early dip under 1.3600 during the mid European session hours, which seemed to coincide with the release of truly horrible Spanish Services PMI data (see above). Sign of things to come? Then followed a decent rally which was stopped in it’s tracks when an Asian sovereign entered the market and sold around 1.3660. China continues to sell EUR/USD rallies

    On the U.S. front, the U.S. lost 20,000 jobs in February versus January's 60,000 jobs, which was revised down from the 22,000 jobs eliminated originally reported, according to the ADP employment report.

    So what that indicates is that February's decline is the lowest since the US economy began shedding jobs at a historic rate in February 2008. The report also signals that the U.S. could turn the corner in March and see job growth for the first time in two years.

    Also out after that was the ISM non-manufacturing purchasing manager's index indicates that the US service sector had a better-than-forecast February rising to 53.0 from 50.5 in January. Analysts only expected a more moderate improvement to reach 51.0. Since the service sector dwarfs manufacturing in the US, this is an important report.

    The ADP only seemed to cause confusion although Dollar did rise slightly across the board following a better-than-expected ISM Non-Manufacturing report in the U.S. and the EUR/USD moved away from the highs of that time. Yet the EUR/USD shot up to new highs this afternoon and currently seems to have ran out of steam at the weekly R1. I got into a sell here at 1.3730, since the weekly R1 should be a source of strong resistance for the moment until the bulls can collect more fuel for a bigger rally. So we'll see if the technicals hold out for me, unlike yesterday. As I write this I am up 15 pips, but still wary of the recent bullish activity and will monitor the trade accordingly.
     
  5. Forexwatchman

    Forexwatchman Sergeant

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    A non event for Non-farm payrolls which came in better than forecasted at 36,000, but the White House calls the unemployment rate of 9.7% unacceptably high. The market had expected a 50,000 drop in payrolls. January payrolls were revised to -26,000 from -20,000. Yesterday Jobless claims fell from 498,000 to 469,000, in-line with the consensus and that gave fuel to the NFP becoming a momentum maker today, but that turns out to not have been the case. The NFP had to share the spotlight today with familiar faces issues from the euro zone which gave both the bulls and bears someone to rally behind. Right after the announcement the EUR/USD dropped about 40 pips and within three more minutes had given up every one of them to the bulls retracing back to pre-release levels. This whipsawing went on for the following hour until the bulls have gained the momentum as I type this. My sources tell me this most recent rally is a result of stop-loss buying going on with the EUR/JPY due to the economic events that have gone on in Asian markets.

    So what that all amounts to is a dead day of trading for me. I fully expect the rest of the day's price action to be very choppy and I don't recommend trading this late on a Friday afternoon anyway. What we do now is let the smart money digest the data over the weekend and the pick up on what they got out of the report. I will keep you up on that as well at Forex-Nation.com

    Non-farm productivity was revised higher to +6.9% from +6.2% while unit labor costs fell 5.9%. It seems to me that the industries are producing more with less workers, a good sign for them but a bad one for the unemployment line. My new strategy going into next week will involve a more technical analysis approach than I've been using since the news has become a mix of good and bad with neither one able to tip the scales to one currency or the others favor, even though I could try to argue to that effect. I don't mean to imply that I am forgetting about fundamentals, I'll still stay right on top of that but put more weight on the charts themselves instead of the data and figures. Next week should be interesting.
     
  6. Ricex

    Ricex Sergeant

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    That sounds like a good plan, don't forget your a trader.
    Correct interpretation of all these fundamentals is, in my opinion, extremely difficult, very complicated, takes up a lot of time, and really in the end adds nothing to the mix.

    As foreign exchange market traders all we need to find are strong currencies and weak currencies and put them together. The why? behind the reason they are strong or weak is really not important.

    Lots of people concentrate on the EUR/USD pair on NFP day but it's really not the best pair to trade, better over on the yen front especially this time round as it's on the back foot at the moment.

    Get into the price action Forexwatchman and leave all that noise behind you, I'm sure you won't regret it.

    Please don't take this as criticism, it's just that I see the same errors as I once made and it took me a long time to realise that they were errors and leave that stuff aside when I trade.
     
  7. cowmadagan

    cowmadagan Sergeant

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    The fact that the smoking baby and the smiley face with a bloody arrow on its head can both be right, in itself, is a middle way.

    I also think that Ricex's remark is not negative criticism, as I've really found that since over 90% of the market movement is based on CDS hedge fund, central bank, and bank transactions the price action has a mind of its own.

    So while I staunchly disagree with anyone who disagrees with the importance of fundamentals, I also think that the unpublicized congruence of bank transactions account for most of the counter-fundamental price action.
    That means that technical analysis and the concomitant choices of entry points tend to fare better than the simplest of fundamental choices like ones in favor of carry trade (like always long AUD/JPY).
    This is not a criticism of Forexwatchman's posts or strategies. For the reader's sake, this is also not meant for Ricex or Forexwatchman. (other than for them to make replies or rejoiners against my stance)
    This post is meant to show those in the strategic development stages to learn to lean toward exiting at peaks in upward trends and ONLY re-entering at troughs, or exiting at troughs and ONLY re-entering at peaks in downward trends. (at least in small time frame charts)

    I feel that this is where fundamental and technical analyses overlap in the most successful way.
     
  8. Forexwatchman

    Forexwatchman Sergeant

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    Yeah Ricex I see now where you are coming from with regards to the fundamentals as taking the back seat to technicals in lots of instances, but fundamentals also give one that sense having their finger on the market's pulse, seeming like you are more in-sync with what you are watching and predicting. Many major price action moves happen right after crucial news events as I'm sure no one would argue, but beyond that I'm going back to the technicals for my final decisions every time. Meaning if I expect the news I get and price action does what I thought it would given the data, I still wait for a trade setup according to my technicals before i place a trade. No hedging and no straddling, doing it like a pro! If the two agree (fundamental and technical) then I'm more certain and upping my order, if they don't agree then I risk less and still go with the technicals for my decision.

    I guess that my plan for this next week will be a sort of a deviation from my usual routine and placing more importance on what my technicals are saying before letting the fundamental analysis creep in. I mean you can't stop using them in conjunction, but you must find a balance of them to become that well rounded trader. I'm still learning things everyday here!

    And cowmadagan, you are right that we use technicals to measure what's really going on and therefore have many times more success trusting in them than if we were to trust in the markets reaction to fundamental data and events. We are in an instantly changing market (literally) and we can expect a fundamental event to be fully absorbed in the market like the power of technical analysis and its influence on the psychology of the market. I hope I made some sense with all that, but we'll see how it goes next week!
     
  9. Forexwatchman

    Forexwatchman Sergeant

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    Ranging markets are all you'll see if you take a look at the EUR/USD. There's not much to write home about since economic data is thin this week. Chain store sales have been picking up in recent weeks here in the U.S., helping boost hopes that the US consumer might be crawling out of their bunkers and venturing back to the stores. Redbook Research just released data and showed a 3.1% rise year over year and a 0.7% month-to-date in March. February Core Retail sales is due for release Friday morning, and it might be the biggest event of the week. There are other minor reports coming out prior to then but certainly not one worth trading.

    So far what's been effecting the EUR/USD most recently is Comments from China’s SAFE overnight that gold will not be a huge part of their reserves going forward which pushed prices as low as $1110 this morning. A stronger dollar is contributing to weaker gold, just as weaker gold is contributing to a stronger dollar. Keep an eye on that relationship going forward. Also risk aversion picked up this morning, as European stocks were lower, as well as oil and gold being lower. Fitch’s various downgrades also spurred on risk aversion. It's important to note that the three lowest AAA ratings now belong to the UK, Spain and France.

    What to expect going forward is a continuation of this range unless some unforeseen announcement or event is looming out there between now and Friday. I am watching my major trendline from January, although it has been constantly moving with each new rally we've seen and so I am not placing as much confidence in that line other than to watch for a confirmation of its strength with a bounce back down off of it. I do have some confidence in my support lines which have been tested and held up. I have them drawn in at 1.3551 and 1.3463. Yesterday we had a crossover on our alligator that signaled the +80 pip move downward over night. Then today we saw price action bounce back up after reaching the 1.3550's region, so if we can close below that then our next target will be 1.3460's area. It's looking like another triangular consolidation is forming here on the EUR/USD, but we may range right through it as we did in previous weeks. Keep in mind though that the breakouts usually happen in line with the main trend of the time.
     
  10. Forexwatchman

    Forexwatchman Sergeant

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    The EUR/USD continues to react to the news-flow on an intraday basis but maintains familiar ranges, so familiar that it hurts. My sources tell me that central banks have the market surrounded, trading the edges of the ranges while we wait for further economic news that's less conflicting than what we've seen so far.

    During today's London session a sharp slump in German exports was a worrying sign and temporarily stomped out the bull's attempt at a rally early into the session, while news that Greek and Spain seem to be consolidating budgets as touted is supportive.
    According to former European Commission President Romano Prodi, the worst of Greece’s financial crisis is over and other European nations won’t follow in its path. He continued with this proverbial foot-in-mouth exercise to say: “For Greece, the problem is completely over... I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.” Well that settles it then, let's move on!

    Some other lesser news worth mentioning from today's London session:

    Greek report to EU says implementation of deficit plan ahead of schedule

    Spain’s Economy Minister: 2009 deficit could be lower than previous forecast of 11.4% of GDP

    Italy January industry output +2.6% m/m, much stronger than median forecast +0.6%

    Later on, US wholesale inventories fell by 0.2% in January, economists had expected a 0.2% rise. Wholesale sales rose 1.3%, better than the expected 0.7% rise. Nothing here accounted for any price movements but it is sometimes crucial during thin economic news times to watch for such lesser news in case there is a major discrepancy. So for now, technicals continue to dominate the price action we are seeing and I will be posting how my system has been performing through these ranging markets later in the day for those who might be interested. For tomorrow, look for the U.S. Trade Ballance and Unemployment Claims due out at 8:30 am. Again, stick to your technicals above all else while we await Friday's Core Retail sales report. Good luck to you all!
     

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