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FOREX PRO Weekly April 25-29, 2011

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Apr 23, 2011.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals
    Looks like time has come to refresh our fundamental view. Structural weakness and excessive supply continue to press on markets. Fed still holds accommodative policy (QE II), and uncertainty about perspectives makes participants worry about the future. Just imagine, that currently Fed absorbs about 70% of Treasuries issues, while international buyers only about 30%. The major question now is what will happen, when Fed will finish its Quantitative Easing II program and leave the market. The same question has asked Bill Gross, Pimco CEO. But although this question is corresponding to USD perspective, still a bit secondary. Facts that are linked with dollar directly tell, that on supply side the sheer amount of USD is mind blowing. According to IMF data, allocated dollar reserves in both advanced and emerging economies summed 3.14 Trillion. At the same time the amount of EUR is 1.35 Trillion. But this is not all. Current deficit of US in 2011 will expected at – 493 B. Just for comparison, France holds the second place with “just” - 76.5 B.
    It’s obvious that international market community is not fascinated with this issue. It has been blamed for contributing to exceptional rally in commodities and broad input inflation. Emerging counties already are not very happy with depreciation of USD, because it has increased inflow of speculative capital in higher yielding currencies. And now Brazil for instance, will have to struggle with Real appreciation, because it is not welcome for domestic producers. ECB President Trichet even noted that the FOREX markets are in a USD phenomenon.

    While almost all Central Banks struggle currently with inflation, Fed does nothing and remains policy unchanged. Dollar continues to break, because there has been nothing to alter the status quo. Although some events could temporally change the dynamic, such as EU Sovereign debt crisis, but still market mostly believes that Europe has managed their problems, and while USD could enjoy some sun moments, in general, any counter EUR rally stops by bickering in Congress and flat Central Banks’ decision. Let’s discuss some important events that will happen and currently happen and could influence on EUR/USD pair and other currencies.
    1. While it could seem curious on the first view, but future currency policy of China makes extremely importance. As PBOC Governor Zhou’s commentary regarding reserves reaching unreasonable levels, there has been much chatter over the possibility that China, given its economic backdrop and need for greater currency flexibility, will revalue it yuan. As we all know that Chinese economy almost totally oriented on export, so appreciation of Yuan absolutely unwelcome. This appreciation comes not only from domestic processes, but from USD depreciation also. And, since US is a major China’s partner, the obvious way to exit from this circle is to search for another markets to supply their products. And looks like China moving in this way. They need flexibility of the currency and reduction of USD prominence. They already have started trading with BRICS in some products. Second, China intends to be significant buyer of EU Sovereign debt issues. Revaluation of Yuan usually impacts differently on other currencies. First, it increases demand for commodities and bearish for USD. The major winners with this will become other Asian countries, such as Japan, who will get rival advantage for markets, since their currency is cheaper, and their products, will not increase in price.
    2. The Fed probably will continue to ease. Recent rhetoric from Fed’s officials tells that they have not changed their view on economy significantly. Till the end of QE II program just 2 months remain. It’s hard to believe that we will see QE III, but Bernanke could return to reinvestment of maturing securities in Treasuries. This already has been used in August 2010. Anyway, this is hidden free emission of currency, and will be very bearish for USD;
    3. Washington is paralyzed over Budget compromise. Probably S&P Rating Agency action will force politicians to become more compliant and they will diligently work to resolve this early warning.
    4. Although situation is much clearer in EU, but it’s too airily to think that everything is OK. The major problem there is Greece debt restructuring, and there is nothing clear yet.
    And shortly about coming week. First, there will be Fed, RBNZ and BoJ meetings. Hardly we should wait some sensations here, except may be Fed. The major question here is perspective of QE program and much will depend on what Bernanke will say about inflation and growth and his question’s answering.
    Second, there will be UK and US Q1 GDP releases. So as data expectations were reduced, hardly this data will influence the market.
    More significant is data on Employment and CPI in Germany. Market should see strength data to support their positive attitude to EUR and continue to believe in continuation of ECB rate hiking.
    Monthly
    Monthly analysis remains intact and I just added trend line to show you its breakout.
    Monthly overbought area stands at 1.4744 – it’s not so far from current price action and it coincides with 0.88 Fib resistance. I suspect that this will be another level of resistance and nearest target.
    But now, friends, I offer you to look at larger picture. Look at huge ABC-top pattern that has started from historical high at 1.5988. We see, that market has reached just 0.618 target from it although it has been acceded a bit. So, in terms of this ABC pattern – its “C” point at 1.5142 has an extremely importance. If market will take out this level then it will erase this ABC pattern. And this, in turn, will be extremely bullish sign – road to further upside move will become opened. This scenario, possibly already has started to materialize – see butterfly “Sell” pattern on this chart. The target of this pattern is 1.27 extension at 1.6024. Also it coincides with 1.27 target of recent bullish AB-CD. In fact, this view is a bullish one, and now this is a dominating view.
    You can ask – and what about bearish view? Possibly, we can start to speak about it, only when & if market will move below 1.2870 level. Also I prefer to see trend shifting on bearish side, but currently it is strongly bullish.
    [​IMG]

    Weekly
    Here we see excellent move up, and now looks like we can talk bravely about breakout of 0.618 major resistance level. Trend is strongly bullish. But, from long-term perspective it is not suitable area to buy, even possibly it’s time to tight stops and be aware to close bullish long-term positions due to probable retracement. Why? Here is why:
    1. Market stands at monthly overbought at 1.4750. This is also 0.88 resistance;
    2. Even before that area stands target of Butterfly “Sell” (Jyotiprakash Pal has shown it on forum). Also its target coincides with 1.27 extension target of recent AB-CD pattern;
    So, to open bullish position long-term, we need some retracement lower on weekly time frame, and possibly it will start from 1.4650-1.4750 area. If it will happens, then it could be in a way of DiNapoli Directional pattern.
    #1
    [​IMG]

    Take a look at chart #2.
    Trend is strongly bullish and will remain bullish till 1.3892-1.3970 weekly Confluence support area – MACDP will move a bit higher, when market will start retracement down.
    We have an excellent thrust up that tells us couple important things. First, this thrust could be a context for possible directional signal – DRPO “Sell” or B&B, for instance. And such kinds of signals on weekly time frames promise solid moves. Second – it tells us, that there was no solid retracement yet – not even 3/8 during whole thrust up. Hence, there are a lot of stops very close to market. From the bullish perspective we prefer to see retracement not deeper than 1.39 area roughly, because we need that trend will remain bullish. Conversely, we will not have necessary context to enter Long.
    #2
    [​IMG]
    Daily
    Although, we’ve discussed the possibility of Stop Grabber pattern – it almost has happened, but “almost” never killed a fly. Trend has held bullish. Still, if market will show some significant move down on Monday we could return to this discussion.
    Due to solid move on previous trading week, the distance between pivot lines (red, blue and lime) is significant. Market stands near daily overbought at 1.4665 – it coincides with weekly butterfly’s target. 1.4750 level is pivot resistance 1, monthly overbought and 1.27 Fib extension target. So, such density of resistances could lead to very sloppy price action with strong pullback on intraday time-frames.

    Now take a look at recent AB-CD pattern. CD leg is much faster and market has accelerated from 0.618 to 100% extension target. In general, such kind of price action could lead to 1.27 or even to 1.618 extension targets. This could probably happen, but not prior the moment of overbought condition correction.
    Still, as retracement levels, most suitable are 1.4442 that is also a pivot or 1.4350-1.44. If market will move lower, then bullish bias will not be so obvious.
    [​IMG]

    Intraday
    4-hour chart #1 tells us that there could be a Bread & Butter “Buy” pattern. Nice thrust up, although not perfect, market has started retracement down. Just below the market 1.4461-1.4472 Confluence support, weekly pivot and previous highs. If market will drop precisely to this area but not like a stone and then will start move up, then possibly we can use it to enter on the Long side. IF market will start fall fast and hold below pivot – don’t be long, it could be a sign, that daily Stop Grabber will appear still.
    #1
    [​IMG]

    Hourly chart #2 shows Agreement with 1.4450 area roughly. Well probably this will happen, but BC swing is very shallow and I prefer to see clear BC moves. But still, this is AB-CD, and it could work.
    #2
    [​IMG]

    Conclusion:
    Position traders:
    If you have position - hold them, but tight stops. Be ready to exit around 1.4650-1.4750.
    If you are flat now – stay flat. Although context is bullish, market stands at resistance and monthly overbought.

    Intraday traders:
    Although trend is bullish, existence of strong resistance just above the market – 1.4650-1.4750 could lead to deep plunges on intraday charts. Nearest target is 1.4650 area.
    1. On Monday watch for 1.4450 area. Market should gradually reach it and not fall like a stone.
    2. Drop your time frame to 30-min or 15-min chart. Watch for clear “Buy” signals or patterns around 1.4450
    3. If you’ll see some – enter long. But it will be safer if you will enter when market will return back above pivot point and hourly trend will be bullish.
    4. If market will show fast move down, and/or stay below pivot 1.4442 – don’t be Long at all.




    The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
     
  2. eric lew

    eric lew Private

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    Hi Sive,

    Thanks for posting even on a saturday and a easter weekend. you should be enjoying your holiday!

    Just want to ask you about trading a retracement. i notice that after a strong up move the week before, the market quite often retrace to the weekly pivot early in the week, like what you say, 70% of the time. is it a good strategy to go short say, at 1.4560(spot market) with target at 1.4460 and stop loss say 1.4640 on monday. i had done this 2 weeks ago (last week was an ABNORMAL week) and was sucessful.

    However you never really recommend such trades, you would usually recommend going long after the retracement to trade in direction of the bullish trend. Just want to know your view on such a strategy, is it riskier
    and the pits fall. i reckon a 60-70% sucess rate is not too bad.
     
  3. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Thanks

    Thank you very much sir..
     
  4. khairularifin bin mazlan

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    Joe` Indicators

    Good day Sive

    Ive been following your daily analysis for quite long time.do you mind explain what are those blue,green and red line?which is i believe it is MACD line or might be MA line.sorry for questioning such a lousy question.
     
  5. BURLAJ

    BURLAJ Recruit

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    Thanks Mr Sive,

    Reply to eric lew question would be highly appreciated.

    Have a nice holiday
     
  6. younes

    younes Recruit

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    Hi Sive,

    Yes, we need your advice to trade that retracement For Monday.

    Thanks a lot
     
  7. jimmy.wibisono

    jimmy.wibisono Private

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    can you guys help me how to read a graph and its pattern? because I am new in this field, so I need a lot of tutoring.

    I hope you guys do not mind to help me.

    I still do not understand about the pattern of this butterfly.
    how do I calculate Fibonacci? of the graph where I have to pull?

    Thank you very much :)
     
  8. onenikos

    onenikos Corporal

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    The CDS game

    Dear Sive,
    To your excellent fundamentals this week I would like to add as a side line the importance of the CDS game that currently is reaching its peak. The effort of "sources" to create a situation of unavoidable restructuring of the Greed dept will continue targeting the May and June deadlines. The time that the first CDS will be paid it will be an avalanche in the Euro periphery and the Euro. There will be continuing effort to extract even the slightest mention by Greek officials that there might be either a plan, a thought, examination, or being in talks with European officials about either the prolongation or the reduction of interest of the Greek dept. These are enough to pressure ISDA for action. Therefore particular caution should be exercised during this period as volatility and abrupt movements might follow both rumors and actual events.
     
  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Eric,
    You're absolutely right, in fact this could be done. But there are some reasons, why I do not recommend such kind of trades. First, because this kind of trades are rather short term, and even if I will post any short term analysis - very few forumers will be able to execute it.
    Second, pure techical approach. Look, daily trend is bullish, so you have no context to trade short, say on hourly time frame. But if you trade on 5-30 min charts, and use as context not daily but 4-hour or hourly chart as a context - that's fine, this kind of trades absolutely possible. I do not see any problem to do it.

    Yes, sorry, looks like, I forgot to specify that:
    red line is MACD Predictor - shows trend
    blue line - Oscillator Predictor - shows overbought or oversold
    green line - 3 SMA shifted forward for 3 periods, aka 3x3 DMA.

    I suggest you to be a reader of FPA School:
    http://www.forexpeacearmy.com/forex-forum/forex-military-school
    Although particularly these questions that you've specified are not released yet, but they will be very soon. And covering of these questions will be very not formally, but detailed.

    Hi, Onenikos,
    Yes, I think, that you're right - thanks for add on.
     
  10. hgmamaci

    hgmamaci Recruit

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    Hi Sive. Thanks for all supportive information you are sharing with us. Can you please tell me how can I get predictor indicators?
    Thanks again. :embarrassed:
     

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