Sir Pipsalot's Friday Market Update 07-16-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

The character of the markets seems to have shifted into a new dynamic. As TTN summarized earlier today, there's been a big shift in the market from soveriegn debt concern to concerns about US Economic growth. I couldn't put it better myself. I'm not yet sure how lasting this new focus of the market will be, but while it's here, it definitely changes the dynamic of how risk appetite and risk aversion filters into the Forex market. EUR/USD is no longer the pair of choice for overall risk sentiment... that role has shifted in my opinion to USD/JPY.

USD/JPY seems poised for a big breakout lower today. With a very important support level here around 87.00, a clean break lower should not only mean a test of November's 84.80 lows are in order, but most likely a break of those lows and an extention much lower (78.00 ballpark long term). The short term play as we sit just above 87.00 (87.07 as I type) is probably more of a long since risk/reward favors a long with a tight SL and ambitious take profit if we form another low here, but a clean break lower (which my gut tells me is emminent) will open the door for a solid short.

EUR/USD is caught in a see-saw between soverign risk influences and waning USD sentiment, both of which have helped propel it upwards. There will likely be a solid technical trade short at some point in the near future due to its overbought condition, but the fundamental pressures are really keeping EUR/USD afloat for the time being.

Stocks did indeed top out finally Thursday short of 1102 key resistance, so the case for this being a retracement rally has notably strengthened. As long as 1102 holds, I think a short from up here could be quite opportune. Right now, S&P 500 futures are at 1090, and I think a short with a 15 point SL is appropriate for entry now. Potential TP's for consideration are 1070, 1040, 1017, 960 and 890. Personally, I'm going short 3 units using the first 3 TP's since I already have a long term short targetting the later 2 TP's and beyond.

In news Thursday, NZ CPI was too close to expectations, but we saw marginally weak US data at 0830 lead to a huge USD/JPY selloff just highlighting how fragile the USD sentiment is right now. Slightly bad news at 10am saw the same reaction. This should help things set up quite nicely for US CPI Friday:

0830 US CPI Ex Food & Energy m/m (0.1% expected) - With how sensitive USD/JPY has been responding to this week's US data (especially the low PPI yesterday), I think trading fairly tight triggers on today's CPI release is worth it. Look for a solid 40 pip move on a 0.1% trigger and maybe more like 50-60 pips on a 0.2% trigger. A smaller move may last 20-30 minutes while a larger move could last 40-60 minutes.
If it comes out at 0.2% or higher, USD/JPY should rally 40 pips.
If it comes out at 0.0% or negative, USD/JPY should fall 40 pips.
--Also look out for the headline number. The Core number should drive the initial price action, but the headline number (-0.1% m/m expected) should have some impact as well, so look for agreement betweeb the two to stick with the trade.

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