Sir Pipsalot's Wednesday Market Update 09-15-2010

Hey folks,

EUR/USD managed some initial weakness in Europe, but exploded into a huge rally during the NY session based on rampant rumors of impending QE2 from the FOMC in the next few months. This weakened the USD considerably, but the 1.3040-50 area is stiff fib resistance and likely to hold. While I was stopped out of my short from yesterday, I still see EUR/USD as a long term short trend with a potential high near these levels. It's possible we could see a rally as high as 1.3155 and still head lower over the next few weeks, but a high holding around 1.3040-50 would make the move a lot higher probability. If I'm wrong here, then we'll end up with a more substantial daily chart push higher likely targetting about 1.3800 before turning 1000's of pips lower in the coming months.

USD/JPY was another huge development today as Japan's Finance Ministry intervened on the JPY. I happened to be around shortly after and took a close look at what was going on. Essentially, they bought a bunch of USD/JPY from 21:32 to 21:35 sending USD/JPY up 80 pips in 3 minutes to 83.70. A few minutes later they announced an impending press conference and leaked the fact they did indeed intervene. I was fortunate enough to get in long after this confirmation around 83.90 and plan on milking a rally to near 87.48 (38% retrace of downmove from May). Commentary out of Japan has been incredibly resolute and encouraging this rally.

With the very solid break of key 84.25-60 resistance region, USD/JPY is on a tear and likely to rally into the 87.00's this week (now 84.98). However, it is almost always a bad idea to chase a trade. If you do chase, the earlier you get in the better, and with over 210 pips of a rally so far, it's too late to responsibly chase the price action in my opinion. Of course you can trade the momentum by buying pullbacks to the 10EMA on timeframes that are working (5 or 15 min chart most likely), but you'd be wise to use modest TP's and only keep a small portion of the trades long for a swing.

If there is a dip on USD/JPY, it should present a great buying opportunity. Levels to consider buying on a dip are 84.60, 84.30, 84.05, and 83.80. Maybe fading in on a dip at those levels for a position trade is a sound strategy as well. I think a strong dip will have trouble getting far into the 83.00's due to the incredibly supportive verbal intervention since the event. Also, the best price you could get after the intervention was confirmed was 83.70-90, so often people put some big bids in that area should it make it down there.

Whether you're in from earlier, looking for momentum based long scalps (and maybe holding on to a portion for the bigger move), or hoping for a good dip to buy into, this rally seems destined to target 87.00 at least, but more likely the 87.48 38% retracement of the selloff from 95.00. After that, the 50% retracement corresponds to other technical resistance as well and is around 88.90.

In news Tuesday, we saw UK CPI come out almost high enough to buy safely, and indeed it mounted a fast 50 pip rally after a prenews dip. There were retracement opportunities (not quite 50%) and subsequent rallies to test near spike highs, but after about 35-40 minutes, that died off and prices turned lower. The German ZEW had a major change of character and showed a limited initial reaction on a very low number (about 20 pips down), followed by a good retracement and then continued selling for about 45 pips down over 30 minutes and bottoming 55 pips lower within the hour. This might put it back on the radar for afterspike trading. In US news, Retail Sales came out too close to expectations for a trade. In news Wednesday:

0430 UK Claimant Count Change (-3.0K expected) - This report is a bit patchy, but with UK news really pushing GBP/USD extra hard lately, I'd give it a fair chance. Usually a 10K trigger is good on this, but you need agreement from the two unemployment rates (ILO 7.8% expected, and Claimant Count Rate 4.5% expected) usually to make the move a good retracement opportunity. Keep in mind that all of these numbers are a bit backwards, meaning high numbers are bad for GBP (more unemployed) and low numbers are good for GBP (less unemployed).
If it comes out at 7K or higher, GBP/USD should sell off about 40 pips.
If it comes out at -13K or lower, GBP/USD should rally about 40 pips.

0830 and 0915 US News - With the current market buzz about a potential QE2 in the works, US news reports might get some unusual price action, like treating bad numbers as good news since that will help convince the FOMC to enact QE2 (twisted, I know). Smaller reports like Empire Manf, and Industrial Production will be interesting to watch for signs of this if either have a big surprise. This could start to shift our best news trading pair for US news away from USD/JPY to another pair, so it's a good time to keep our eyes open and thinking caps on.

1700 NZ Interest Rate Decision (no change at 3.00% expected) - As of last week, a slight majority of economists expected a 0.25% hike, but given the earthquake in Canterbury, and weak Retail Sales, economists now unanimously agree they'll keep rates on hold after 2 straight hikes in June and July.
If they unexpectedly hike rates, NZD/USD should rally 60-90 pips.
If they keep rates unchanged and indicate rates as "normalized" or other implications they may be on hold for awhile, NZD/USD should sell off 20-40 pips quickly on speculative long covering, and continue to be weak for a 40-60 pip drop.
If they keep rates unchanged but maintain a relatively hawkish stance, this is essentially what's expected and I'd stay out.

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

 

rullko

Hi Sir Pips,
Why are you so quiet on stocks all of a sudden? I've always found your comments on SPX 500 most useful. Do you still think it's a sell?

 

Hey Bernd,

Sorry I haven't been mentioning stocks much lately. I've been caught with my hands in the cookie jar a few times now trying to call a top and I've been wrong. I still think we're in the process of topping out and turning lower, but until I switch my view or start to get clear confirmation of a turn lower, I'm not going to bring it up everyday.

Also, with great currency market action right now and stocks relatively muted, I'm kind of following where the action is.

In any case, once I have a strong, confident opinion on stocks again (probably sometime in the next week) I'll start covering it more regularly.

 

Thank You: Makes Sense: Anyway, I Appreciate Your Work.

 

Yes, indeed. As Bernd says, your work is trully appreciated!!!!!!!!!!!!!

Thank you Sir pipsalot,

To our succes!!!!!!!!!!!