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European Forex Professional Weekly 2009-09-04

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Sep 4, 2009.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    FX EURO WEEKLY September, 04, 2009


    Fundamentals
    The basic question now is about recovery of economy. Is economy on the way of recovering or not? What signals of recovering we see now:
    - Growing stock market;
    - Slowdown of decrease in initial claims, non-farm payrolls indicators;
    - growing of real estate market;
    - growing of PMI Index, and consumer confidence index.​
    Is this really enough to say, that recovery is under way? Not necessary. Let’s to dig a bit deeper and try to find out what is going on in reality…

    Primary role of consumer spending.

    Everybody knows, that firms and corporations receive profits, when consumers spend their money to buy stuffs, services etc. As a result, if consumers have no money, corporations and firms have no possibility not even to grow, but to work also. When consumers loose their job, they loose a personal income, so consumers’ spending goes down. So as a result, for talking about recovery, we need to see stabilization and growing employment, then consumer spending and then retail sales growing. Also, the level of personal saving should go down, because people intend to save more in difficult times, and spend more when they have more confidence in tomorrow day.
    What Federal Reserve did by their programs? They have tried to fulfill markets with liquidity – they have issued a huge amount of cash. Central bankers extended their $300 billion U.S. Treasury securities purchase program by a month in August and continue buying up to $1.25 trillion in agency mortgage-backed securities and $200 billion in the debt of agencies including Fannie Mae and Freddie Mac. The reasons were twofold. First is to stimulate consumer credit by commercial banks and as a consequence – consumer spending. As a result, consumers will have cheap money (rates are on lowest levels), and will spend them. It should help to firms and corporations, and all should begin to work. Second – liquidity is necessary to hold mortgage rates on low levels to stimulate real estate market, housing starts and contiguous industries. The point is when you buy a house – you usually also buy furniture, TV make some repair work etc. All these things are stimulate consumer spending. All seems good, but there is a one problem – unemployment.

    Unemployment
    It looks like that unemployment is almost stop growing. Non farm payrolls still decline, but speed of declining become slower as initial claims. B. Obama said, that we can reach 10% unemployment rate. But if we watch the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions, then we get another numbers. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent. Besides, initial claims indicator has some nuances – they count only INITIAL claims for help on unemployment and this bulletin works only about a 1 year. If you did not find a job, you need a secondary claims. Now is period, when the previous claims term is almost finished. Soon, people will have to ask for help again and this indicator will go up.

    Real estate market
    The housing data isn't very good as some see it. As existing U.S. home sales rose 7.2 percent in July from the previous month, distressed deals including foreclosures accounted for 31 percent of transactions, according to the National Association of Realtors, a Chicago-based trade group. A report by the Mortgage Bankers Association, based in Washington, showed the share of home loans with one or more payments overdue rose to a seasonally adjusted 9.24 percent in the second quarter, an all-time high.

    Stock market growth
    The situation, when government personally takes part in saving of economy had a big influence on expectations of investors. Investors said: "Wow, politicians personally try to save our economy; they do all the best to short the recession term, and stocks so cheap now. They have almost unlimited possibilities. I should buy cheap to take a piece of this cake." A government fiscal program is spurring short-term growth that may not last. This short-term results of improving just have created a bump, that can lead to a more precipitous decline later. OPEC has reduced quotas for the first time for 5 months, and it had happened when oil is growing, why? It can mean only one thing – although price goes up, demand stands low. It's like a growing market with low trade volumes, and we all know what happens next... So this kind of growth has no foundation. And we already have first signs of it. Let's look at FR minutes on 12 Aug 2009. There is no agreement between members of Federal Reserve, because they have expected other results from their program and sooner rather than later.

    Here are just some talks:

    Federal Open Market Committee members discussed extending the end date of the agency and mortgage-backed bond programs, minutes of the group’s Aug. 11-12 meeting showed yesterday. The move would be aimed at avoiding disruptions in housing credit at a time when recovery prospects are clouded by rising unemployment and slowing wage gains, analysts said. While the economy is projected to expand this quarter, central bankers had "particular" concern about the job market, signaling that the FOMC may need to see a peak in the unemployment rate before it begins withdrawing monetary stimulus. Some policy makers saw dangers of "substantial" declines in the inflation rate, yesterday’s report showed.

    "They need to see labor markets improve and inflation stabilize, and not fall, before they even have a serious discussion about increasing interest rates," said Michael Feroli, an economist at JPMorgan Chase & Co. in New York and former member of the Fed’s research staff.

    "They see positive economic growth, no job growth, a very slow decline in unemployment, and a huge vulnerability to anything that could shock confidence," said Christopher Low, chief economist at FTN Financial in New York. "I would be really surprised if they tightened at all next year."

    A number of policy makers judged that a "tapering of agency debt and MBS purchases could be helpful," the Fed minutes said. Officials postponed a decision on extending the initiative, which is scheduled to end in December.
    Central bank officials have indicated differences on when to begin withdrawing the monetary stimulus.

    "We have to begin to pull back from our extraordinary programs," Philadelphia Fed President Charles Plosser said yesterday while noting a risk of faster inflation in the future. Speaking in an interview with CNBC, he declined to say whether the Fed should begin raising the main interest rate next year.

    Fed district bank presidents Jeffrey Lacker of Richmond and James Bullard of St. Louis last week said the central bank may not need to complete its purchases of mortgage securities. New York Fed President William Dudley by contrast stressed an exit is "premature," citing "high unemployment" and weak growth.

    Policy makers saw the economy recovering "slowly" in the second half of this year, and still "vulnerable to adverse shocks," the Fed minutes said.

    U.S. Treasury Secretary Timothy Geithner cautioned yesterday that it’s too early to remove policies aimed at reviving the economy.

    "We've come a very long way but I think we have to be realistic, we’ve got a long way to go still," Geithner told reporters in Washington as he prepared to leave for a meeting of Group of 20 finance ministers and central bankers on Sept. 4-5 in London.

    Most Fed officials expected "subdued and potentially declining wage and price inflation over the next few years," the minutes said. "A few saw a risk of substantial disinflation."

    "They are not tightening anytime soon," said Mark Spindel, chief investment officer at Potomac River Capital LLC in Washington, which manages about $100 million. "They are going to be sitting there with unemployment approaching 10 percent and inflation falling."
    As a result, High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010. Governments try to fight deflation, but numbers suggest that they loose the battle.


    Results. My opinion is that too early to talk about recovery. How it should be a recovery, if we see growing unemployment, distressed consumer spending and powerful disinflation. There are no signs yet, that Fed will go to tightening. Fed’s even could not find consensus amongst the members.
    As a result, I expect high volatility on currency market during nearest 2Q. I think that we will not see any direct trends during this period (if situation will not change radically). So, the best way trading is catch a small moves, trade on volatility. When we see the gradual improving in labor market and consumer spending, then we can expects dollar grow, because of reasons, that I’ve mentioned in previous research. If my forecast become a reality, may be we will see some technical dollar strengthen – when stocks begin to fall, investors will need cash to close their leverage positions.


    For the nearest week (07 – 11Sept):

    The main data that can influence on EUR/USD peer are:
    Sep 8 – Consumer Credit;
    Sep 10 – Initial claims;
    Sep 11 – Wholesale inventories.


    Technical


    Previous "trade possibilities" : Sell 1.43-1.4350. Current market 1.4250
    "Trade possibilities" are not detail trade signals. It just expectations about possible move of the market during the week

    Monthly (EURO FX all sessions CME futures)
    There are not many changes on this period frame. We can see, that overbought begins to fade. Another moment that can reduce the force of a bearish signal is crossing of MACD lines. Long-term line was not able to hold downtrend. The crossing is under solid angle, and this is added some worry about the future bearish perspective. Besides, price is over long-term 25-MA.
    Nevertheless, the 0.618 Fib retracement is still working. So the target remains yet.
    D=1.5988; |
    E=1.2326; | > = 1.2126
    F=1.4449. |

    The additional headache has come from gold. There we can see a long-term triangle breakout. Gold and dollar have a high rate of correlation, because they depend from each other (Gold is sold for USD, so it’s a Gold/USD pair). When gold goes up, it make a pressure on USD, and if it is a real breakout, the probability of USD weaken is grow. But Gold is a commodity also. And other commodities did not support this move. So, it is very important to watch, what will be after that. But the possibility of fake breakout is high. If you look at indicators – they do not confirm the break. Anyway we should to wait a bit to be sure…

    Although there are some bullish signs, that make me worry during the next week I still have a bearish look on EUR/USD, and expect that gold’s up breakout is a fake one.
    [​IMG]

    Combined Comex GCA-Gold Weekly
    [​IMG]

    Weekly (EURO FX all sessions CME futures)
    [​IMG]
    On the weekly basis the situation change even less than on monthly chart. So, I've leaved previous analysis untouched. One thing that I’ve added is an upward wedge on the graph. Let’s look on it on the daily basis…

    Form previous research
    Daily (EURO FX all sessions CME September futures)

    Here we do not see any meaningful trend, no OB/OS. But there are some points that we have to watch on. First one is a wedge. Wedge is a potential bearish signal, especially when one of the tops inside the wedge did not reach it upper border. It happened earlier also, and then price still have reached the upper board, and it could happen again, but now it’s look like that price may not go up. We do not see any oversold, so market has no obstacles to go down, except low border of wedge and 25-MA that holds prices very well. Besides, our previous assume about round top price pattern still working. Wedge continues to tight, but there is enough room to make a couple zigzags. So, I think, that market can reach 1.44-1.4450 before it will try to reach lower border of the wedge. If it happens, we need to watch, will it have a possibility to go up further. In general, we need to open short position as close to the upper board of wedge as possible. I think that we will not see down breakout during next week. Near the 1.45 level there is an intermediate 0.618 Fib resistance, so there will be sensitive pressure on upward move.
    [​IMG]

    Trade EUR/USD possibilities:

    Monthly - Bearish;

    Weekly - Bearish.

    - Look at the way that situation with Gold will progress. If bullish breakout will be true than keep out form short positions on EUR/USD pair;
    - The strategy is the same. If you have a possibility to trade on weekly basis, short as higher to upper border of the wedge as possible, I think it will be real near 1.44-1.45 level. Stop 1.4725, profit 1.42-1.4250;
    - I expect that there will be no downward break of the wedge during next week.​
    Daily

    - May be we can short near 1.44-1.4450 with s/l 1.4550 and t/p 1.42-1.4250. But it is very difficult to say it definitely. Situation is too delicate. And real decisions can appear during the week only.
    - Also may be a buy opportunity near low border of the wedge with profit around 1.43-1.4350. S/l should be placed under the border. You should to look at low term charts to find a right place, when you will make a deal.​

    General: Information has been obtained from sources believed to be reliable, but author do 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 recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein.
     
  2. bobbywhite

    bobbywhite Private

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    Can we see your forex results on mt4stat.com?

    Mr. Morten,

    Is it possible for you to explain in another thread the way you use the different indicators such as MACD, Osc, Sstoch and write in full some abbreviations that I as a forex newbie don't catch? Are you in the possibilty to publish your trade results on a site like mt4stat.com?

    Kind Regards,

    Bobby
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Dear bobbywhite,
    you can see my trades here:
    Sive Morten Signals - Forex Trading Signals Test by Forex Peace Army

    But there could be trades, that do not mentioned in weekly research. I've wrote already, that weekly research is just a general view on situiation, it is not particular trade recomendation.

    Please, post abbrevations that you didn't catch, I try to help you.

    About MACD, Oscillator and Stochastic. I use Oscillator to estimate oversold overbought level. And MACD+Stochastic combination to estimate trend. In general, if MACD goes up, simulteniously stochastic goes down and long-term MACD line holds signal line (there is no crossing) - it points, that this downmove is only correction, and I should seek a possibility to buy near support level. So, MACD - is a strong players, Stochastic - week players.
     
  4. nelson perez

    nelson perez Recruit

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    Tanks for your post

    As a result, I expect high volatility on currency market during nearest 2Q. I think that we will not see any direct trends during this period (if situation will not change radically). So, the best way trading is catch a small moves, trade on volatility.

    Sorry by my english, what does 2Q means?
     
  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    2 quarters (6 months)
     
  6. GPipster

    GPipster Recruit

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    Mr. Morten,

    Just a quick post to say that I really appreciate your European Forex Professional Weekly post!

    I have thoroughly enjoyed reading your recent posts & your insights in the European Forex Market & others.

    Once again.... Thank you for taking the time to come into the FPA Forum to share your professional take on the Markets to all of us members!

    GPipster
     
  7. yosry

    yosry Recruit

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    what I see from your trading results is:
    your deposit is 5000$
    your first trade is short EU at 1.4339.s/l at 1.4750
    that is 2100$ risk.
    so are you risking > 4o% of your account in one trade!!
     
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Yosry,
    in general, you're right, but this was a technical mistake. When I've talk to admins about my demo account, they said, that I have to open an account with 5000$. At the same time i should use the signals and levels, that I've mentioned in my weekly research. I'm understand, that trade with such amount on weekly term is not right way, but for the first deal, i have no choice. Besides, my real stop was 1.4550 (this level was in weekly research too). So, i had the possibility to control the deal, and close it, if it suddenly jump to 1.4550. But now situation is resolved. And there will be no such deals in future.
     
  9. Shengani

    Shengani Recruit

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    Dear Mr. Morton,
    Thank you for so generously giving of your time to educate poor little sods like me. You give us an insight that we otherwise would have to glean from a multitude of sources.

    Just one question: There has been some talk of a double dip recession with the second leg probably being even worse than the first. Therefore, isn't all this talk of a recovery a bit of misplaced optimism especially in the light of increasing unemployment world wide?
     
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Shengani,
    You've touched a very wide question. In general, i also think, that we will have a "W" recovery shape, than "V" shape. But, still, I think, that the second leg will be not so deep, as the first one.
    Concerning different macroeconomic indicators... In general, employment indicators have a lag, but they are more reliable, than others, that a much more volatile (such as different indexes of confidence, PMI). But even with the lag, they begin to improve earlier, that Fed' begin to tight the rate. Now we see some improvement in fast indicators - Housin' starts, PMI, Consumer confidence, but they have not lead us to improvement in fundamental indicators such Wages, Consumer spending, retail sales, employment... It means, that not all so good as expecting. They are too volatile, cause they based on expectations.
    "Therefore, isn't all this talk of a recovery a bit of misplaced optimism especially in the light of increasing unemployment world wide?" That's it, that i've talked in the last research...
     

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