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European Forex Professional Weekly 2010-01-14

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 14, 2010.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    EUROPEAN FOREX PROFESSIONAL WEEKLY
    Analysis and Signals
    January 14, 2010

    Fundamentals

    Not much has happened during the recent week. The data calendar until the end of the month stays light. The most meaningful event was a Payrolls release that lead to some reassessment of US labor market by investors and a short-time sell-of in USD. But I think that we should not overestimate the weight of just one number. The overall trend is a thing that is really important. And we can say that employment is improving despite the recent NFP number.
    Retail sales, Empire state index and Industrial production with Capacity Utilization will be in focus till the end of the week. I expect that retail sales will be a bit worse than expected (somewhere around 0.3% instead of 0.5%). The growing in Capacity and IP are very important, because Fed tracks it and takes into consideration during rate decisions.
    Concerning other events, it is worthwhile to talk about the IMF mission that has arrived to Greece to investigate the situation with the budget deficit and a possibility of its reduction. The situation remains complicated there. Bank of China has decided to draw some liquidity for cooling down their real estate market. Due to China’s government supportive programs, there are risks of bubble on China’s real estate market – excess liquidity is combined with low mortgage rates. This is a very explosives combination. It means that China can enter tightening soon.
    As I said in previous research we will track futures price for the Fed Fund rate to check for a possible tightening period:

    [​IMG]

    As you can see, investors are expecting tightening for 0.25% in October 2010 for now. This curve will change depending on FOMC statements and macro data.
    Also I would like to attract your attention to the moments as follows:
    - First, is a tightening of AAA spread (this is a difference between AAA rated yield and 10-year treasuries yield). Usually AAA spread moving in the same direction as the 2/10 year treasuries spread. But for the some recent month there is a divergence in behavior of these two instruments:

    [​IMG]

    - Second moment is a growing inflation. This is a graph of spread between 10 year Treasuries yield and 10-year Treasuries inflation protected securities. We can see that for the recent month inflation shows solid growth. At the same time the 6-month Treasury bills rate stays low.

    [​IMG]

    These two moments lead me to the thought that the yield is skewed a bit for now. And tightening could start a bit earlier – maybe in the second quarter of 2010.

    Résumé: I think that USD has major chances to gain in the nearest future (1-2 months). The basis risk is a stability of macro data. Problems in EU are long-term and can’t be resolved fast; Japan's economy depends much on exports mostly to the USA and Europe, so it is unlikely that it will gain momentum in front of US economy. So, circumstances adjust probability in favor of the USD. Besides, the USD will get additional favor from a lack of stability in world economic recovery. The long-term level EUR/USD that I expect is 1.40.

    Technical

    Monthly (EURO FX all sessions CME futures)

    We have an uptrend, no overbought/oversold on monthly. The next support level is 1.3950-1.4050 that has a solid strength, generally because it’s a 0,382 support from a major reaction point and almost a confluence with another 0,618 Fib support (Monthly#1 chart). But before moving in 1.4000 area, I expect a pullback to 1.4750-1.4800 (Monthly#2). The reason is a strong upside momentum of a previous up move, strong weekly support at 1.4270. Besides, we have to note that the market still does not close below the first monthly support at 1.4405.

    Monthly #1
    [​IMG]

    Monthly #2
    [​IMG]

    Weekly (EURO FX all sessions CME futures)

    On the weekly chart still nothing to add - Confluence area 1.4274-1.4278 holds. The market has started retracement upwards. The weekly trend is bearish, no oversold. Also an important thing that I would like to talk about is a K2 Confluence area 1.4068-1.4079. This area includes 0.382 from a major reaction point. It’s very important support.

    Weekly
    [​IMG]

    Daily (EURO FX all sessions CME futures)

    The up move that we’ve talked about in previous research has taken place. The minimum target for that signal (marked as OP at the chart) at 1.4500 was reached. Moreover, market has moved a bit further and reached a Confluence resistance area at 1.4560-1.4565 that includes major 0.3828 resistance. The daily trend is still up, we have no overbought still. But the situation is a bit tricky. From the one side the market has reached 1.45 - minimum demanded level for such kind of signal (Although my greed is expected 1.4650 ;) ). But from the other side – trend is still up, the market does not show deep retracement and stays at tight consolidation under the strong resistance. This situation is typical for preparing for a breakout.
    What we can do in these circumstances? Well, I think that it is not bad idea to position for a break especially taking into consideration the fact of bull trend at daily frame and monthly up momentum. So, one of the decisions can be buying near 1.4460 support with a tight stop loss (look at the hourly frame below). The point is if market will break this consolidation down – then it will definitely reach weekly Confluence support at 1.4250-1.4270. So we do not need farther stop.

    Daily #1
    [​IMG]

    Daily #2
    [​IMG]

    Hourly (EURO FX all sessions CME futures)

    When the market stays in a tight range you can’t invent any new thing – try to enter at a low border of the range with a s/l just below 0.382 support. This is just a question of which way it will break. For now probability is on a buy side. The fake breaks are also possible, but this is a part of the game.

    Hourly
    [​IMG]

    Trade EUR/USD possibilities (1):

    Monthly

    I expect technical retracement up due to market momentum (it already has started). The perfect target for this up move is about 1.4750-1.4780 area.

    Weekly

    No oversold, the trend is bearish. Looks like a retracement has started from 1.4250 Confluence area. The most important thing that te trend still will be bearish if market will reach as far as the 1.4780 target.

    Daily

    Previously expected up move has completed. But the situation looks like an additional up move is still possible – trend is up, no overbought, market does not show a deep retracement from strong daily resistance level and consolidating just below it. So the situation looks like a setup for an upwards break. One of the possibilities to be positioned for an up break is a buying at low border of range at 1.4460. This entry gives a good possibility to place tight correct s/l. Range is tight and a downward break will mean a movement to weekly confluence support at 1.4250-1.4270. If an upward break will take place – the nearest target is 1.4650 but 1.4750 is also possible to reach.



    (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.
     
  2. Forexwatchman

    Forexwatchman Sergeant

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    Thanks again Sive, your insight is always of value.
     
  3. yoenes

    yoenes Recruit

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    Thanks

    Hello i just want to say thanks for every thing i m just start to read your mails ,i like it . if you have any other nice stof of if there is some body wath no very nice stof on this website just send the link please .


    For now thank you for every thing.


    Greet you ,
    Yoenes
     
  4. Sir Pipsalot

    Sir Pipsalot Former FPA Special Consultant

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    I disagree and think there's a strong chance the downtrend from early December is starting to reassert itself and we're headed to levels around and below 1.4000 on the EUR/USD over the next month. I even called it live in our trading room on 1-13 with an aggressive set of shorts at 1.4572. Feel free to check out some of my recent signals: Sir Pipsalot's Daily Trading Signals - Forex Peace Army Forum for a somewhat contrarian and opinionated view that I have a lot of confidence in.
     
  5. FXDM

    FXDM Banned

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    I agree with you 100%. the top of up trend was on 25th November 2009.
     
  6. Awais Rasheed

    Awais Rasheed Private, 1st Class

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    Thanks for the help its been very helpful.
     
  7. Sentinel

    Sentinel Sergeant

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    I just want to share the Hourly outlook after the unexpected decline in EURUSD last night. It is interesting that even the Retail Sales and Unemployment Claims are worse than expected, EUR had declined. I have difficulty in explaining this. Is it all depending on Trichets speech? Probably not.

    [​IMG]
     
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Sentinel.
    I think that its not an undexpected. The up move that had took place is just a retracement in a weekly downtrend - we talk about in the last 2-3 weeks. I just thought that it will be a bit deeper. But it was not.
    In research we had talked that the target is 1.40. Look's like 1.4570 was strong, besides, there was a small W&R.
    I've trade EUR/USD only short-term (hourly) intraday, lke stop grabber.
    I tried to open long possition yesterday on a Retail sales. But reaction was not in a row with my expectations and I've closed it.
    I think that I will find oportunity to enter in weekly bearish trend. It seems that retracement up is finished.
    The last week I've traded JPY, it was more clear (these trades are on my FPA demo).

    Now I'm short in Gold with s/l above 1175 and target around 1010 for now.

    Sive.

    P.S. I hope that not everything is so bad. You have catched some profit, havn't you?
     
    #8 Sive Morten, Jan 15, 2010
    Last edited: Jan 15, 2010
  9. Sentinel

    Sentinel Sergeant

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    No, it is not bad. But when I woke up this morning, I see that the parity is 1.4411 even after the yesterday's bad data, I feel that there is something going wrong and I closed my Gold long position with a minimal loss.

    Thanks for the tip on on Gold.
     
  10. Sentinel

    Sentinel Sergeant

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    What I want to mean with 'unexpected' is that. Bad data, and EUR is losing ground instead of USD. That was the scenario last year when any bad data creating risk aversion and traders look for a safe heaven which is USD treasuries, creating USD demand. But that picture had changed for a few months. Market going reverse direction after the bad data was interesting.

    Regarding the trend, I know you are expecting 1.40 in long term. What is your opinion about the fourth quarterer earnings? I think market is expecting better results which is supporting your USD bullish expectations.
     

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