European Forex Professional Weekly 2009-12-03

Sive Morten

Special Consultant to the FPA
Messages
13,543
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
December 3, 2009


Fundamentals

The market was thin and choppy due to Thanksgiving Day. It is difficult to add something really new due to lack of information. The most interesting was a Dubai World Fund potential default that has added some nervousness to the markets. The problems in Greece could also have a similar impact though seem to be contained at the moment. If this will happen, it can lead to a serious reassessment of risks in the economy. In general there are positive moments in recovery as well as negative:

Recent positive moments:
- The real estate market has shown growing pace in recovery – inventories has declined, new, existing home and pending sales rising 6.2%, 10.1% and 3.7% respectively;
- Advanced retail sales jumped 1.4% in October;
- Conference Board Consumer Confidence recorded a strong increase in November and the most recent personal income and spending data recorded better-than-expected gains;

Negative moments:
- It’s possible that the recovery numbers were skewed by monetary and fiscal programs – cash for clunkers, tax and housing credit;
- November ISM index was weak - 53.6 vs. 55.7 in October;
- Employment index is still unstable. Although it has gained in October from 46.2 to 53.1 it has contracted in November to 50.8;
- AOL and ADBE announced job cuts in November;
- Unemployment stands at 10.2%. The market has given no indication that this situation is improving – labor expansion and hours worked didn’t improve;
- The aftershocks from the 2008 financial crisis are starting to pop up. The crises in Dubai and Greece have now been deemed localized threats rather than systemic risks. However, if these potential defaults keep rising, the credit stabilization which has been the foundation of recovery could be challenged.

Résumé: I think that now is a breakeven point. Some data can rouse the market till the end of the year, such as Payrolls, and statements from the Fed and ECB (as today). But, the end of the fiscal year is near, so less and less investors are intending to make serious decisions. Possibly, we can see some growth in demand for safer assets, such as short-term US Treasuries. In general, all that we have talked about in previous 2-3 researches are in force.

Basic macroeconomic issues:

1. Investors basically pay attention only to the nearest perspective. Since FED rate tightening is too blurring, we should not to expect meaningful USD strengthening until next year (or till first signs of a rate hike possibility);
2. USD will become stronger when investors see these signs, so the expectations concerning EUR/USD rates parity will change;
3. We can expect growth in the USD, if the possibility of second leg of recession will grow, and if investors will have large borrowing positions in USD;
4. EU economic recovery will have a time lag about 1-2 quarters compared to the US recovering;
5. When EU rate hike expectations will appear, the dollar will turn to weakeness;
6. We can see temporary USD strengthening from time to time due some technical movements (risk aversion, stocks buying etc) until the first signs of a rate hike possibility appear.
7. The primary US economic data that will be under scrutiny are personal credit, spending, wages and employment, inflation. This is a final segment in the chain, and it’s very important.

Technical

Monthly (EURO FX all sessions CME futures)

The new overbought level for December is 1.5618 area. Although the market has shown some weakness during the month, the November close price is confirming an up move. The nearest target on the monthly chart if it will happen – 1.6270-1.6280 area. There are many stops just above all times high, so if they will be touched, pair will fly higher very fast.



Weekly (EURO FX all sessions CME futures)

Dynamic pressure as a potential bullish signal is still intact. MACD shows downtrend, but price goes up. Technically this is a signal for future up move. Calculation of Fib expansions gives us 3 targets OP(1)=1.5196, OP(2)= 1.5618 and XOP=1.6098.
During the week was a movement that I’ve posted about on the forum – when prices went through 1.5065 but could not hold there and pulled back. It was not as deep retracement after than as I expected, and I think that is also a bullish sign.



Daily (EURO FX all sessions CME futures)

The market couldn’t hold higher than 1.5065 and retraced on Dubai news. But this retracement was not too deep, as I expected. So, this means that price is consolidated for a break out soon. Besides, we have no overbought level, and the trend is up. The nearest target for the daily time frame is 1.52-1.5220 area.



4-Hour (EURO FX all sessions CME futures)

Well, 4-hour trend is bullish, the nearest target COP=1.5129 has been reached today. Market shows very shallow retracements. Trend is up. If it will touch stops at previous maximum at 1.5144-1.5150 (probably during data releases), it can reach OP=1.5220-1.5230, that is coincides with daily target also.



Trade EUR/USD possibilities (1):

The long-term picture is the same, fundamentally the dollar is still weak, and moving to an all time high is just a question of time, if the situation will not change dramatically. Monthly target is 1.6250-1.6276 level.
Weekly situation is bullish for EUR/USD also. The most important thing on weekly – bullish dynamic pressure (divergence between MACD and price) and not very deep retracement after stops licking action.
Daily trends are up, no overbought. The market shows very small retracement and I think that it preparing for upper break out. Nearest target is 1.52-1.5230 area. The same is for 4-Hour chart. Besides, look at the S&P 500 chart – the previous attempting to go lower was also a stop grabbing action. Now it near highs and any kind of break (true or false) should happen soon. It is difficult to say now will the market hold there after break out. Nevertheless some reversion is can happen during December, if participants will start to close or reduce positions at the Christmas and New Year's Eve.



(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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General Notice: Information has been obtained from sources believed to be reliable, but the author does 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 recipients of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein.
 
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tadinda

Private, 1st Class
Messages
65
Hello Sive,

Thanks again for your analysis. I have been learning and asking for quite some time but there is one thing which I cannot grasp. Direction.

I have read the DiNapoli Book and have gone through all of your postings here to try to unravel the science of it. However I must say that I have not been successful.

Can you share with us how you go about deciding in which direction you think the market will be going. I think it would be apppropriate to tell you that I draw fibs from the MOnthkly down to the Day Time Frame and try trading the 1 Hour Time Frame.

I know that this may be a "holy Grail" question. BUt you seem to hold the answers.

Ernest
 

Sive Morten

Special Consultant to the FPA
Messages
13,543
Hello Sive,

Thanks again for your analysis. I have been learning and asking for quite some time but there is one thing which I cannot grasp. Direction.

I have read the DiNapoli Book and have gone through all of your postings here to try to unravel the science of it. However I must say that I have not been successful.

Can you share with us how you go about deciding in which direction you think the market will be going. I think it would be apppropriate to tell you that I draw fibs from the MOnthkly down to the Day Time Frame and try trading the 1 Hour Time Frame.

I know that this may be a "holy Grail" question. BUt you seem to hold the answers.

Ernest
Hi Ernest,
well, the answer is a really simple - "trend..." If we have an uptrend, you should calculate expansions up. Because your context is trade with trend (if there are no direction indicators) .
But this is a general approach. You should go through Joe's book (may be not even once) and investigate his examples with scrutiny.
I'll try to post my trades on Friday , that i've made on past week via directional patterns as Double Repo and Bread&Butter. They were successfull (looks like successfull trades are more interesting for forumers based on attendance of the topic). You can check them...
Anyway LPO's (i.e. expansions) should be used as a context also. For example, you investigate an opportunity to go long. But before that you see a great down thrust that has reached OP and Fib support (i.e. agreement). It very important. See, you do not plan to go short, but you should use LPO's from downmove as a part of context. You will see on examples, that market is simple as a puzzle to gather, when you really understand what is really going on...
Fib levels is just an instrument, not an absolute thing. It just help you to understand where possibly market will find support or resistance. But context includes all - trend, directionals, LPO's, Fib levels, OB/OS analysis etc. It should give you clear picture.
Look for my trade description tomorrow. And let's discuss it, you may ask what you will not understand. They are hourly trades also by the way...

Sive.

P.S. Joe's book is a goldmine really. It contains no unimportant details. It's very informative. You just need to full with patient and do not haste to move through...
 

tadinda

Private, 1st Class
Messages
65
THanks a million Sive,

Look forward to seeing your trades and learning from them.

Ernest
 

Sentinel

Sergeant
Messages
153
Confluence Level



Well the market touched the confluence level and bounced back. But I am not sure whether this confluence level will hold or not since now daily MACD is signalling downtrend, just as weekly MACD. Otherwise, that will be a great chance to go long..
 

tadinda

Private, 1st Class
Messages
65
Hi Sentinel,

A question. How did you arrive at the determination of your two lines as being a Confluence area?
I am attaching my chart with the fibs showing. I have removed all fibs which have been taken out by Price.
I have only two lines left and they are both 618 fibs. I was under the impression that a Confluence Area is made up between a 382 and a 618 Fib coning from different reaction points.

Maybe you will explain so that we cold all learn.

Thanks
Ernest
 
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Sentinel

Sergeant
Messages
153
Confluence Levels

Hi Sentinel,

A question. How did you arrive at the determination of your two lines as being a Confluence area?
I am attaching my chart with the fibs showing. I have removed all fibs which have been taken out by Price.
I have only two lines left and they are both 618 fibs. I was under the impression that a Confluence Area is made up between a 382 and a 618 Fib coning from different reaction points.

Maybe you will explain so that we cold all learn.

Thanks
Ernest
If you carefully examine Sive's 2009-11-19 dated signal, you can see on daily chart that Sive is taking in to consideration the coincedence of fib support levels at 1.4610 even thought it is taken out by price. Also the fib at 1,4770. That is my point. Maybe Sive would better explain why he is taking into consideration that taken out fib levels.

Cheers..

P.S : Also I couldn't see your chart. Where is it?
 

Sive Morten

Special Consultant to the FPA
Messages
13,543
the coincedence of fib support levels at 1.4610 even thought it is taken out by price.
Hi Sentinel,

why did you decide, that 1.4610 was canceled by price?
The fact of cancelation can be only after Focus and not before it. As you can see, price didn't break this support after Focus. So this K-area is still in game.

Sive
 

Sentinel

Sergeant
Messages
153
Conflence

Hi Sentinel,

why did you decide, that 1.4610 was canceled by price?
The fact of cancelation can be only after Focus and not before it. As you can see, price didn't break this support after Focus. So this K-area is still in game.

Sive
Ok, I got it... So we now have three confluence areas since we have a new focus at 1.5143, 25.11.2009 high? (Highest one of them seems to be taken out by price at the time been)

Sentinel

 
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Sive Morten

Special Consultant to the FPA
Messages
13,543
Ok, I got it... So we now have three confluence areas since we have a new focus at 1.5143, 25.11.2009 high? (Highest one of them seems to be taken out by price at the time been)

Sentinel

Yes, looks like you're right. At the second Confluence there is an agreement also.
I've checked other pairs such as AUD, JPY and NZD. And picture looks bearish.
I think that there can be some retracement higher from 1.4745 but then we can get another downmove.

Besides, look at DOSC at Confluence support... It look's like we get Stretch pattern...
 
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