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Sir Pipsalot's Wednesday Market Update 09-08-2010

Discussion in 'Commercial Trade Journals' started by Sir Pipsalot, Sep 7, 2010.

  1. Sir Pipsalot

    Sir Pipsalot Former FPA Special Consultant

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    Hey folks,

    Lots to cover today, including a little recap to set the stage. Sunday night I advocated shorting EUR/USD, AUD/USD, and GBP/USD as follows:

    "It looks like to me there's potential in both directions for the Euro Monday, whereas the AUD/USD and GBP/USD are tilted a bit more bearishly. Honestly though, I like all 3 short with a modest 30-60 pip SL to start the week (EU - 1.2903, AU - 0.9171, and GU - 1.5482 as I type) not because they have a huge chance of selling off, but because IF they turn lower soon, it should mean 100's of pips lower. So it's not a high probability trade, but more of a risk reward trade that you want to look for 2-4 times your SL to take profits."

    Since then, both EUR/USD and GBP/USD have done just that and worked about 200 pips lower each. AUD/USD is lower as well but a more modest 50-70 pips, and all 3 never hit even the tight recommended SL's.

    Now, looking forward, I still think there is downside potential here moving foward on EUR/USD and GBP/USD. EUR/USD seems poised to test and break lower through 1.2625, and likely test sloping channel support around 1.2520. GBP/USD also seems set to decline further to 1.5115 before finding significant support. Even with this in mind though, we've already have 2 solid down days for both pairs. If you made good money off the short call Sunday or the reiteration Tuesday, then I'd hold back on this one. However, if you're looking for a new trade, I'd look to get short either pair on a rally of some sort, and with the GBP stronger right now I like a conservative sell in the 1.5420-50 range, and on the EUR/USD a sell around support becomes resistance around 1.2770-80 both with about 50 pip SL's and 70-250 pip TP's.

    Stocks managed to sell off perfectly in accordance with my stock call in Monday's signal:

    "With a market holiday Monday, the futures are likely to slowly rally a bit higher to stop some people out, then turn lower into Tuesday. Because of this, I like the idea of a shorter term short anywhere above 1105 (now 1105.75) with a 10-20 point SL and 10-20 point TP. Medium to long term I'm short as well, but I'm a bit nervous about it, and the next 3-10 days should do a lot to either confirm the trade or signal it's time to get out and look in the other direction."

    Stock futures managed lower by 15 points after poking above 1105 by a point or two many times over the next 24 hours. If you trade stock futures, hopefully this helped you find a winner or two as well. With a lot of scammy Forex brokers and new CFTC regualtions on Forex in the US, I'm finding futures a more and more attractive place to trade Forex, not to mention access to all sorts of other markets like stock indexes and commodities.

    The outlook on stocks remains similar to EU and GU. I expect there to be moderately more downside (now 1090 on S&P futures) to the 1070-1080 region. There we will start to see whether the recent rally was simply a retracement in a downtrend, or the first phase of the next bull trend. If we have a lot of trouble breaking lower through 1070-1080, then those like me who shorted stocks medium to long term from 1120-1130 and 1070-80 may want to consider closing their trades for smaller profits or break even while the situation clears up and we can either reverse long or get back in short depending on what happens.

    In news Tuesday, we saw AU Interest Rate Decision come out with no real hawkish surprises, so the AUD/USD worked lower as forecasted. I specifically called for: "AUD/USD should trade lower albeit more gradually than for a hawkish surprise. I would expect a 40-70 point slide over the course of 4-7 hours." And in fact, we saw just over 70 pips lower over 4-6 hours (double bottom). Grabbed 50 pips of the decline in the Profit Mongers room too with a short shortly after the release. In news Wednesday:

    0430 UK Industrial Production m/m (0.4% expected) - This report is a bit hit-and-miss nowadays, but I'm inclined to think it will work this month if a trigger is hit. Since this isn't the hottest news, the initial move in the first minute or so may only be 10-25 pips, and may even see some initial retracement. If you're looking to trade after the spike, try getting in within 10-20 pips of the prerelease price if a trigger is hit and look 15-20 pips profit (or maybe stretch it for more on a portion of the position if short).
    If it comes out at 1.0% or higher, GBP/USD should rally 30-40 pips.
    If it comes out at -0.2% or lower, GBP/USD should fall 30-40 pips, and possibly trigger or help a downtrend along for further downside over the next 3 hours.

    0900 CAD Interest Rate Decision (0.25% hike to 1.00% controversially expected) - 14/20 economists expect the BOC to hike rates, and futures are pricing in a 64% chance of a rate hike as of Tuesday. Given this scenario, it's a pretty clear cut trading situation:

    --If they hike rates and maintain a hawkish outlook, USD/CAD should fall by 40+ pips as those betting on or looking for a dovish surprise are disappointed. Hawkish commentary should help USD/CAD trend lower from the initial drop for 70-100 total pips lower over the next 1-3 hours.

    --If they hike rates but qualify the hike with a much more neutral or dovish outlook, there should be an initial 30-40 pips drop in USD/CAD in reaction to the rate hike, but USD/CAD may then become rangebound or even rally due to the mixed outlook moving foward.

    --If they keep rates unchanged, that's enough of a surprise to cause a sharp rally regardless of the commentary. USD/CAD should rally 50-60 pips quickly and likely 100-150 pips over the next 1-3 hours. More dovish commentary will obviously help the rally while hawkish hints may hold it back a little.

    1000 CAD Ivey PMI (55.0 expected) - Normally I look for opportunities to trade this straight up, but following a controversial rate decision, it's tough to preview whether it will have an impact or not. Just keep in mind that typically a 5.0 deviation usually creates a nice 30 pip or so slow trade over 15-30 minutes.

    2130 AU Employment Change and Unemployment Rate (25.0K and 5.2% expected) - Keep in mind that both of these numbers have similar potential to move the AUD/USD. Typically if there's a conflict, the initial move will be inline with the Employment number, but it will reverse into a move corresponding to the Unemployment Rate. If both come out in complimentary directions though, or if one is close to expected and the other a big surprise, we should see a solid move.

    --If Employment Change comes out at 45K or higher and/or Unemployment Rate comes out at 5.0% or lower without conflicts, AUD/USD should rally 40-50+ pips rather quickly, then consolidate for awhile or even retrace a bit, then likely continue further for another surge a bit later if the surprise is excessive.

    --If Employment Change comes out at 5K or lower and/or Unemployment Rate comes out at 5.4% or higher without conflicts, AUD/USD should fall 40-50+ pips rather quickly, then consolidate for awhile or even retrace a bit, then likely continue lower for another drop a bit later if the surprise is excessive.

    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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