Euro Forex Pro weekly 02-06 August, 2010

Sive Morten

Special Consultant to the FPA
Today we will talk about general macro situation is US. In two words – our expectations concerning gradual pace of recovery reducing starts to materialized. Although I do not expect the second leg in the ordinary sense of the word, but it will press on USD in near term. First of all, the faith in fast recovery and rates hike disappeared. Savings rates elevates like as internal funds for financing. This leads US rates to unusually low levels. The WSJ recently highlighted the fact that 500 of the largest non-financial U.S. companies held $994 bln in cash and short term investments (9.8% of assets) at the end of Q2. The market faces slow growth, contained inflation, and relatively poor valuation. However, dollar will be under pressure until there are signs of material movement in the housing and labor markets. Home sales remain depressed and the housing market continues to work through excessive inventory. At the same time, job creation is slow and inhibiting vibrant income growth. Inflation is low with the core rate rising just 0.9% y/y, but base affects, higher labor costs in China, and an improved level of growth should keep inflation from another significant leg lower. None-the-less, the market continues to sees risks of deflationary. Pizza Hut recently announced a permanent cut in its average pizza price, and 18.9 mln homes were vacant in Q2 highlighting excess capacity in the housing market. State and local government employees are facing reduced income as austerity measures and angry tax payers look for reduced government spending – note the recent furlough announcement in California.
So, as I’ve told many times it’s like going round in circles. I mean real estate and employment. The point is that real estate business is very important for employment, because it includes projecting, construction, finishing etc. When people move to new house they buy a lot of different stuffs that should be produced. And the boom in real estate business will lead to boom in employment. Boom in employment leads to spending, it’s in it turn to growth in retail sales, then to growth in production. So, until government will not find the way how to break this endless circle – it will be difficult to see growth in pace of economy.

Monthly trend is bearish, no oversold or overbought right now. I just want to remind that we’ve talked about during previous week. Look at 2008 price action – market was strongly below blue line – Oscillator predictor’s lower bound that shows us oversold level. When market has exited from oversold – it showed deep retracement – to 0.618 resistance level, and even pierced it a bit. Now let’s look at current oversold level that market has reached in May – it was much smaller that in 2008. Market just pierced a blue line. So the conclusion may be that current retracement up should be softer – 0.382 or 0.5 area. Interestingly, that 50% retracement from the recent swing down coincides with major 0.382 Retracement from major High at 1.5988 to low in June 2010. This combination creates strong resistance area. Let’s keep in mind this level - 1.3446-1.3512.
You can think that I talk both sides of the mouth – first about daily XOP at 1.3133 and that market should retrace from there. Now I talk about possible move to 1.3446-1.3512. But monthly chart is a very long picture. We can see some bounce down on weekly and daily, and then market can still reach 1.3446-1.3512. There is no contradiction here. Besides, for now I do not see any signs of starting retracement or continuation to 1.35 move. We have to wait a bit, until market will show us some signs of farther action.
So, I still think that market can start move to 1.2350 due weekly scenario in nearest future or at least bounce a bit from current area. At the same time, if market will not reach 1.2350 and will show just a shallow bounce - I do not exclude move to 1.35 after that. For me it looks possible because of previous price action in 2008. Market has showed 0.618 retracement, so we can count on 0.5 retracement, to my mind. This is a bit slice and dice game, but we discuss monthly chart, so, I try to write what I think about current price action.

Weekly trend is bullish, no overbought. The green line on the chart is a 3x3 SMA, blue line – Oscillator Predictor upper bound that shows us overbought level.
During last month we’ve talked about impulse trade or Bread & Butter trade – this is the same sort of thing. Now market has reached weekly confluence resistance that is very good area to establish short positions. But turn attention to the thing that I do not tell – “Sell right now”. It’s just an area where we have to wait for some signs of weakness of the market. If it will appear – we’ll know what to do. If I see some Sell signals on daily chart – I’ll enter short.
At the same time look at 1.3446-1.3544 area. It another weekly confluence resistance, that also includes 50% retracement from previous swing down. If any sell signs will not appear at current confluence area – move to next confluence will be very probable.
That’s being said – market has reached weekly confluence resistance and I will be looking for any Sell signals on daily chart. If market will start retracement down, very probable that the target of that move will be at 1.2350.

On the previous week we’ve expected that market should take out highs at 1.3030 and reach an XOP. The first thing has happened, the second almost happened except some pips. I hope you’ve made some pips on it…So, let’s see where we are now.
Now market is in equilibrium point. From one point, it’s too late to enter long, because we are at weekly Confluence resistance and Daily XOP. From the other side – I do not see any Sell signals right now, except small bearish divergence that is not very reliable for me. I just talk about it because some of you use it. I think that we have to wait a bit. Odds suggest that we should see at least a bounce from this area. But there are no signs of it yet. That’s why let’s discuss daily levels.
1.3012 is a weekly Pivot point, and there are two Confluence supports at daily – 1.2874-1.2884 and 1.2743-1.2746. 1.2786 – monthly Pivot point. So, on Monday we should concentrate on weekly Pivot point. If market will break it to the downside, trends will turn bearish – then possibly we can enter short with 1.2750-1.2780 target. Until market will hold above weekly Pivot – I think I will do nothing or just scalp trades.
So, Conclusion is as follows – no bearish signs yet but for bull’s party is too late also. We should wait for signs of weakness of the market. If we’ll see some and market will move below weekly Pivot point, then the next target is 1.2780 – monthly Pivot point.

On 4-hour chart bearish divergence looks clearer. At the same time we see a bearish wedge pattern. And I foresee two possible scenarios. First scenario is one that I would like to see. As you remember, we see MACDP failure pattern on daily almost the whole week. At the same time we at daily XOP and weekly Confluence resistance. But XOP has not been achieved yet. So, my preferable scenario is an upper breakout failure. Why I would like to see it. First of all market will clear stops of those, who have entered on unconfirmed daily bearish trend and were wrong again and again. Second – traders who would like to enter on breakout will be caught in trap, because there is a very strong resistance just above the market. All these issues will exacerbate down move. Second scenario – just a classical down break of the wedge. The nearest target on the breakout – 1.2750-1.2780 area.

That’s being said – In a long term I expect start of a B&B “Sell” trade with a possible target at 1.2350. Even if market will not start move to 1.2350 - it should bounce from there, because this is a strong resistance.
For now there are no clear signals on daily chart besides bearish divergence. On 4-hour chart bearish wedge is forming. Personally, I would like to see failure upper break out to enter short. Anyway, the first target after wedge breakout is 1.2750 Confluence support and 1.2780 monthly Pivot point.



Thanks Sive, I read your analysis on EUR/USD every week and I find it very understandable and I can follow everything you say with credibility.
I hope you continue to enlighten us newbies so we can become better/profitable traders.
thanks, Terry


Thanks Dear Sive Morten!

Hi Sive, it`s months I`m learning from you a lot of things and it`s too little to say thank you, but thank you and thank you!!
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Read your analysis whenever posted and very helpful. When EURUSD sell signals arise, for whatever reason, would you watch USD index for likely strength of USD against other currencies?


thanks for the info Mr Morten. I see that the euro did not clear the xop on friday despite the GDP.It went the other way. Markets are a bit unpredictable for the moment and i see a move downwards into the 1.28.Lets wait and see.I think the Euro Love affair might end as of next week but for the moment the dollar is not the bully who looks likely to take over so we might be stuck in this pandemodium for while.


Private, 1st Class
USD Strength?

Hi Mr. Sive,

Thanks alot, as usual, unusual. You deserve the dignity Mr. Sive for your extraordinary analysis.

Just wanna ask you, USD is currently being beaten by majors, is this can void the down move because USD lost its strength to push lower at daily confluence or monthly pivot area? In case of a SELL signal triggered on 4-hour chart?