European Forex Professional Weekly 2009-12-17

[Sive Morten]

EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
December 17, 2009

Due to Holidays the next researches will be posted on Dec, 28 2009 and Jan 06, 2010​

Fundamentals

During last week the most important moments were macro data, the FOMC statement (yesterday) and the situation in EU that we’ve touched on in previous research. The data was mixed, but my judgment is that it had an advance towards a shallow recovery. Although the NAHB index and Empire were set back, the PPI and Industrial Production were greater that expected. The housing market was in line with expectations and I think that there is no up trend still. So, we can characterize the macro data picture as “in a row with small +”. The main thing that I suppose and the most important one – we do not see any reversal in economic growth. Small and unstable pace – yes, but no reversal down, and it’s good.
Concerning FOMC rhetoric, it wasn’t unexpected. There was only one moment that worth to noting here. The FOMC has pointed that they also see signs of improvement and need to wait for stability and a signs that the economy can support this improvement itself without any fiscal support programs by government. Also it was pointed out that some supportive programs can be closed sooner that expected. In general, it was a very careful statement with a modest inkling on improvement.
The most intriguing situation is in the EU. EUR/USD came under heavy selling pressure as the combination of poor economic data and credit concerns. First, the ZEW Economic Sentiment figures out of Germany and the Euro-Zone fell. The pull-back is consistent with the morose commentary of the ECB and EU officials regarding the macro landscape. It worth noting that there was a dark tone in both ECB and EU rhetoric. Officials are highlighting the vulnerability and fragility of the economy. Additionally some have gone so far as to state that a double-dip recession cannot be ruled out. The credit situation has attracted too much attention to structural problems of the Euro-Zone. Greek officials are trying to assuage the fears of the market by ensuring a budget deficit of -3% of GDP in 2013 but have presented no viable solution. Greece’s entrance into the Euro-Zone was meant to protect the country against shocks but instead it lowered interest rates to a level that were simply too low for Greece’s fundamentals. The uncovering of how vast and deep this debt problem truly is will be an ongoing saga.

Résumé: The situation in Greece shows that nobody knows what the consequences will bring us crisis and when they will be passed by world economy. For now it is clear that the crisis can’t come as a lion and go away as a lamb. The debt problem is a first round of it - Dubai, the situation in the EU. Who or what will be the next? A global sovereign debt crisis could take years to materialize especially if there are continue worries over economic strength. These fears will keep people looking to the dollar. And for now circumstances are in favor of the US – stronger data, clearer situation.

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 market has reached a first support level at 1.4405. We see no oversold/overbought and the trend is up still. So, the nearest up target is the same for now 1.6276. Another interesting movement concerning the monthly chart – is a long up move. Usually this kind of movement has a strong momentum. That’s why I expect some move back. Most probably it will happen regardless to the trend that will be after that. It can change, it can stay up, so this move has a solid probability to happen because it is technical, not fundamental. The target of this move is around 1.4800-1.4830 area for now. If the market will go deeper in nearest future this area also will be a bit lower.
Anyway this is a monthly chart and we will have time to discuss this situation soon. Besides, we need to see any signs of up turnover on the weekly and daily charts first.
Second thing - I suppose that this down move will give us a “C” point to calculate expansions higher to estimate potential targets for a continued up move (look at Monthly #2 chart).

Monthly #1

Monthly #2

Weekly (EURO FX all sessions CME futures)

The target from the previous week (1.4435) was achieved. The market has broken through two Confluence areas – 1.4720-1.4730 and 1.4464-1.4484 (see previous research) and reached 1.4333 Fib support. So, for now there are two strong support areas (Marked by “K”) – 1.4270-1.4280 and 1.4080-1.4085. We see a bearish trend, no oversold level. Taking into consideration that I‘ve talked in Monthly part, we need carefully watch for signs of possible up turn. The probability is higher that these signs can appear near strong support levels.

Weekly

Daily (EURO FX all sessions CME futures)

The market is highly oversold on the Daily time frame and near Fib support level (Daily#1 chart). Also we see a strong Confluence area at 1.4275-1.4280. So, I think that the market can not pass through this area in oversold condition – it should retrace higher (Daily chart#2). I do not know exactly where up retracement will start, but it should happen above 1.4270-1.4330 area. The maximum of this retracement will give us a “C” point also, to calculate possible targets for down move.
According to Daily #2 chart, the most probable level at which retracement can finish is a 1.4605-1.4620 confluence area for now. But if the market will make a new current low then these levels also will change. Besides, oversold condition also will fade there. So, to determine precisely these potential levels, we need to look at lower time frames in the future. I am writing all these things just to explain the way that situation will develop.

Daily #1

Daily #2

Trade EUR/USD possibilities (1):

Monthly
I expect a technical retracement up due to market momentum. I think it should happen regardless to trend that will be. Taking into consideration the current situation on the daily chart (strong support and oversold at 1.4270-1.4330) it can start from this level. Anyway we need to see signs of this move. I do not see them for now.

Weekly
No oversold, trend is bearish. Two strong support areas that can lead to retracement up due situation on Monthly and daily time frames.

Daily
We need to closely look at lower time frames. If they will show signs of reversal up, that will mean that the 1.4270-1.4330 area holds and even the possibility that this is the start of the move to the monthly target.

And my thoughts in general on situation – I will be waiting for signs of a reversal up on daily and weekly charts. I suppose that these signs will appear near strong support levels (which one I do not know yet) and will be confirmed by 1-4 Hour charts. Then there will be a good possibility to go long with the monthly target. The monthly trend is still bullish.




(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.

 

[Sentinel]

Gold

EURUSD is in the oversold area and reached weekly confluence levels so I started looking for something else to trade. Here is the case in gold.

1) Central Banks buying gold which is commented as gold weaking by authorities(why??).

2) USD is getting stronger, which means weak commodities in the future. The most overvalued one is gold.

3) 4H and Daily DEMA are signalling downtrend on Gold. Weekly DEMA is about to signal downtrend at the time been this message is written.

4) None of them is at the oversold area.

5) There are two confluence areas to utilize for Bushes at 4H chart.

So how about shorting gold around 1120 at first confluence with stop loss around 1150?

4H Chart

Weekly Chart

 

[Sentinel]

We see a bearish trend, no oversold level. Taking into consideration that I‘ve talked in Monthly part, we need carefully watch for signs of possible up turn. The probability is higher that these signs can appear near strong support levels.

Could you please explain what these signals are? An upper thrust on lower time frames? DEMA penetration? A Squat?

Thanks

 

[Sive Morten]

Could you please explain what these signals are? An upper thrust on lower time frames? DEMA penetration? A Squat?

Thanks

Well, it can be anything - wash&rinse at agreement and confluence support, DRPO, RRT, thrust from a confluence. You never know, what and how it should be. If it bright, like a directional signal, then you can identificate it earlier. If it just thrust after, for example Wash and rinse - its more difficuilt to catch at early stage. I think that it's one of the most difficuilt moments in analysis... in a row with point "C" identification. You will see it when time passed. But to enter at extremum at point C is also complicative task.

Concerning Gold... I'll try to post with charts on Monday - but the basis is the same as a EUR/USD. It can be a bread and butter monthly trade (this is the reason, why I expect some reverse up). All depends from your time frame.
Let's talk about it on Monday (I do not have CQG at home)...
Sive

 

[Sentinel]

A Study on Predicting the C Point of the Retracement

Let's look what we have on EURUSD side:

1) A Stretch.

The market is highly oversold on the Daily time frame and near Fib support level

2) Market reached a strong weekly Confluence Area and a retracment began. 1.4277 is also an Agreement .(Many thanks Sive. Great Analysis.)

Also we see a strong Confluence area at 1.4275-1.4280. So, I think that the market can not pass through this area in oversold condition – it should retrace higher

3) Weekly and Daily DEMA signalling downtrend. So that should be a retracement rather than a trend reversal. But we don't know where that retracment will end. We should predict. A candidate is the first confluence area at 1.4450-70.

4) Also there is a DEMA/Stochastic combination signal. (Chapter 5, Dinapoli). Daily DEMA (strong) signalling down while daily Stochastic (weak) signalling up. Selling opportunity.

However the problem is Detrended Oscillator is at the OS area which is a filter to trade. So we should calculate a level which Oscillator is back to normal. (Let's note that Stochactic cross is also weak in angle which points out consolidation rather then a reversal. Page 69)

5) Assumption: Due to the strong down thrust, I assume that a retracment would not pass thru previous daily high Oscillator level which is at 14 December, -0,0040.

6) Let's calculate the price with the Oscillator Predictor Sive explained earlier:

X = (7D + S)/6, where as D is Oscillator number, S is previous 6 closes.

(7*-0.0040 + 1.4611 + 1.46209 + 1.46566 + 1.45397 + 1.43428 + 1.43323) / 6 = 1.4471.

And bingo.....

5) 1.4471 is the first daily confluence level I mentioned earlier.

My prediction is : This retracment will fade at first confluence area around 1.4450-70 and that would be a nice place to go short.

 

[Sive Morten]

Gold

Well, my thoughts on Gold as follows:
1. Usually Gold shows deeper retracement then other markets - it's just how this market works. That' s why I think that short from 1120 area is too low. But it depends from time frame. All that I say concerning daily and higher time frames. If you 1-hour trader, then may be it can be possible.
2. I think that we have 2 week and 3 week RRT on gold. Just emagine last 6 bars (except current) on weekly frame like three up and then tree down. This is RRT. From that point of view - we should expect retracement in 1150 area. And that level is a more acceptable to short, to my mind.
3. But the 2 point depends from the current Confluence support (1104) if in will not hold then we will have to recalculate possible retracements when gold will reach strong support and start up retracement. My fears of a possible downmove based on no oversold condition and breaking 1120 Confluence support after a small retracement up.

4.From the other side, previous move on Gold was strong, and there should be up retracement. Usually it reaches 0.618 from whole down move - and this is a 1170 area.

So, my thoughts are:
If 1104 Confluence will hold, i think that Gold definitely will reach at least 1150 and give us a "C" point to calculate expansion (OP will be at agreement at 1040 area and if it will be reached it will give us monthly RRT. But all this talks are based of "if if if" basis). If not, anyway, I think that gold will show at least 0.382 retracement and may be even 0.618. So, for now i think that acceptable short is from 1150 area with s/l in 1180 area. If 1104 support will show strength then long trade also possible - with s/l under this K-area and t/p around 1150.

Sive.

 

[Sive Morten]

Concerning EUR/USD thoughts are the same:
This is 1-hour chart
1. Market has reached Confluence at 1.4270, hourly trend turns bullish.
2. Now we have reached Confluence and overbought level at hourly chart.
So, I think that we will have a 0.382 retracement and then continue up move to 1.4450 Confluence resistance.

So, I think that enter around 1.4320 s/l 1.4296 and t/p 1.4450 has some scence.

Sive.

 

[Sentinel]

Gold

Gold now reached strong weekly fib level 1088 just like EURUSD. Both USD and GLD are facing these strong supports so going long in short term seems more favorable.

On the otherhand EURUSD is about to reach previous high (-0.0040) on Daily Detrend Oscillator and no more OS. 4H, Daily, Weekly trends are downwards. A channel to short EURUSD in long term is about to open in my opinion.

 

[Sive Morten]

Yes, Sentinel
Looks like pressure stronger than it seemed before.
I do not like this situation that EUR and Gold could not show a normal retracement in situation near Confluence and OS.

 

[Sentinel]

Yes, Sentinel
Looks like pressure stronger than it seemed before.
I do not like this situation that EUR and Gold could not show a normal retracement in situation near Confluence and OS.

Sive, for Gold below 1088 there is no daily confluence level left according to my calculation. The first confluence is the weekly one around 1027. Is that a sign that fall could be sharp?