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Forex Trading Signal 07/22/09

Discussion in 'Current Forex Trading Signals' started by Crazy Cat, Jul 22, 2009.

  1. Crazy Cat

    Crazy Cat Former FPA Special Consultant

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    Hey folks,

    Yesterday's prenews plan for the CAD trade didn't work out terribly well. Sorry about that. Sometimes I forget how strange and manipulated the CAD is and I guess I got a bit suckered into a fundamental trade there when the CAD just simply does not follow the fundamentals in shorter to medium term movements very well. However, the overall forecast is still quite valid looking for this upwards thrust to run out of steam and head more materially lower soon. The big thing delaying the decline and keeping things afloat has been stubborn stock strength fueled by several consecutive days of better than expected earnings from key companies. Apple was the lastest company after the close to put out rosy numbers. Even though market sentiment is running out of steam and likely to turn negative towards risk aversion across the board here for a couple of weeks, earnings is one of the biggest factors that drives the stock market. As long as earnings keep coming out much better than expected, we could see continued delays or stubborn support fueled by bouts of risk appetite.

    In stocks specifically, we're poised just points below the S&P 500 highs of 956.23. Most analysts see a significant breach of that level giving way to follow-through rally action up to the 1000 area, and while I tend to agree from a technical standpoint... as with the head and shoulders pattern a couple of weeks back, the more obvious the technical signal is to the mainstream analysts, the more likely it is to fail. So it is quite possible we spike out to new 2009 highs on a stop run, then finally ease lower closer to 900.

    The good sign is that it seems a few currencies have already turned the corner away from risk appetite towards risk aversion as we've seen on GBP/USD which is already about 200 pips off it's Monday highs and falling further as I type. The EUR/USD, EUR/JPY and other pairs seem to be topping out as well from those Monday/Tuesday highs and have either rounded a corner lower or are stuck in consolidative patterns. Oftentimes, currencies will make the turn towards risk aversion ahead of the stock market, so I see this as an encouraging sign of a medium term shift towards a downtrend across the board... but we're not out of the woods yet. Remember also the big picture here. We're not looking for a major top. We're looking for a retracement of the rallies from the July lows to bottom out and give us a good long opportunity. Obviously though, short to medium term we're biased short.

    In news Tuesday, the CAD Statement did mention the Canadian Dollar, but the language on it was much less assertive than the last meeting, so the market saw that as a softening of their stance on the currency, and there was a whipsaw around. Bernanke's testimony failed to say anything substantial about quantitative easing, so there was no explosive potential there... just some gradual USD strength in line with our outlook. And AU CPI was a stinker as expected providing little decent price action. For Wednesday:

    0430 UK BoE Minutes - This is likely to be a difficult one to trade as they are unlikely to say anything substantial about their Asset Purchase Facility which is what the currency markets really want to hear about. If there are strong hints they will be expanding it past 125 billion pounds, that will be very GBP/USD bearish, and if they make it obvious they're going to keep their purchases limited to that level, that will be GBP/USD bullish.

    0830 CAD Headline Retail Sales m/m (0.5% expected) - CAD news has definitely been tough lately, but a surprisingly low retail sales number last month led to a nice, steady gain on USD/CAD even though the immediate reaction was only 15-20 pips.
    If it comes out at 1.1% or higher, USD/CAD should fall 30 pips.
    If it comes out at -0.1% or lower, USD/CAD should rise 30 pips.

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