Special Consultant to the FPA
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
March 10, 2010
Analysis and Signals
March 10, 2010
There is not much to talk about on the week - it has very little macro data. First, February Non-Farm payrolls have shown a positive surprise (although I’ve expected worse numbers) - “-42K” including revision instead expected “-68K”. At the same time the EUR/USD didn’t show continuous downward movement and entered consolidation. There are rumors circulated on the market that March’s payrolls will be about +300 - +350 K but they do not influence on market much currently. At the same time retail activity in early March becomes stronger, air travel shows signs of improvement also. Boeing looks ready to lift 777 and 737 production by the summer. If Boeing follows through on lifting production, it will be a sign that the recovery goes beyond the inventory cycle.
From the other side, rating agency rhetoric was cautious towards the health of the U.S. and U.K. banking system. Fed Evans indicated that rates need to be low for some time due to lingering unemployment.
Concerning Greece and EU problems, the short-term situation calmed down a bit. French President Sarkozy has said that EU would stand behind Greece. Besides, discussing of European Monetary Fund creation has raised great interest from investors. In general this event is supportive for EUR. There is uncertainty as to whether or not this will be discussed at this week’s meeting of the European Commission but further discussion of its formation will help the euro at the margin. Nevertheless long-term problems still remain. At least two countries – Spain and Ireland have solid budget deficits that can compare to Greece’s one (-16.35% to GDP). Spain’s deficit in 2009 was - “-12.103%” and Ireland’s – “-12.269%” (according to IMF data).
Given that the criterion of the Maastricht Treaty dictates that the budget deficit-to-GDP ratio need to remain under -3% of GDP, Greece has already pledged that they will be able to reduce their budget deficit-GDP ratio to the mandated -3% by 2012. Just last week, the Greek Parliament approved an E4.8B austerity package. The plan will freeze pensions, increase sin taxes, cut public sector worker wages and also levy taxes on a random assortment of other goods. The austerity measures have triggered chaos in Greece as rioters protested Parliament’s decision. The threat of social unrest will continue in Greece. But this is just the tip of the Iceberg. Greece has to fulfill debt obligation in 2010 just for 16B EUR. But other counties have awful numbers:
Italy - 259.8B EUR + 34.01B in interest ; Spain – 88.9 B+10.95B in interest. In wealthy times they can gradually recapitalize them, but for now it’s much harder to accomplish. And the Greece is just the first splash.
Résumé: The US economy continues to show signs of improvement. For now the basic expectations that Fed will tight rate to 0.5% in Q3. It will happen with solid probability if the current trend in macro data will continue. The situation in th EU is very complicated, and I think that it will not be fully resolved until summer. Investors want to see debt maturity from Greece, how EU supportive program will work and maturing of debt obligations from Spain and Italy in 2010. For now all this stuff has too much uncertainty and remains a Pandora’s Box rather than a clear plan of stabilization. This situation allows me to assume that EUR will stay under pressure and EUR/USD downtrend will hold. Possible long-term targets – is 1.28 and psychological 1.25 levels. But the moving may become a bit slower than before.
Monthly (EURO FX all sessions CME futures)
Changes on the monthly time frame come slowly even if they come at all. Nothing special to add compared to previous research - the trend is bearish. 1.3400-1.3480 support has stopped the market for now. Although we can see some retracement higher in mid-term period, the long term monthly target is COP=1.2881 (there will be an oversold by the way), next is OP=1.1482.
If we look at DXY (Dollar index) it looks soft a bit. Index has reached weekly OP target at 80.784 and 0.618 resistance from monthly thrust bar at 80.783 (this results in agreement) and shows W&R of this 0.618 resistance level. We have confirmed bearish and unconfirmed bullish monthly trend in DXY. Although March has just started and it can go up further during March but current situation looks bearish for DXY and points on a possible retracement down.
Weekly (EURO FX all sessions CME futures)
Due to the absence any meaningful event, the market is still in a tight consolidation just above the 1.3480 level. Weekly situation is a bit tricky. Look, from the one side we have strong monthly and weekly support, something that looks like Wash & Rinse of this level – long candle shadows. The market has tried to break this support during the 3 weeks but was failed every time.
From the other side – we see very tight consolidation; market hasn’t reached even 1.38 level (that I’ve expected) and only 1.3700. The trend is bearish, no oversold.
So, the strong support and not deep retracement makes me think that somebody strong holds the 1.3480-1.3400 level. Otherwise, retracement should be deeper if the whole market decides that 1.34-1.3480 is a fair level. But the retracement is too shallow. At the same time, to break through we need a catalyst – news, macro events, etc., that can trigger market movement. I think that it will not happen during current week – the macro calendar is light, no political events (if will be no any force-major of cause). And I would like to see some signs of a possible move on a daily time frame (for example, Wash & Rinse of 1.3750-1.3800 level). I expect that the weekly market will stay in a range 1.3550-1.3700 until that.
Daily (EURO FX all sessions CME futures)
On the previous research I’ve pointed that I expect a retracement higher. This retracement has taken place, although not so far as I’ve expected – 1.3700 level instead of 1.3840. At the same time NFP was released better than expected but market didn’t show us strong down move (I’ve opened long EUR/USD precisely after reaction to release). So, for now we are in a butter churn. But there are some things that I want to talk about. First, the market has moved to higher range during recent days - 1.3530-1.3700 range. Two weeks before that market was in 1.3450-1.3650 range. Although it has tried – it couldn’t break 1.3650 daily Confluence resistance level.
Second, the current formation looks like Diamond reversal pattern, although not perfect. In general this pattern is rarely enough, and is very tricky.
As you see, signs are very contradictory and this is typical for such kind of price behavior. Trying to put parts of the puzzle together – weekly and daily, we can make an assumption that we can see an upper fake break of a diamond formation and reaching of 1.3800-1.3820 level for very short time. Then prices can show fast return and we can see daily and weekly bearish Wash & Rinse. But for this scenario we need that low bound of the diamond holds. Market shouldn’t break 1.3550 level and close below it.
If market will close below of a diamond border, then, the probability for down move increases significantly.
Anyway, I do not recommend to open long-term positions for now, since we do not yet see some signs of a possible direction. Better to make short term intraday trades. You can set up for diamond breakout, but try to take as low risk as possible, because the is tricky.
Trade possibilities (1):
Now we can say that monthly bearish trend has been confirmed. Although there can be some improvements in Greece’s situation in mid-term (and a retracement higher as a result), I think that in long-term USD is more favorable. The nearest long-term target is COP=1.2880.
We have down trend, no oversold conditions. Market won’t to go up - retracements are very shallow. At the same time we see failing attempts to pass through 1.3400-1.3480 support. So, it looks like confrontation between Big participants and other market. And this is usually leads to breaking after some retracement. So, very possible that we can see some pull back higher, and fast back down move and break. But it is unlikely that it should happen during the current week.
We have a tough situation as a weekly. Short positions are growing – they do not allow the market to show deeper up retracement, so stop orders are very attractive for those who hold 1.34-1.3480 level. The daily trend is still bullish, market has passed to new higher trading range 1.3550-1.3700, possible diamond formation (but I’m not sure). Before breaking down we can see some upward movement to 1.3800-1.3820 level and grabbing stops crusade. If it will not happen and market will move below 1.3530 again then the upper retracement to 1.3800 most likely will not hold. Anyway I recommend to set up on short-term intraday trades at near term.
Current European Forex Professional Weekly Signal - Forex Peace Army Forum
(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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