Special Consultant to the FPA
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
October 1, 2009
Analysis and Signals
October 1, 2009
The data during the last week was mixed. First, bearish for the dollar was a global reserves Q2 IMF report. According to this release, the global dollar reserves have grown from 2.637$ trillion to 2.68$ trillion. Global reserves expanded 4.8%, but the share of USD reserves became lower, from 65% to 62.8%. Second, the ECB has allotted only E75.2B for a 12-month unlimited refi program (It’s a program for stimulating loan activity and adding liquidity to the economy via banks). It’s much lower, compared with E442B in June. It suggests that the banking sector is stable for now.
From the other side, European macro data was not so optimistic. German CPI fell more than expected and the IFO figures from last week identified that expectations for confidence in Europe were greater than reality, but M3 data shows weak loans data, especially to households, had dropped to an unprecedented negative value. A rate drop in Russia had added some warning thoughts that the recovery may not have such a firm pace yet as everybody is thinking it has. European officials have added more fuel into the fire. On Monday, the ECB president indicated to the markets that a strong dollar was important. On Tuesday, the ECB head stated that it is too early to call the crisis over and moreover that it is not time for the ECB to exit. I would like to point out that the Fed is already beginning to exit, since it has pointed to the date for ending their Treasuries and MBS buy-back programs.
As for the US macro data – it also was mixed. Chicago PMI and Consumer confidence were worse than expected. The real estate sphere is still under pressure because of lack of loans to construction companies, although we see reduction in Inventories and some growth in Housing starts and building permits. But there is an one problem – who will be able to buy these houses with the lack of loans and an unemployment rate (with part-time working) that is about 13%? So, it seems that recovery should loose a pace a bit, because the reasons for previous splash were the Fed’s large fiscal programs. This program could make a start push, but the fundamentals of the economy almost stay untouched. During this week, very much attention will be for employment data. Not only traditional Payrolls, but also to the average work week – because it strongly correlated with personal spending. And personal spending is one of the main keys for recovery.
So, the problems are almost the same in Europe and in USA. The main difference is that while the Fed has already started steps to exit, the ECB still not sure that the time has come. We see that recovery is still under pressure and data shows, that pace is fading. We had seen a splash thanks to the Fed’s program, but we can’t still move from a dead point – there is no growth in employment and wages as a result, no growth in spending, as a result low demand and sales. This is increased by high delinquencies and lack of loans because banks wouldn’t credit households and individuals without a job and stable income.
I think that this week will be an equilibrium time. We will get very important data tomorrow, and based on it investors should decide the future perspectives. No side still prevails at this moment. That’s why it’s possible, that first part of the week will not be serious directional move – global investors will judge the near perspectives, based on macro data.
Current Basic Macroeconomic Issues:
Investors basically pay attention only to nearest perspective. Since FED rates tightening is too blurring, we should not to expect meaningful USD strengthening till next year (or till first signs of rates hike possibility);
USD will become stronger when investors will see these signs, so the expectations concerning EUR/USD rates parity will change;
We can expect growth in USD, if the possibility of second leg of recession will grow, and if investors will have large borrowing positions in USD;
EU economic recovery will have a time lag about 1-2 quarters compares to US recovering;
When EU rates hike expectation will appear, dollar will return to weakeness;
We can see temporary USD strengthening from time to time due some technical moments till first signs of rates hike possibility appear.
The primary US economy data that will be under scrutiny – personal credit, spending, wages and employment, inflation. This is a final segment in chain, and it’s very important.
Previous “trade possibilities(1)”:
During the first half of the week, the monthly overbought level – 1.4850 will limit upside move. Put an eye on stocks and Crude oil movements. If there will be down turn on stocks and EUR/USD will be in 1.4850-1.4900 range, the good opportunities to sell EUR/USD can appear.
From the other side, the market still has an upside momentum, that’s why I do not expect strong down move. It is possible that 1.4620 level still will have strong support to the market.
Monthly (EURO FX all sessions CME futures)
In September market reached an overbought extreme (look at the line on Osc graph) sharply on the OP target from EYX movements at the 1.4817 level. Moreover, market under 0.618 level currently, so I suppose, that this will press on it during the October. Nevertheless, the trend remains bullish, so, if market does retrace, it shouldn’t be too deep.
Let’s look at the next chart, also monthly. 1.4150-1.4200 is a strong support level – long-term moving average (MA), short-term MA, 0.382 retracement and bullish trends should help the market to stop there. Besides, overbought will correct on that move. I do not know for sure, will the market stop there, and turn up, but there is a meaningful support. The next strong support – 1.38-1.39 level. Monthly OB/OS prices are 1.5200/1.3500.
I think that during October down move will prevail. Market is limited to upside move with 1.52 overbought level, it has reached OP =1.4817 target, it has reached extreme overbought level in September and should retrace. Taking into consideration the bullish trend, I do not expect a deep retracement – 1.4150-1.4200 is where the market should get meaningful support. If in some case this level will be broken down, then the next support level is 1.38-1.39. You can check my indicative position to this judgment on my demo account “Sell EUR/USD 01-Oct 1.4557 s/l 1.4860 t/p 1.4180” - Sive Morten Signals - Forex Trading Signals Test by Forex Peace Army
(It could possibly happen that the market can reach 1.52 for a short time, even though I will hold the position. So this level can be a new s/l in an extreme case, but I do not think that it can happen for now)
Weekly (EURO FX all sessions CME futures)
On the weekly chart, the trends remain bullish for now. So, the first meaningful support level is 1.4300-1.4350. There is a 0.382 retracement and 7-day MA. I think that market should have a retrace from there. OB/OS level for next week is about 1.4970/1.4170, so market will not reach an oversold level at 1.4300, but nevertheless, it’s a strong support and there is a high probability that it should retrace from there.
Daily (EURO FX all sessions CME futures)
Daily trends are bearish. We can see two movements objectives – 1.4350 and 1.4150, that coincide with weekly strong support level (look at weekly chart) and monthly targets. Of cause, 1.4150 will not be reached by one movement; there should be a solid retracement after touching the 1.4350 level. Besides, 1.4480 today is strong support, because of 25-MA there, it’s near today daily oversold level and it is nearest objective point for ABC move.
So, I expect, that after 1.4480 on the daily chart, the market should retrace higher, where we should looking for possibility go short with 1.4350 target. Taking into consideration weekly trends, that are bullish for now, It’s too early to talk about 1.4150 level. We should wait for the next week, and look at the weekly trends first.
Trade EUR/USD possibilities(1):
I expect that market should retrace lower in October. 1.4150 is nearest target.
I expect that market can reach 1.4350 level during next week.
Today-tomorrow market will reach 1.4480 level, then it should retrace higher. After that looking for possibility open short with 1.4350 target.
(1) “Trade possibilities” are not detailed trade signals with specific entries and exits. They are expectations about possible moves of the market during the week based on market analysis.
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