Special Consultant to the FPA
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
December 3, 2009
Analysis and Signals
December 3, 2009
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;
- 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.
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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