Sir Pipsalot's Wednesday Market Update 09-22-2010 + Long term insight

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

In Monday's signal I recommended a buy on USD/JPY around 84.75, and since then the 38% retracement shifted up a couple of pips to 84.77 which actually corresponds perfectly to asian session lows so far tonight. I personally am attempting a long here on USD/JPY at 84.85, and a 40-60 pip SL seems appropriate. If this trade fails, I would try buying again on a further dip into the 84.00 to 84.40 region, so if you'd rather tackle it all with one trade, you can either get in here and use a wider SL of 100 pips, or risk missing out and hold out for the larger potential dip to 84.40 or possibly as low as 84.00. Follow your gut here, but the bias is buy on dip for a medium term rally to new highs near or above 87.00.

EUR/USD and GBP/USD have pushed much higher on the back of the FOMC announcement today and really broken some new ground for short term trading. The next day could play out a few different ways, but based on my experience and some technical time and price projections, GBP/USD at least should cap off its rally sometime in the NY session Wednesday. 07:00 to 07:45 EST is a common time for market reversals, and it also happens to correspond to the 38.2% time retracement of the decline from Friday's highs, so I would look for signs of GBP/USD topping out around that time period to look for a short on the pair.

If you've been following my signals, you know I've taken a couple of ambitious longs on EUR/GBP, and I'm still in one from 0.8250 with a target near 0.8600. Now we've peeked out above 0.8500 and continue to rally. I maintain my TP near 0.8600 but there are some warning signs in the wind that the Euro relative strength may start waning in the coming days. There is buzz around some of my elite trading contacts (not the market as a whole... generally we're contrarians catching things early) that the Eurozone is getting hit relatively harder than even the US and is already starting to plunge back into recession. I'll share an insightful chart passed along to me by one of those elite traders that encapsulates the situation right now:

While this has been brewing for weeks now, it's hard to tell when the market will start to notice, care and finally react. In the meantime, the potential US QE2 is pushing safety fundage to the Euro and CHF which could push the EUR/USD as high as 1.3800 before topping out. Even if the EUR/USD makes it that high, we're still set up for a big bearish 4000 pip decline afterwards as the US proceeds into a more deflationary environment (VERY USD strengthening) combined with a very deep European recession. The Elliott Wave analysis also shows this potential selloff very clearly. While the Fed may be enacting a QE2 program in the near future, THEY'RE DOING IT TO COMBAT DEFLATION. Reading between the lines in today's FOMC statement, it is very clear they are worried about deflation right now. Mathematically they don't have the power to stop deflation... all they can do is try their best to restore enough confidence to prevent deflation and there's a very strong chance they will fail to do that.

To sum it up, we've got some nice upwards momentum on the EUR/USD that could last awhile longer for potentially another 500 pips... But it could also turn at any point now and resume its massive long term downtrend to near 1.0000. The fundamentals are already set up for this, but it's up to the markets to act upon it. When I have a better idea of when we might make that turn lower or if it's clear it's already happened, I'll of course let you all know.

In news Tuesday, CAD CPI came out as expected, so there was no trade there. As I may have mentioned, the FOMC statement today stated they were prepared to take further action to support the recovery (i.e. QE2), and they saw a bleaker picture and much more disinflationary environment than at their last meeting. This fit perfectly with my scenario 2 that I outlined in Tuesday's signal, and as expected we saw 2 way volatile action for the first minute or so (FYI it was released 30 seconds early), but then it resulted in a large rally that quite honestly exceeded my expectations. In the Profit Mongers room we grabbed 2 long trades (EU and GU) and cashed out our profits within about 20 minutes for some safe but solid pipage in case the rally fizzled. Always good to remember you don't need all of a move to make money... only a decent chunk of it. Anyhow, in news Wednesday:

0430 BoE Meeting Minutes (8-1 vote count expected) - Sentance is expected to be voting for a hike, but everyone else should be in the hold camp. Aside from the vote count, any discussion or implications they may be doing more QE would be trade-worthy as well.

--If more than just Sentance votes for a hike, GBP/USD should rally 50+ pips.
--If Sentance gives up and the vote goes 9-0 or someone votes for a sort of rate cut, GBP/USD should fall 50+ pips.
--If there is any implications that the BoE is looking to expand the APF or undergo some new form of QE, GBP/USD should fall 100 pips over 15-30 minutes.

0830 CAD Retail Sales (0.6% expected) - Some say this isn't a good trade anymore, but I completely disagree. I think the key here is to focus on the Headline number, not the Core. Obviously if there's a strong conflict with the Core figures (0.4% expected) it's best to stay out, but otherwise a decent surprise on the headline number should lead to a great trade that usually has a great 2nd push after a retracement. Also, this month the expectations are in a very tight range (0.50% to 0.80%), so it's a bit easier to surprise the market.

--If it comes out at 1.1% or higher, USD/CAD should drop about 30 pips in the first minute, and likely continue on for 50 pips in the next 15-60 minutes.
--If it comes out at 0.1% or lower, USD/CAD should rally about 30 pips in the first minute, and likely continue on for a 50 pip total move in the next 15-60 minutes.

1845 NZ GDP q/q (0.7% expected) - This one usually moves one of two ways: 1) It shoots a hard 40-50 pips right away, then has very little chance of moving further... or 2) It only moves 20-30 pips in the first minute, often fighting retracement, but eventually grabs 50 pips over the next 30 minutes or so. Obviously reaction #1 is better for spike trading, and reaction #2 is better for afterspike trading, but at least know that if the initial 1 minute move is very large, it probably shot its whole load in one thrust, so I wouldn't bet on it going any further.

--If it comes out at 0.9% or higher, NZD/USD should rally 40-50 pips.
--If it comes out at 0.7% or lower, NZD/USD should drop 40-50 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

To our success!
Sir Pipsalot