European Forex Pro weekly 17-21, May, 2010

Sive Morten

Special Consultant to the FPA
Messages
12,710
Hello, everybody
This is a starting research for next week (but look for daily updates). I remember about format and the FPA is working on this. But for current week I publish research with attachments. Sorry, if it is a bit uncomfortable for you.


Fundamentals
Looks like the situation on the markets calms gradually after panic and fast assets relocation.Fundamentals come on the first place. Fed is most hawkish now compares to ECB and BoJ. While probability of rising rates in September has contracted from 29.6% to 22.9% (based on Fed Fund futures rate) due to fears that pace of recovery in world economy can reduce, the currency market is a relative one, so the USD looks much more favorable then JPY or EUR. When ECB and BoJ pump cash into economy, the Fed thinks about reducing its balance of MBS, starting of issuing short term interest bills – in other words thinks about contraction money supply. If we add to all this stuff good US macro numbers (although employment is late-blooming a bit), the Fed position is much stronger. the EU austerity plan gives us more questions rather then answers, and when smoke around battlefield will roll away it will become clear that EUR will stay under pressure in foreseeable future. I expect a slow death of EUR and expect that it will reach our technical OP target around 1.15.
Next question is to China. The market will closely watch for development of the situation there. The main problem is a bubble in China's real estate market. Different actions from China's Central bank to chill out real estate market (prices are growing for 11-15% per month) can lead to slips in China’s economic growth and this in turn, to world economy. If China will start to raise rates – it will hit twice. First, it will press on credit and loans and appreciate the Yuan - that is bearish for USD. At the same time, PBOC promises that Yuan course should remain stable and try to apply different regulation to real estates. For example PBOC initiates a limitation that restricts households to buy more then one house a year. Prices have reduced about 9% due to this limit.
Concerning the EU crisis, I just want to note here that the bailout plan itself has many questions. I do not want to write here all of them because it will take too much space here and is not so important for our application. For example – how all sums will be funded, what will happen if one country will fail in providing its portion of reserve, how decisions will be made about debt purchasing of a particular country. These are just some of them… So, the point is that presence of these questions per se can lead to unpredictable turnings in hard time moments. We have to be careful because nothing is done yet.

Technical

Monthly
This is a monthly chart. Trend is bearish. Market has passed previous Fib support at 1.2577, although bar is not closed yet. The next Fib support is 1.2198 level. Also we at monthly oversold. Potentially, combination of Fib support and oversold gives us a directional “Stretch” signal. But, from tactical point of view I think that signs of retracement should appear when Stops below 1.2326 will be cleared out. I’ve told in recent two weeks that despite oversold the market should clear these stops, because this level is just as magnet. Now we are only 50 pips higher. So, I do not see any buy signals right now, at the same time we are at monthly oversold and I do not want any “sell and hold” positions. It means that until stops were hit I will take short term trades with bearish bias. Like those that I’ve described in previous week on Fri, 14 of May. When/If stops will be hit, I will be looking for potential Buy signals on a lower time frames. This can happen as soon as next week.

Weekly

This is a weekly chart. It will help us estimate a possible down move target. Here are two Fib supports and one of them 1.2022 coincides with weekly oversold 1.2044. So, here will be a solid support – Fib support, weekly and monthly oversold. Besides, stops should be cleared out already, if market will reach this area. 1.2129 is a Weekly Pivot support 1 by the way. So, 1.2022-1.22 will be very strong support and I expect that market should show any “Buy” signal somewhere in this area.

Daily

This is a daily chart. And there can be two scenarios at the beginning of the week. First scenario – if the market does not reach stops at 1.2330 and will make a shallow retracement up. In this case I’ll be searching for enter short. 1.2613 is a weekly Pivot point. As I said weekly pivots are traded by the market in 70% of cases. So, if on Monday market will test Pivot and close below – this will be a good sign to enter short. The second level of possible enter – 1.28-1.2815 area – daily Confluence resistance and Overbought.
Second scenario – the market will clear stops and then start to pull back. In this case will be better not to sell and wait for some time, may be short-term buy will be possible. Remember, our context is stops below 1.2330. If market will clear them our context for short trade will disappear, and we at monthly, weekly and daily oversold. Anyway, I think that current market is a trading market; it means that we have to say “No” any long-term positions. Short-term trades have a privilege for me now.​

Sive
 

Attachments

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euroforex

Private
Messages
17
Sive on May 17 21 forecast

I appreciate your overall fundamental and technical assessments. Looks like a a heavy week for economic reports so "no" position trades is being prudent on risk to reward ratios. Where the shift goes now toward another currency other than the USD from the EUR might be determined as a secondary back up i.e. AUD; CHF. Hard to say. Certainly, the EU Austerity Plan (Greece bailout) leaves a lot be desired - but a red flag for US deficit to continue. In these situations it seems all technical algorithms can't be entirely relied upon e.g. Black-Scholes modeling. Thanks for the thorough insights.
 

Lucas Gremista

Private, 1st Class
Messages
41
so basically would you recommend entering a sell trade when market is open, expecting to reach the 1.20 area during the week? or you rather wait?
 

Marau

Recruit
Messages
8
Euro`s death

Dear Sive

Thks. for your clear and clever analysis.

Anyway I hope you`ll be wrong and the euro won`t die; what will happen to Europe, and the world as a consequence, if that occurs?

Once again, thank you and keep on your valuable cooperation.
 

DaveO

Private, 1st Class
Messages
60
euro weekly chart

Looking like 5th wave down nearing completion ? Implications would be deep multi month ret up. Hard to imagine with the present fundamentals. On the other hand eur probably over 90% bears in play, could be dangerous for shorts. DX also pretty overbought now or in EW parlance could be completing its first 5 series up ?
 

Mandrake

Corporal
Messages
138
Hello my brothers and sisters.

Hi all, great new week of trading ahead of us.

Thank you Sive for your powerful analysis. I always look forward to it at the start of every week

I have just entered long at 1.2249 after i saw a strong support. My analysis also targeted a short opportunity at around 1.2600 but if it goes up much faster may hit 1.2800 area as I am using a down trend line to coincide with Sive's confluence lvl and Fib lvl. Hope I make money on this one
 

Vix

Private, 1st Class
Messages
53
Sive how would you define overbought or oversold market? and how would you tell if market is oversold?
Because these terms seem that are mostly misused, how would you tell if market is oversold in technical terms?

Thank you
 

Sive Morten

Special Consultant to the FPA
Messages
12,710
Hi Guys,
Today's morning market has reached stops, so I 'be extra carefull in opening any possition - enter short is dangerous because of oversold level, enter long - there is not signals yet. May be will see possibilities for intraday trades, If I'll see one - I'll share with you.

so basically would you recommend entering a sell trade when market is open, expecting to reach the 1.20 area during the week? or you rather wait?
Well, looks like my comments a bit late, because market has reached stops already. But yes, as I said - until stops have not been touched - our context is bearish.

Dear Sive

Thks. for your clear and clever analysis.

Anyway I hope you`ll be wrong and the euro won`t die; what will happen to Europe, and the world as a consequence, if that occurs?

Once again, thank you and keep on your valuable cooperation.
Hi, Marau. Well, I mean that EUR will stay under pressure and in the long-term period down move should continue. I do not think that it will be liquidated at all. ;)

Looking like 5th wave down nearing completion ? Implications would be deep multi month ret up. Hard to imagine with the present fundamentals. On the other hand eur probably over 90% bears in play, could be dangerous for shorts. DX also pretty overbought now or in EW parlance could be completing its first 5 series up ?
Hi Dave, Unfortunately, I do not an expert in EW. (Although I've thought first that 5th wave should end somwhere around 1.3050). If you wish, I can post a chart with automatic EW analysis that CQG does. May be it helps.

Sive how would you define overbought or oversold market? and how would you tell if market is oversold?
Because these terms seem that are mostly misused, how would you tell if market is oversold in technical terms?
Hi Vix. It's quite simple. I use DiNapoli Oscillator predictor, you can use simple oscillator that is just a diifference between Close price and 7-day SMA. When it reaches extreme high - market is overbought, extreme low - oversold.
Predictor is a derrivative from a simple oscillator - it shows the price when simple oscillator will reach extreme high or low. It just more comfortable.


Sive
 

onenikos

Corporal
Messages
81
EU Problems

Sive, great analysis. To better understand the real problems at EU watch this:
 
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