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Sir Pipsalot's Monday Market Update 05-10-2010

Discussion in 'Commercial Trade Journals' started by Sir Pipsalot, May 10, 2010.

  1. Sir Pipsalot

    Sir Pipsalot Former FPA Special Consultant

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    Hey folks,

    It looks like the Eurozone leaders finally came out to combat this with a bang with their announcement of a 600B Euro bailout fund with even the ECB caving in and moving to buy sovereign debt (referred to as the "nuclear option"). It really is quite the blitzkrieg by the European leaders to throw anything and everything at this issue. Already, this has caused a large gap up in stocks, the Euro, and risk related currencies; however, will it hold on? I believe strongly that the associated rally with these announced measures will fail and give way to a further selloff as markets realize this is just a quick fix and not a systemic change... but the question is when will the selloff resume and from where?

    I believe the best spot for now to try shorting the Euro for a medium to long term trade is in the 1.3085-1.3110 area which corresponds to a cluster of fibonnaci and sits just below the 4-28 lows. If that area fails to contain this short covering rally, then we'll look at other levels above for later in the week. For now, for Monday, right around 1.3100 seems to be the sweet spot for a short.

    In the meantime, momentum following trades (primarily long, but could be either way if someone big sells into this rally), could be played by buying on pullbacks on the EUR/USD to the 10ema on either the 15min or 1hr chart as long as we're holding above the 60sma (vice versa for selling momentum). You can also try this on the EUR/JPY as well as that ties in both risk appetite and the Euro situation nicely for some extra volatility.

    Stocks have gapped up strong over the weekend on the news and are now up almost 30 points from Friday's close. This bounce should too run into trouble and resume downwards price action, but it's not a guarantee. Remember, when I called the short on stocks, it looked like we were headed at least 80-100 points lower, with a decent chance of a more tumultuous meltdown. Well, we got those 80-100 points, so now the question is... have we set the highs for the rally? I can't be sure honestly.

    If we did indeed set the major highs in late April, a sell in the 1154 to 1174 range with a SL at 1183 or above seems pretty ideal for a short into this rally, so that trade is worth a shot if you're not in short. If you are short for the medium term, an SL in the 1176 to 1183 range makes the most sense. Also, if you watch the charts during the day and are a bit more nimble, you can consider exiting the short and waiting for a bit of downside momentum to reestablish before getting back in (could get back in at a bit higher level with your wind at your back).

    In news Friday, we saw CAD Employment come out crazy strong which shot USD/CAD down 90 pips in the first 1-2 minutes. Unfortunately, that was all it could muster and it never made any further lows. US Non-Farm payrolls was a bit of a wash as the Employment numbers came in high, but the Unemployment Rate came in significantly worse than expected, so there was some confused price action. Typically when there's a conflict like that, the initial reaction will follow the Employment surprise, but soon after price will shift towards the Unemployment Rate surprise and take over which is what happened on USD/JPY. In news Monday:

    0700 UK Interest Rate Decision (no changes expected on rates or APF) - If they release a statement (they may not), it will be scoured for dovish or hawkish shifts, and examined for any forward looking implications for quantitative easing (the APF).

    If they make a more hawkish shift, such as looking to move to normailize rates later this year, or surprise with a hike today, GBP/USD should rally hard for 50-100 pips.

    If they dovishly express strong concern over potential GDP contraction and the weak state of their economy, hint at keeping rates low for a very long time, or expand or hint at expanding the 200B scope of their APF, GBP/USD should sell off substantially for 50-100 pips.

    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 sirpipsalot@profitmongers.com

    To our success!
    Sir Pipsalot
     

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