Sir Pipsalot's Daily Market Update 2-4-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

On Wednesday, initially we saw continued retracement higher on the EUR/USD followed by a sharp turn lower throughout the rest of the day. The depth of the overall retracement falls short of the typical retracement range, so there are 2 possibilities:
1) The sharp move down is wave B of an A-B-C wave 2 retracement soon to be followed by a wave C higher. In simple terms, wave B may extend modestly to new lows in the 1.3800-1.3850 range, or could have bottomed out already at 1.3867. Wave C up should exceed the 1.4026 highs and work towards 1.4116 at a minimum, but more likely closer to 1.4191.
2) The sharp move on Wednesday down started wave 3 of 3 lower sooner than normal because of the sheer magnitude of the impending decline. If this is the case, wave 3 of 3 should target 1.3650 at a minimum, but more likely 1.3100 over the 2-5 weeks.

Hopefully which scenario wins out will be more apparent by this time tomorrow.

Stocks are nearing a top, but likely have another final push to new highs before completing they're retracement. As I mentioned yesterday, I think it's worth getting short S&P here near 1100 (ES contract prices) in case we top prematurely (as we may have on the EUR/USD already)... but with a plan to short more or at least survive a run up to the 1106-1116 area where a final push up will likely target. I am short some now and plan to add more on a push into that region.

In news Wednesday, we saw UK Service PMI come in very low and make a gradual 6 minute move that covered 45 pips which was right inline with our estimates and was fairly simple to get in on. Both NZ and AU data came out bad and lead to marked selloffs. NZ employment actually was close to expectations, but the unemployment rate came in a whopping 0.5% above expectations and led to a selloff. AU Retail Sales lived up to its forecast with a 40-50 pip downmove that happened very quickly, but eventually reversed. In news Thursday:

0700 BoE Interest Rate Statement (no change at 0.50 unanimously expected) - Like when we saw a big surprise out of the RBA when they left rates unchanged, we have at least a small potential for a surprise here. If they make a surprise hike on rates, that will be very bullish, but the more likely scenario whether they'll pause or extend their Asset Purchase Facility.
If they hike rates, GBP/USD will rally 100+ pips.
If they pause their APF, GBP/USD may rally 50 pips.
If they extend the APF, GBP/USD may fall 50 pips.
*the 50 pips is somewhat guesswork... but it's an educated guess.

0745 ECB Interest Rate Decision (no change at 1.00% unanimously expected) - There is little chance we'll see any action here because the ECB typically does not release a press statement and they are unlikely to move rates. However, if there is some sort of hike, there will be buying pressure for sure.
If they hike rates, EUR/USD will rally 100+ pips.

1000 CAD Ivey PMI (53.0 expected) - A decent deviation here will usually create a somewhat gradual move on USD/CAD that can be ridden out for some time. I would aim to get in the direction of the signal anywhere within 10 pips of prerelease if a trigger is hit. Usually the move will last 30-45 minutes.
If it comes out at 56 or higher, USD/CAD should exhibit selling pressure for 30-45 minutes.
If it comes out at 50 or lower, USD/CAD should exhibit buying pressure for 30-45 minutes.

That's all for today's update. If you'd like to learn more about trading or trade along with myself and my collegues, come join us at Profit Mongers. Our subscription is very reasonable at $179 per month, and right now you can sign up for a 2 week trial to get started for only $29. This offer is for new customers only. If you have any questions, you can also email me at

To our success!
Sir Pipsalot