Sir Pipsalot's Thursday Market Update 08-19-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

EUR/USD gave us yet another chance to sell around 1.2900 today, and during the Asian session this evening, worked lower down to my 1.2800 TP. For those looking for more or managing a EUR/USD short position trade as I am, I'd continue to hold out a portion of the short to TP in the 1.2420-1.2610 support region. Until then, as I've mentioned repeatedly over the past week or two, I'm looking to sell on 100 pip+ rallies and TP on dips. As I mentioned yesterday though, be wary if a clear bottom forms here around 1.2800 and we rally hard through resistance off of it. That would indicate a reverse head and shoulders formation and subsequent neckline break that would call for a rally to the 1.3050-1.3100 area.

I know yesterday I mentioned to beware of a possible USD/JPY selloff in conjunction with stocks, but this evening we've gotten word of pretty extensive expansion of BOJ quantitative easing along with rumors of an emergency BOJ meeting to take action to stimulate their economy... Under these conditions, the JPY is likely to be weak or neutral even if stocks are selling off... so I caution you that the common correllation between yen crosses and stock indexes may not work for a little while (i.e. we may see stocks down and USD/JPY, EUR/JPY GBP/JPY rallying for example).

It's quite a bullish fundamental swing for USD/JPY coming while the daily chart is very close to major support. Because of that, I'd take a long here at market in the 85.50 to 86.00 range (85.73 as I type). Seeing that the USD/JPY has sold off 800 pips over the last 2 1/2 months without much more than a 150 pip retracement along the way... this could be an opportunity to grab 400+ pips on a rally to the 89.80 to 91.10 region with only about a 100 pip SL.

Stocks managed to work a bit higher today poking into my 1095-1105 sell region I mentioned in yesterday's signal, peaking out at 1098.50 on S&P futures (1100 even on live S&P index) forming a double top of sorts and have since sold off 10 points. It's possible that stocks topped out this retracement today, but it's also quite likely that we'll see a little more strength over the next 1-2 days before we head lower. The ideal time projection for a high here is late Thursday or sometime Friday. I would consider a break below 1083 a reassuring signal that a high is more likely to be in place. The next selloff should target at least 1000 support and more likely break it and run south to 950.

If I had TP'd on my short from 1120-1130 (form last week) completely as I intended to at the bottom of the recent decline (missed it by a few points), I would be reselling here in the 1095-1105 range looking for a selloff to 1000, then 950 in the next wave down, but since I'm already in, I'm simply adding to my position here and treating it as a new trade and adjusting my targets lower accordingly.

In news Wednesday, we saw BoE Minutes come out as the first scenario discussed in yesterday's signal, where there was no real discussion of further QE, and that led to the expected short covering rally from those who were expecting some dovish surprise out of the minutes. The rally was actually larger than I expected, and while I made some decent pips on the report, in the end it managed a 140 pip rally without a major retracement over the next 3 1/2 hours. UK news can definitely be fire in a bottle. Speaking of... in news Thursday:

0430 UK Retail Sales m/m (0.2% expected) - We're in an environment right now where UK news causes habitual overreaction on the GBP/USD, so hopefully we'll get yet another exaggerrated move on this one. As far as whether the Ex Auto Fuel (0.2% expected), or With Auto Fuel (0.3% expected) is more important, it's difficult to say at this point, and quite honestly it doesn't really matter. It would be very unusual to see one with a solid deviation and a conflict on the other, so I'd prefer to trade the Ex Fuel number for now since that's the older, more traditional indicator.

--If it comes out at 0.6% or higher, GBP/USD should rally 25-40 pips initially, and possibly 80-100 pips total over the next 1-2 hours after some retracement

--If it comes out at -0.2% or lower, GBP/USD should sell off 25-40 pips initially, and possibly 80-100 pips total over the next 1-2 hours after some retracement.

--Look out for big revisions to prior numbers which often shows up in the y/y figures. If there's a situation where you have a positive surprise on current data, coupled with a big negative revision to prior releases... that's typically a situation where you want to stay out or close the trade quickly.

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
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