Euro Forex Pro Weekly 12-16 July, 2010

Sive Morten

Special Consultant to the FPA
Fundamentals – “Too early for Europhoria”
During recent days more and more speeches and statements appear in favor of EUR over GBP and USD. The major reason for that is, as we’ve discussed in previous research, loosing of growth momentum by US economy. Macro data clearly shows these numbers. The recent underperformance of the ISM Manufacturing and Non-Manufacturing data along with the Chain Store sales posting on the lower end of expectations at 3% Y/Y show that the economy is moving into a period of slower likely below trend growth as the impacts of the fiscal stimulus and the inventory cycle wane. The recognition of this changing growth view makes the case that the USD may lose vs. the currencies of stronger economies. And these concerns cause the process of reassessment of growth premium of US economy that was strong and obvious in the first half of the year. I just want to remind you that we’ve said earlier many times: “I expect that USD will continue to grow against EUR if the economy will be able to support the current pace of recovery”. Now the situation has changed, but has it changed so much? Not really. I agree that the USD may lose against strong currencies, but is th EUR really a strong currency now? Yes, some recent EU data show strength but let’s dig deeper. Recent PMI data shows that the Euro area is enduring and German Industrial Production rose above expectations. At the same time, the trade balance was reduced from 13.1 to 9.7 Bln. Euro despite the weaker currency. Although we see some growth in export in June for 3.3%, but reducing in April was -12%. So the huge fall in exports will be very destructive for Germany’s GDP, because export was at 41% of GDP in 2009. Second, the Euro heavily depends from Bank’s stress tests that should be released on the 26 of July (If my mind does not trick me). Due to weakness in the real estate sector and sovereign portfolios, banking capital could be harmed, H2 growth is expected to be slower and this can lead to greater capital, raising reserves and erosion of balance sheets.
In Q&A sessions, Trichet noted that banks should go to the capital markets to strengthen their capital bases. US banks engaged in a similar strategy. The difference however was that in the end, the market knew that the government would ultimately help re-capitalize the sector. However, as European governments have provided money and retrench, it is unlikely that that they will be able to provide assistance to the banks. Yesterday’s ECB press conference was able to support the euro. The continuation of a program with the unlimited liquidity tenders was well-received and while he did state that the intent of the covered bond purchases program had not changed and that target rate was still appropriate at 1%, he left the door open for policy. The statement “policy will do what is necessary” suggests that the ECB will remain ready to either ease or tighten policy depending on what the conditions command. Thus if the inflation data argues that deflation is taking hold, Emergency liquidity providing program may still be an option.
So, I think that current reassessing of US growth pace and its premium to EUR can lead to stronger volatility on the market, the EUR may reach as far as 1.30-1.31 level that to me personally is ideal for long-term short position. The down trend is mature in the EUR/USD and it has developed without strong retracements that someday should happen. At the same time I do not think that we already have seen a low of EUR/USD. If market will reach 1.31 – this is a great area to enter short for long-term traders.

I leave my monthly analysis intact, nothing new here. I just want to make a small addition – look at the chart. The AB leg is a bit faster than the BC leg. It very often leads to solid retracement after market will reach an OP target.
The market has pulled back gradually from oversold. The trend is bearish, next nearest target is Agreement at 1.1391-1.1482. At the same time, I think that this is just a pullback from a strong down thrust and we will see another leg down. The target of retracement could be different. When the market extremely is oversold, like during AB down move, usually it shows deep retracements - 0.618 or even 0.782. But currently, the market is not so oversold, so, a 0.382 retracement is more probable – it’s around 1.30-1.31 area. It’s not a bad move still.

The 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 the overbought level.
As we’ve discussed on a previous week – we at the eve of B&B trade start. I’ve told you many times that I prefer to see 3-5 closes above 3x3 SMA for B&B trade and a smooth move up. So, we have already 3 closes above 3x3. At the same time the market was oversold on the monthly chart and this can lead to a deeper retracement. I think that there are 2 major levels from which B&B can start. The first one is at monthly Pivot resistance 2 at 1.28 area and second (that I prefer for enter B&B or even longer term short position) – 1.3070-1.3123 Confluence resistance and weekly overbought area. To estimate signs of starting B&B “Sell” trade we should look at lower time-frames and look for any Sell signals or Agreement areas there at major resistance levels.

The daily trend is bullish, the daily overbought area for Monday is at 1.2794 level. Let’s look at daily Fib work. Although the market has started a pullback on Friday, I do not expect that it will be deep. Look at the chart – the market creeps from COP to OP and has not reached it yet. Besides, 1.2760-1.2782 is an area of Agreement and Confluence resistance.
Another very important movement…Look at the speed of the AB leg and the BC leg. For a perfect Sell signal from 1.2760-12790 area they have to be harmonic or symmetrical. Not in the sense of length (they are symmetrical, because OP is 1.0 expansion) but in sense of speed. It means that market the should to reach 1.2760-1.2780 at Wednesday. In this case they will be harmonic. But do not look at this statement as at no doubt, because market very rarely shows a perfect pattern, it’s just a beacon, ok?
Let’s look at the same daily chart but with Pivot points work and Fib supports. I expect two major scenarios at the beginning of the week. The first one – market will open in the area of weekly Pivot (1.2618), find support there and move to OP target. Second scenario – market will show a deeper retracement at the beginning of the week, but as, we’ve said it should not too deep. Although 1.2400 area is a very nice support, but it below COP that’s why I think that market can reach 1.2523 support as maximum for bulls hold domination. Besides, this area agrees with Friday analysis and three-drive sell target.
So, how we should act, based on the daily chart? That being said, 1.2760-1.2780 area is a strong resistance and magnet, until it will not be reached - solid down move (that can be a weekly B&B trade) should not start. So, it means that the current retracement lower should not be too deep. Here we have to look at 2 levels – weekly Pivot point and 1.2513 area – weekly support 1 and Fib support. If will see any Buy signals here or any ABC-top patterns that agrees with this levels – we can Buy with 1.2760 target.
From the other side – if market will have a strong open and will reach 1.2760 on Monday – watch for sell signals around this area, it’s too early to talk about targets of a possible down move, but the market should bounce from this level. Possibly it will be a start of weekly B&B with 1.22 target at least.



This analysis is the same as on Friday. Just wait for some signs to estimate possible levels of reversal to the upside, look for updates in the thread.
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Sergeant Major
Utterly and totally AWESOME - Thank you very much for your great teachings- Joh

Sive Morten

Special Consultant to the FPA
sorry I am new to this website.
what does B&B and cop mean.


Hi, Ray
COP - Fib 0.618 expansion, XOP - 1.618, OP - 1.0

B&B - Bread&Butter trade in terms of Joe DiNapoli. In fact, this is an impulse trade and the reason for this kind of trade - strong thrust in one or other direction. After strong move, down for example, first retracement up will be sold, and this will lead to another move down.


Great trader!

We are lucky.. it's very hard to find so deep analisys with so many time frames! Thanks a lot, Sive! Your work is very helpful!

Sive Morten

Special Consultant to the FPA
EUR/USD Update, Tue 13, July

Gud'ay everybody,

Yesterday's market was calm enough, not much events, really. Our 3-drive sell pattern, that we've talked about on Friday, has worked out nice and pair has reached 1.2550 area and retraced higher.
Today market can't pass through 1.2618 weekly pivot point and hourly confluence resistance, so I anticipate two scenarios that we can trade today.

As I said in weekly research, I expect that daily OP=1.2760 should be reached before market will show some meaningful retracement lower. So, I think that this move up possibly can start from 1.2480-1.2511 area. Look at 4-hour chart - This area contains COP target, weekly Pivot support 1 and 4-hour Confluence support. 4-hour trend is bearish now. For those, who have a bullish view on the market - wait until this area will be reached and look for reversals and any Buy signals there.

Now for those, who like short-term scalp trades. Look at the hourly chart. I do not see any problem to establish short position from current area (1.2590) with target at 1.2511 and s/l somewhere above 1.2618 (1.2630 for example). It looks attractive, because even we will be wrong - we have a very tight stop just above weekly Pivot point and risk/reward ratio is good. The main level for this position is a weekly Pivot - if market will return above it - we will better off.