Mr Spread Better's blog

[Mr Spread Better]

Sterling Falls To 12 Year Low

www.paddypowertrader.com

Hi folks,

So, Swervin Mervyn did his best to help the economy; Sterling plunged ever lower as he said that he’d cut rates as far as was necessary and that a lower currency was, within reason, a good thing. Traders saw the green light and hit the throttle, sending the Trade Weighted Index to a 12-year low. Several top investment banks are now expecting a 1% cut in UK rates in December.

Some of you will have come across the Efficient Market Hypothesis which, in simple terms, says that all information is already in the price. I haven’t the time or intelligence to enter a big debate about this, but down at the coal face I’d venture that the same news can affect prices time and again. We’ve seen this happen repeatedly with different government rescue initiatives and on a further couple of occasions in the past 24 hours.

I was at my desk last night, trading the US afternoon session, when the Dow suddenly spiked. I didn’t know why, but stuck £3 on a long bet whilst I waited to find out. I was none the wiser when I closed out my bet for a quick £160 profit, but subsequently discovered the rally was down to news that Fannie & Freddie had announced plans to help Americans who couldn’t pay their mortgages. Baring a few words, this looked like the same story I’d read earlier in the day!

This morning I sat through Mervyn King’s press conference with a coffee and a wry smile. I’d been long of a fiver in EURGBP just ahead of the 10.30 inflation report, but decided to keep my discipline and close down the bet for a small profit, just in case something caused a sharp reaction in markets. Sure enough, there was a sharp reaction; EURGBP hit the after-burners and fired through £0.82 and the previous high to hit a new high of £0.8237.

So what caused traders to view Sterling in the same light as Russell Brand and Gary Glitter? Shock, horror, the Governor of the Bank of England had said he was prepared to cut interest rates to as low as was necessary to prevent deflation. But hold on Harry, wasn’t that last week’s story after the 1.5% interest rate cut? The money markets were already reflecting a move down to 3% interest rates next year. Today, even before journalists had left the press conference, JP Morgan and Barclays had changed their forecasts to expect a 1% cut in UK rates in December.

I’m not in a rush, but I’m looking to open a sell bet on EURGBP when the momentum’s died down. I reckon that this morning’s break to higher ground will need to be tested over the next day or so, even if it then rallies to higher ground afterwards.

******************************************************************************

To me equities are still hanging in there-just! The FTSE is still balanced, precariously on its 14 and 21-day moving averages, but the Dax has now joined the Dow below the dotted line. The straw that a few bulls are clutching at is that (at the time of writing) last week’s lows haven’t been taken out. I’m still running a core short position in FTSE and trading around the edges in the FTSE and Dow.

And finally, the first green shoots of recovery, but be warned, this site isn’t exactly the Financial Times!

Happy Trading

 

[Mr Spread Better]

Sterling Continues To Fall

www.paddypowertrader.com

Hi folks,

So far today the EuroYen currency pairing has been behaving itself, giving other markets a much needed breather. Sterling, on the other hand, has continued to hit new lows, costing me a few quid in the process. After shaking off a poor outlook from Wal-Mart, and higher than forecast US weekly jobless, I'm wondering if we're due an up day in equities. And how's that search for the market bottom coming on?

If I had a £1 for every time I heard the phrase, "EuroYen going lower again," yesterday I could give up my normal trading. Forget economics, yesterday looked to be about the EURYEN, a proxy for risk aversion, driving equity and commodity markets. Sure, Sterling was rubbish and the Dollar was King Kong, but this was the trade my squawk kept on about all day. Check out the move:

Oh dear, yesterday I was looking at EURGBP and reckoned that, having broken the £0.82 barrier, the price would come back to re-test that level in the next few days (Sterling Falls To 12 Year Low). It might still do so, but from a far greater height than I'd pictured.

I was wrong-footed by the strength of the move; I understood the Dollar move (even then I thought GBPUSD would stop for a rest at $1.5) but couldn't see the rationale for such a move in the EURGBP rate. This was a far stronger move than after the UK's recent 1.5% rate cut. On that occasion the argument was that he who cuts most will recover soonest; this time traders focused on the fact that the UK could cut rates to zero, something beyond comprehension to the ECB.

Last night I thought I'd caught the turn, selling a tentative £1 bet at £0.8340. I passed on a couple of chances to get out for a small gain and ended up stopping myself out as it broke £0.84. This currency pair is way overbought on the daily chart, but I've been bitten and I'm turning shy for a while.

Taking a look at the bigger picture (more than a day trade), remember a piece I wrote last week about how in all previous bear markets the S&P 500 would rally by an average of 16% before falling to re-test the low point (Equities Take A Breather)? We know that the S&P rallied further and quicker than the historic analysis, and now it's fallen quicker than before as well.

Now, you might have picked up that I'm bearish but, as I nearly always miss the turn, I like to keep looking for possible reversals. The analysis I wrote about suggested a retest that didn't always reach the previous low. Looking at the chart, that puts us in that sort of territory now. I reckon the S&P is about 15 points off the previous low; the thing that still concerns me though, is that we haven't had the capitulation day yet, so my pension plan isn't getting involved for the time being.

A dull date for your diaries; the UK's Pre-Budget Report (PBR) is scheduled for November 24th; I wonder if there'll still be a market in the number of times 'Prudence' is mentioned.

Happy Trading

 

[brother1]

i think you are right. i dont think that the eurgpb move is justified and sooner or later it will retrace. i would approach this pair with a longer time frame or use options to trade this fair. infact i am short on this pair and i hope that if i hold it for 1-2 month i would gain 400- 500 pips. with regards to pound vs us dollar, i expect dollar to strengthen and it is a easy way to make money especially over the next 2 weeks and then look for a sterling bounce once we are near the BOE rate decision
brother1

 

[forexmagician]

expert market viewer always tell you the event .the break for the falling market date?not so soon

 

[Mr Spread Better]

Banks Lead Equities Lower

www.paddypowertrader.com

Hi folks,

Anyone here work for Citigroup? Have you checked recently? So last week’s positive chart signals carried as much credibility as Haringey Social Services. The Grand old Duke of York took charge of the Dow, marching it up to 8900 on Friday evening before marching it right back down again in the final half hour’s trade. Equities ended the week lower and continued the downward move this morning. In the currency markets, traders reacted to George Osborne’s gloomy prognosis on Sterling by buying it against both the Dollar and Euro, and gold lost some of its shine.

Friday’s markets added a healthy dose of realism to the mythology of technical analysis; European equities had already decided to shake off Thursday’s gains before another volatile evening in the US. I don’t know if Friday night’s 400-point rise and fall was down to market manipulation (official or otherwise), or late selling by hedgies who’d just received their latest withdrawal figures.

I do know that I missed all the action; I try and draw the line at Friday night trading as that’s the weekend for me. But I reckon there’ll be plenty of trading opportunities this week with option expiry on Friday. In fact I might change my hours and take a break from 5-8 and just trade the final hour of US time. For the record, I’m warmly wrapped up in my bearskin with a £3 short on FTSE, but remaining alert to US analysis that favours a bias towards rising share prices during option expiry week.

Today’s move lower is being led by the banks, in particular HBOS and Lloyds, ahead of tomorrow’s vote by Lloyds’ shareholders on whether to bid for Harold Brown and the HBOS party animals.

Several currency charts are looking interesting; for starters Sterling has rallied well today. I went into the weekend with a £1 short in EURGBP and was expecting the worst with further weekend talk of a slide in the pound. I needn’t have worried, traders ignored the politicians and tried out the argument that the UK was addressing the problem and should therefore reap the benefits sooner than its European neighbours. The EURGBP was so overbought that, for a while, it’ll be hard to tell whether to expect a complete reversal of last week’s move or just a retracement to previous resistance at around £0.82. In its favour is a strong trend signal from the rising 21-day moving average, but I want to see a much lower price before putting my buying boots on.

The Euro features in some other interesting charts; the EURUSD looks to be building a base above $1.23, but its first obstacle on the upside is the 21-day moving average at around $1.2770. I’ve earmarked a close above that level to get me interested; there could be a long trade in there before the next challenge of breaking $1.30.

Don’t forget, this week could be a week for tight stops, or even tighter scrotums, with the possibility of large moves in the Dow towards the close. Check out the Weekly Wrap for this week’s news and numbers.

Happy Trading

 

[Mr Spread Better]

A Failure To Rally Sends Shares Lower

www.paddypowertrader.com

Hi folks,

The bears are back in town, sniffing out the whiff of fear in the markets. Once again the Dow was hit by a late shot in the closing half-hour, and poor earnings this morning gave equities an extra push south. Gold and oil are starting to look tempting as longer term buys, but the risk of further short-term pain is acting as a deterrent.

“I’ll do the school walk. It should be quiet ahead of some important inflation numbers at 9.30,” I volunteered. Huh! I’d just been stopped out of half of my short position in FTSE for a small profit and decided to get some fresh air. The school walk isn’t far; it’s about a 25-minute round trip. But that was long enough for me to return to a FTSE submerged well below the 4100 waterline; an opportunity gone begging.

But I fancy there’ll be plenty more; it never ceases to amaze me how quickly the climate changes in the financial markets. Just a few days ago the mother of all rallies was chucking out bullish vibes like a South London beat box. Suddenly the talk is all about equities hitting new lows. So why the sudden change?

Well, reading the views of some of the top technical analysts, their view is that last week’s chart signals were indeed massively bullish. And that made the markets’ failure to push further ahead a far more telling signal. I mean, crikey, even I was prepared to throw in the towel and close my shorts down and yet that was it. It was like the end of the classic Battle of Britain film where the gritty Brits were waiting for the skies to darken with the next huge wave of Luftwaffe bombers- and they just never turned up.

At the moment, talk of taking out 8000 on the Dow looks good for today; even if it survives the open I reckon it’ll need more protection than Obama to get through the last hour of trading. I’m still short of FTSE and re-opened my earlier additional short-a lot lower down.

Yesterday I was looking at a few charts of the Euro (Banks Lead Equities Lower). The trade I’d been running, a short in EURGBP, continued to fall, dropping comfortably below £0.84. But the lower than expected UK inflation numbers (CPI 4.5% for those who missed it) put a stop to the move and I was stopped out at £0.8425. Still, it was a worthwhile trade, but one that I’ll watch for a while now before re-entering in either direction.

The other trade I was watching, the EURUSD, broke above $1.27 yesterday afternoon, but failed to trouble the 21-day moving average. If traders are serious about taking equities down to new lows then there’s a strong likelihood that the Dollar and Yen will return to being flavours of the month. For the moment this currency pair is trading in a decreasing triangular range so I’m happy to watch for a breakout.

The other chart that’s interesting is the EURYEN. Last week I wrote that I was following it as a proxy for risk appetite, or lack of it (Sterling Continues To Fall). A fat lot of good it did me this week. Last Thursday, when the FTSE was down having a sniff at these same levels, the EURYEN was touching Y118.5. This time around it’s looking comfortable above Y121. OK, perhaps it’s just having a well-earned breather after falling from August’s heady heights of Y169. And the price is close enough to drop below Y121 if the Dow collapses this afternoon, but that’s my point; last week it was leading the way, this week it’s following.

Happy Trading

 

[Mr Spread Better]

A Glimmer Of Light For Gold

www.paddypowertrader.com

Afternoon folks,

Welcome to breakout day. Equities might be having an uncertain day, the FTSE torn between an OK Dow and a very sickly Dax, but the forex boys know what to do. They’re selling the dollar big time. This resulted in the EURUSD breaking out of its triangular pattern and gold pushing back above $750.

Firstly, my thanks to the Mole for enlightening me this morning. His Market Watch explained the end of session monkey business in the Dow and left me more confident in keeping my FTSE short bet open. I closed off some of it during this morning’s fall for a handy profit, but gave some of it back with an ill-timed short below 4100, which I stopped out this afternoon.

These markets are getting pretty twisted, with several relationships breaking down. The Dow seems to be behaving fine, but the Dax has got a real attitude problem today. At the time of writing it’s off 3.5%, largely due to poor numbers from BASF. The FTSE’s trading in a confused state somewhere in between. To me, it’s trading heavy, with the risk of dropping to test the 4000 level, but in truth I’ve struggled to trade the bear tack at the lower levels. I’m now sat with a small core short and leaving the peripheral trading for the moment.

Check out the currency market. I’m not sure what started it, but traders are selling the Dollar like it’s yesterday’s fashion. This has helped push the EURUSD rate out of its comfort zone. For a few days now I’ve been banging on about this currency pair trading in an ever-tightening range (Banks Lead Equities Lower).I wasn’t sure which way the price would break; just that it was due to break soon.

This afternoon saw a break to the upside, taking out resistance at $1.2702 and moving swiftly up to $1.2813. I tested the water with a £1 bet, but ideally want to see a daily close above $1.27 before getting too enthusiastic. Also note the EURYEN price, currently at Y123.30, but early having a sniff at Y124. This is even more significant given the sell-off in Dax and FTSE, but bears out what I was saying yesterday about the disconnect with equity market moves.

Another consequence of the weaker Dollar was the new found enthusiasm for gold. The shiny metal broke above the significant $750 level, and pushed above its 21-day moving average.

You can see from the chart that there’ve been several false dawns where gold has broken the $750, pushed forward a few Dollars, but been unable to hold its own. So, tempting though it was, I left the gold long bet, at least until its put down a firm marker above $750.

Don’t forget the release of minutes from the recent Fed meeting tonight.

Happy Trading

 

[Mr Spread Better]

US Equities Break Below October Lows

www.paddypowertrader.com

Morning folks,

Last night saw new lows in the US, provoking a nasty gap down in European markets this morning. The optimists who went long of the early prices were soon showing a welcome profit (No, that didn’t include me; I’m doing very nicely from my short FTSE bet thanks). So, a 6% fall in the US one day before option expiry; where now for equities?

My Short bet in FTSE, though not huge, has served me well again this week. But should I keep it open or close out and look for the bounce?

In Monday’s blog I referred briefly to US analysis that shows a healthy bias towards rising share prices during option expiry week (Banks Lead Equities Lower). I guess that’s still possible given the percentage moves of late, but I’m glad it didn’t sway my decision-making at the start of the week.

Now, I’m really not sure which way the next 300 points will go; check out the chart below:

Each of the three recent trips down to 8000 was followed by emphatic rallies; this was a level where traders were confident of making money from going long of the index. Part of technical analysis is to take hope from previous patterns and believe that the same thing will happen again. And it might well do; my screen is plastered with post-it notes telling me to watch out for a bear trap (the market trading lower, followed by an abrupt and painful rally).

The alternative view is that this time the Dow closed below 8000, and the S&P closed below its previous low (the S&P is currently struggling to hold the $800 level). There’s a clear downward trend line; each rally is being sold into at a lower point. The lack of rally into the close might just be enough to whet the bears’ appetite; I’m not looking to go long just yet, and if that costs me a missed opportunity so be it. But I might use an ugly afternoon collapse to put a tentative long bet in place.

Hah! The ink was barely dry on yesterday’s blog (A Glimmer Of Light For Gold), highlighting breakouts in the Euro and gold, when the whole thing turned upside down. I’d just bought an outrageous dummy, and it cost me a few quid, but it served to highlight two useful points for any of you new to trading.

Firstly, they might not always seem it, but stop losses are wonderful. I was too keen to buy EURUSD as a breakout trade yesterday. I only traded in a £1 bet, just to test the water, but the tide turned and I was stopped out for an irritating £70 loss. At the time I kicked the cat and cursed my lack of discipline (see point 2). But if I hadn’t set my stop there I could have been looking at a further £200 loss this morning, with no reason to be in the trade. Once the reason to buy EURUSD had gone (the price returned inside the triangle) I closed the trade.

Secondly, and this is aimed at me, yesterday’s movement showed why so many good traders wait for an end of day candle to confirm the move. Sure, they might miss out on 100 pips or so, but if a new trend is confirmed they’ll join in and make a lot more than that. In yesterday’s case they would have saved themselves some money. At least I used that discipline to stay out of the long gold trade.

Good luck for another crazy afternoon.

 

[Mr Spread Better]

Equities Bounce On Citigroup Rescue

www.paddypowertrader.com

Hi folks,

Welcome to Pre-Budget Monday. After missing the early rally across equity markets I’m holding off, at least until after Darling’s Christmas giveaway. My one trade of the day has been to back the Euro against the weaker US Dollar.

I missed out on Friday’s rally into the US close; after a long week the lure of Gloucester playing Bristol on the box was stronger. And even if I’d gone long of equities into the weekend, I’d have been stopped out in early trade this morning. We now seem to be having the rally I was expecting when I went long of FTSE at 3744, but with too much volatility to keep me in the trade. Equity markets seem jumpy enough today to easily test the downtrend line at around 4100 and the 14 and 21-day moving averages at between 4160 and 4200.

But I reckon most of the work will need backing from the US indices, which admittedly are looking good at the open. My concern is that these are still rallies in a bear market. This means the squeeze can be short and very sharp, but vulnerable to the next bad headline.

I felt more at ease in the forex market today, backing one that I’ve been monitoring for a while. The EURUSD rate has continued to hold firm and mid-morning it broke through a pivot point resistance level and the 21-day moving average. I didn’t jump in straight away, preferring to wait for a re-test of the $1.2677 support & resistance line. The support held so I jumped in with a £5 long bet on EURUSD at $1.2676. There’re different ways of playing the stop-loss game in these markets; using a very wide one to stay in the game, or a tight one to preserve capital for another opportunity.

I was being taken out to lunch so decided on a tight stop at $1.2656. I needn’t have worried; the call was good, allowing me to close out £3 at $1.2686 and bring my stop up to break even. I’ve explained before that when the trade goes well, taking early 10-pip profits looks timid and crazy. But they don’t always go well and I’ve found it far more relaxing to run a smaller balance with a bit of money already in the bank.

I trailed the stop on the £2 balance up to $1.2761, where I let another £1 go; my remaining £1 long is still hanging in there at $1.2804 with my stop loss at $1.2786. Nice one Fritz.

The gold trade has continued to shine, benefiting from the weaker Dollar. I didn’t go for this one myself, but it was good practice getting the call right. I wonder if all these factors will rub off on the oil price as well; I’m almost tempted.

Eyes down soon for Darling’s Christmas giveaway. It’ll be interesting to see if UK equities buck the bullish mood and also how Sterling takes the news. So much of it appears to have been pre-leaked that I wonder what he’s got left for the encore.

Finally, we’ve managed to get hold of an early rehearsal for Obama’s speech to the nation:

Happy Trading

 

[Mr Spread Better]

Watch Out For More Bonds Into Equities

www.paddypowertrader.com

Hi folks,

I’m sure the scowling Scot, Gordon Brown, will take the credit for turning around global markets; the near 10% rise in European equity indexes dwarfed the paltry 6% in the US. Sterling, the Euro and commodity currencies all benefited, as did gold, as traders played the ‘we’re happy to take on risk’ game. But the real game in town is the talk of monthly portfolio rebalancing, with US Thanksgiving Day adding a touch of urgency.

Cast your minds back just a month, to the huge squeeze in equity markets with the Dow putting on 1300 (yes 1300) points in the last week of October. This was amidst talk of portfolio re-balancing, with the Mole and I both banging on about the effect it was having.

Well, we’re fast approaching month-end again, and once again there’s been a ginormous divergence between markets. But this month-end (Friday, as far as the markets are concerned) is interrupted by Thanksgiving in the good old US of A. Although this takes place on Thursday, many Americans will still be tucking into their McTurkey burgers on Friday. So it’s reasonable to expect the majority of rebalancing to be done by close on Wednesday.

How much needs to be done? As usual, I haven’t got a Scooby Doo; but what I can do is look at a couple of very rough and ready charts. If you check out the 2 charts below you can see that the fall in equity prices isn’t quite as dramatic as in October, a rough fall of 22% compared to 26% the previous month.

But the second chart (the US 10-year bond) shows a near 6% rise in November, compared to a barely changed October. This suggests that, overall, there’s a bigger imbalance between rising bond values and falling equity prices than in October.

Analysts far more clever and resourceful than me reckon there could be around a 5% re-balancing from bonds into equities. That’s a whole lot of equities that need buying!

Importantly, bear in mind this is all far too simple, it’s just trying to be alert to what could happen. For starters, the percentage changes are pretty random; I’ve taken a figure near the end of the month, as that could be what the re-balancing reacts to, but it ain’t as simple as that. And make sure you read the small print. This reminds us that we experienced a mother of a rally yesterday, which was put down to the Citigroup bailout, new Treasury appointments in the US, Santa Darling’s UK giveaway, and Spurs getting off the bottom of the table. But part of that euphoria could have been spurred on by investors (or market makers) anticipating month-end adjustments.

The other bit of small print is a simplistic adaptation of Goodhart’s Law, namely that once we recognise a pattern or event and look to trade off it, it no longer happens!

In trading today I’ve ducking and diving, bobbing and weaving and not really making a lot of difference. In early trade I shorted FTSE, but a ‘trade too far’ cancelled out some of my gains (stop losses are still the bee’s knees). I bought a scrap of gold at $813, saw it rise into profit, drop to a loss and it’s now pushing back up again.

Worst trade of the day was a long bet on EURUSD at $1.2887, which was stopped out at $1.2857 for a £150 loss. Since then I’ve gone short of GBPUSD at $1.5077 and I’m contemplating taking a small hit on the gold trade.

And just as a final note, yesterday saw the EURUSD and EURJPY blast through their 21-day moving averages; equities found the going a bit tough and faltered (for the time being) at either their 14 or 21-day averages.

What’s the view out there? Time for a proper rally into Christmas or still too risky?

Happy Trading

 

[Mr Spread Better]

Where Next For The Oil Price? Part 1

www.paddypowertrader.com

The past week has seen a tentative return of risk appetite. The major equity markets have rallied by around 12%, Sterling has regained almost 700 pips against the Dollar and that paragon of safety, the Yen, has lost 700 pips against the Euro. Even schizophrenic gold, no longer a sure-fire safe-haven, has rallied over $100 from the lows.

But there’s someone missing from this happy reunion of risk assets, oil. Down 65% from its July high, with the world in recession and demand falling, oil is hovering around its 2-½ year low. The only need we have for it these days is to keep us warm at home whilst scanning the job pages in the paper. Even the chart looks bad.

This weekend members of OPEC are holding an emergency ‘consultation’, ahead of their official December meeting, to discuss further cuts in output. So with oil bubbling just above the $50 level I thought it’d be useful to kick a few rigs and see just how bad things are. Today I’ll be taking a look at the main influences and concerns over supply and demand and then tomorrow I’ll be looking at what else could influence the price and suggesting how I might trade the current situation.

But just before I start, if you’re new to the oil scene, why not grab a coffee and have a breeze through our beginners’ guide How To Trade Oil-The Cruder Way.

The Oil Price
In July the oil price peaked at $147 with several analysts tipping a short-term target of $200. Since then, three main factors have been responsible for a 66% fall to just $50:

1) Global slowdown. Sure, it was already happening, but it took a bit longer for the oil barons to wake up and smell the espresso.
2) The Dollar turned from least to most favoured currency; because oil is priced in Dollars a stronger Dollar means that even if the oil price falls it can maintain its value against other currencies. For example, if oil is priced at $140 and the EURUSD rate is $1.61, then oil is worth €87. If the EURUSD rate falls to $1.30, then oil could fall to $113 and still be worth €87. Of course, it’s fallen well beyond that now.
3) Many speculators, in particular the hedge fund community, suffered a lethal dose of massive investor withdrawals, and higher margin calls from their brokers. This had the effect of forcing speculators to sell ‘at any price’.

Over the longer term the price of oil is determined by supply and demand , so we will start by looking at each of those in turn:

Demand
The queue of Cassandras cutting their forecasts for future demand is longer than the one when my local petrol station dropped the price below 100p. In close succession we saw:

The International Energy Agency cut its forecast for demand for both 2008 and 2009, and its price assumption from $100 to $80 for 2009. However, although the IEA cut its forecasts, it still sees an increase in demand going forward. The agency is projecting an increase of 120,000 barrels per day (bpd) for 2008 and a rise of 350,000 bpd in 2009.

The Centre for Global Energy Studies said that a year on year decline in global demand for oil in 2008 and 2009 was ‘a very real possibility for the first time in 25 years’.

OPEC cut its demand forecast for 2009 for the third consecutive month, to 86.68 million bpd. Click here to find out more on OPEC and its effect on the oil business.

China said its imports of diesel dropped to a 14-month low in October. To make matters worse, forecasts for future growth in China were revised down; the World Bank has just cut its 2009 forecast from 9.2% to 7.5%.

And to top it all, the world’s largest importer of oil, Japan, confirmed it was in recession.

Supply
The International Energy Agency warned that the world could face a major oil shortage by 2015 if investment in new capacity isn’t increased. OK, so we’ll have had two more football World Cups by then, but the markets will be ahead of that in their pricing.

Production from many existing fields is already falling faster than anticipated; fields in the North Sea, Alaska, Russia and Mexico are suffering faster than expected declines.

And with prices falling there’s less incentive for companies to undertake expensive investment in exploration and production ventures. Canada’s oil sands were profitable when oil was $100-$150 per barrel, but $50 per barrel makes that investment decision less clear-cut.

In November production by OPEC (ex-Iran) fell by 1.22million barrels per day, less than the amount of 1.5 million bpd agreed in October. This suggests that not everyone is playing ball; some members haven’t cut their supply by the agreed amount. This happens all the time, but makes a mockery of calls for further cuts.

So what we’ve got at the moment is falling demand, with the prospect of this carrying on in the short term, and falling supply, which isn’t much of an issue at the moment. The problems will arise when demand picks up and everyone realises that there’s no quick way of turning the taps back on. The big question is, when will traders start to bet on this happening?

Conclusion
Longer term, it’s all looking gloomy for oil. Demand is falling and although supply is falling a lot of countries still want to sell more oil to help balance their books. However trading is not only about the longer term, the short term counts even more. Tomorrow I’ll put out the next piece about what factors might affect the oil price in the short term and how I’m looking to trade it.

 

[Mr Spread Better]

Equities Are Holding The Rally

www.paddypowertrader.com

Hi folks, and a Happy Thanksgiving to all those American turkeys out there.

It’s a refreshing change not to be on the wrong end of a strong rally in equities; I’m not long either (that will be the next stage to work on), but at least I can relax and look for opportunities in either direction. And talking of opportunities, the EURGBP chart looks to setting up nicely.

I’m going to treat today’s less liquid markets with a healthy distrust. We’ve seen before that quieter markets lend themselves to vicious swings, which are great if you’re on the right side of them, but result in a lot of cats being kicked when a well thought out trade goes belly up on some random spike.

The FTSE put in a late rally yesterday, which picked up pace into the US close. There’s plenty of talk of a pre-Christmas rally, and I’m not looking to get in the way of it. But first there’s the small matter of the 21-day moving average to deal with. Check out the chart:

Regular readers know how I use the 21-day moving average as a key trend indicator, but also as a support and resistance tool. The line really is pretty flat, suggesting that all the momentum has disappeared from the downtrend (for the time being). That’s why I’m not hugging onto a short position and why I’m remaining open to a move in either direction. But look at the battle the FTSE index is having with resistance at the 21-day moving average. Since mid-November the price has repeatedly tried, and failed, to hold above the line.

The pattern of higher lows over the past week suggests the likely outcome will be a break above and if that level then holds, I’d look for a quick move up to test interest at the 50-day moving average.

The markets are full of contradictions, and here’s mine for today. Having just said that I use the 21-day moving average as a key indicator, I’m looking to enter a trade against the trend. The EURGBP chart is showing the 21-day MAV reaching for the stars, so why do I want to sell it?

For some time now I’ve felt that markets have been quick to price all the bad news into Sterling, whilst ignoring the intransigence of the Euro-chiefs. However, I wasn’t daft enough to spit into a very strong wind, and decided to watch the EURGBP work its merry way up to £0.86. Missing the first 250 pips was the price to pay for waiting for a stronger signal; after all, the trend indicators (and several analysts) suggest a pause before hitting £0.89.

But the second bounce failed to make a new high, and now the price is back below £0.84 and looking to re-test previous support at £0.8338(ish). I’m not going to jump in yet because if support holds, the price could move back to the downtrend line, somewhere between £0.8450 and £0.85. I’d rather give up some of the potential gains to get a stronger signal. The tricky bit then will be likely support at the 21-day MAV, but then that’s the trouble with trading against the technicals, based on a fundamental view. Hmm.

The second article on oil is ready for reading now (Where Next For The Oil Price? Part 2); with a (temporary?) bottom forming above $50, and the OPEC meeting on Saturday, it’s worth a quick glance at coffee time.

Finally, with the banks under increasing pressure to make funds available, their tech guys have come up with a solution:

Happy Trading

 

[Mr Spread Better]

Where Next For The Oil Price? Part 2

www.paddypowertrader.com

Hi folks,

Yesterday I was looking at the miserable performance of the oil price and the current state of supply and demand (Where Next For The Oil Price? Part 1). Today I’m looking at pricing expectations, what events might influence the price and how I might trade oil at the moment.

Price
The oil market at the moment is a contrarian’s wet dream; the price is struggling to improve on $50 with popular opinion backing lower prices as demand continues to fall. And that view might be the right one; I’d rather back Spurs’ chances of playing in Europe next year than challenge the supply/ demand imbalance.

But isn’t that when the all-time greats like Mr Buffet suggest buying, when sentiment is all one way?

Goldmans has just cut its price target for 2009 from $86 to $80 saying, “Poor credit conditions and their negative implications for economic activity will continue to pressure crude prices.” Yes, this is the same Goldmans that, until recently, had a price target of $200 per barrel! The Strategic Energy and Economic Research group predict a rise to $70 early next year as OPEC price reductions take effect. And the International Energy Agency reckons that current production costs will make $80 an equilibrium price.

The China National Offshore Oil Corporation (CNOOC) offers a more pessimistic view; it said that demand for oil was declining dramatically and that major companies expect a price of $40.

OPEC
The next official meeting is scheduled for 17th December in Algeria. But desperate prices call for desperate measures so an emergency pre-meeting consultation has been called for November 29th (this Saturday) in Cairo. The meeting is to discuss a further cut in output of anywhere from 1-2 million bpd.

Early soundings suggest a split vote with Iran and Venezuela screaming for cuts and others, like Nigeria, saying that they can’t afford to cut output.

The thing is, there’s more than a strong suspicion that sometimes those calling for a cut in production aren’t the first ones to close down the rigs. What they really want is for the major producer, Saudi Arabia, to cut its production, leaving others to maintain the same level of supply at a higher price.

Sensible commentators have made the point that there’s nothing to be gained from announcing further cuts when production is still above the cuts agreed in October. The market is expecting rhetoric, rather than a firm decision to cut, from Saturday’s meeting.

What Else Could Happen?
1) Geopolitics. This one can never be ruled out. It would take more than a few pirates to worry this market, but you could make a party game out of predicting the possible combinations of unstable oil producers, and what they could get up to.

2) There are now more stimulus packages than in an Ann Summers’ catalogue. This week China is expected to announce a further bumper package on top of its original £380 billion over 2 years. If this money gets to the right areas, and quickly, it could be key to regenerating growth.

3) Further deleveraging (forced selling by hedge funds) is still on the cards. As with other markets the threat is dangling like the Sword of Damocles but, with the hedgies apparently running high cash positions now, this might never materialise.

4) The US Dollar has been flavour of the autumn months. But currency crazes are notoriously fickle. If risk appetite returns for longer than the odd day then we could see Dollar weakness sending the oil price higher. To read more on the link between oil and the Dollar check out Another Failed Relationship.

How Can I Play This?
Looking at the percentage fall, and the distance from the 21-week moving average I am finding it is so tempting to be contrarian and go long. However, when the market was rising I didn’t take on the crowd, and the same goes for the down move (If you want to read more on contrarian trades, check out Flash Rabbit’s recent blog).

There are tentative signs of a bottom forming, but I want to see the reaction to this weekend’s talks before committing my hard earned cash. Perhaps if the price can hold above $50 after the weekend meeting and show some sort of reversal pattern, either on the chart or the RSI (Relative Strength Indicator) then I might put on a long position, but with my stop loss not too far below $50.

One positive take comes from the latest data provided by the Commodities Futures Trading Commission. Last week’s release showed the biggest net short position by speculators in 3 years, but over the past week this figure now shows a net long position by speculators, betting the market will rise.

I’ll be closely watching the oil chart on Monday firstly to see $50 hold, and then for a move above $54.5.

The other way I could play this one is through the equity market. I’m not an equity analyst but I quite like the look of Royal Dutch Shell. It’s hardly a recovery play as the price is 400p off the bottom, but there’s a comforting uptrend. The short moving averages have broken up through the 50-day moving average, though I’d want to see a hold above the 100-day moving average before buying. With a forecast yield of over 6% making it attractive to income funds I could be tempted.

The main appeal of trading oil is the view that after the huge fall, it has failed miserably to join in the rally. But the trade is high risk so I’d use tight stops on either the oil or the equity trade to protect my trading capital.

 

[Mr Spread Better]

Another Chance To Sell Equities?

www.paddypowertrader.com

Hi folks,

When I wrote ‘All Change For December’ yesterday I didn’t expect moves of that magnitude all in the one day. I made money by selling the Dow and FTSE, but it was an embarrassingly small amount given the final falls on the day. Sterling suffered the mother of all sell offs and UK government bond yields fell to 30-year lows. This morning I was more wrong-footed than the England rugby team.

Is my cautious nature a blessing or a curse? Quite often it keeps me out of trouble and my trading capital safe; on other occasions it prevents me from making a serious wad. Yesterday, I felt bearish (no surprise there then), but not enough to ride my bets to the full. I made a couple of hundred by shorting the major indexes, but on each time I was too keen to close out the position.

The most laughable was my token £1 sell bet on the Dow last night. I don’t generally work between 7 and 8.30 at night as that’s family time, but I do tend to stick my head round the door and check on the markets from time to time. Last night a quick look at the Dow’s trading range suggested that a sale at 8406 ought to make me money. My sale immediately provoked a push up to 8446. I didn’t want to be distracted from reading Harry Potter so set a timid limit order to close out at 4385. I returned later so discover a profit of £21 and the Dow at 8200!!!

At the close I weighed up whether to short FTSE at 3970, but reckoned 4000 was still a level to be tested during normal market hours. But early this morning there was more gloom than at a Goths’ convention so I slipped in a token £1 short on FTSE at 3989. Luckily, instinct or cowardice saw me close out for a tenner profit when the index struggled to stay below 3970. I’ve spent the rest of the morning holding off, waiting to sell on a good reversal sign.

I’ve watched FTSE fill the gap (that means it returned to the 4.30pm closing level at 4050), break back above 4100 and test the 14-day moving average at 4120. I reckon the next test is the 21-day moving average at 4200 but, no, I’m not backing that with my trading capital.

So, what’s this morning’s move all about? I haven’t seen anything positive other than the Aussies cutting rates by a bigger than expected 1%. My blinkered history as a bond trader has always led me to believe that equity guys are eternal optimists while fixed interest guys are miserable cynics, but with a good grasp of reality. Yesterday, the cost of protecting corporate debt against default rose to a record high; bond yields fell to 30-year lows in the UK and 50-year lows in the US. These should be taken as a none too subtle hint that all is not yet well. The VIX (fear index) turned on its head and rose to 68; not an extreme number by recent standards, but historically very high.

This morning could be about squeezing over-enthusiastic bears that went too short last night, or it could be an optimistic reaction to talk that Thursday could see the UK cut rates by at least 1%, followed by a cut of at least 75bp from the ECB. Whatever, the wind is blowing pretty strong in that direction at the moment, so I’ll save my trades till it dies down.

The major banks may be stifled by either a lack of capital or too much government interference, but there’s always an entrepreneur looking for a gap in the market:

Happy Trading

 

[Mr Spread Better]

Equities Rally Ahead Of Rate Cuts

www.paddypowertrader.com

Hey, how many of you have lost money recently from a really stupid trade? Well, today’s blog should make you feel a whole lot better. It’s not a tale of misfortune, re-quotes or conspiracy theories; just an example of a really daft decision by one who should know better.

One of my weaknesses in spread betting is that as an ex-bond fund manager I’m too risk averse, or cautious. Too often I’ll turn down the trade because I can see where it could go wrong.

But yesterday afternoon, despite my cautious nature, and after writing that equities were pretty directionless and not an easy trade, I succumbed to a moment of pure madness. The red mist took over; it was like running the ball in open play with a two-man overlap, but opting for a head-on collision with the only opposition player in sight.

Wednesday’s blog (Sterling Gets Another Bashing) highlighted equity markets’ refusal to respond to the dire economic numbers flashing across Europe and the UK. The theme continued in US time, firstly with the release of much higher job losses in the ADP survey, followed by a shockingly weak Non-manufacturing ISM number. The market was expecting a poor 42.0; the figure came out at 37.3.

This was all too much for me; for one brief moment I forgot all my discipline about not trading headlines, not selling at the low of the day and not getting involved ahead of Thursday’s rate cuts.

“That’s one too many,” I thought, “A whole day of really bad figures; equities have been edging lower and this should give them a wake-up call.”

Through a haze of red mist I pressed the button, selling £2 in FTSE at 4047- and fell right into the ambush. I know there were a few positive headlines yesterday (the 112% rise in weekly US mortgage applications had the commentator warning of a typo), summarized in the Market Watch, but the timing of the rally in shares stunk. The move was so rapid I was hard-pressed to deal at such a low price.

For a while I dismissed the rise as a typical traders’ game, suck everyone back in then drop the market. Unfortunately I paid £200 to discover they were playing the other game, gradually easing prices ahead of the data, then squeeze, squeeze, squeeze afterwards. I stopped out at 4147!

So, despite years of experience, and countless cautious blogs, I fell for the oldest one in the book. Bah humbug!

Sterling has been absolutely caned this morning. In case you missed it, New Zealand cut rates by 1.50% last night and the Swedes went one better this morning with a staggering 1.75% cut. Thinking in the forex markets seems to be that this is more likely to influence the Bank of England than the EuroHawks. Whilst the ECB is expected to cut by 0.75%, speculation of another 1.5% cut in the UK has been building this morning. Sterling dropped below $1.45 earlier and EURGBP smashed through the previous high and is currently at £0.8690. I’m wondering if something less than a 1.5% cut will see the Pound rally over the next few days.

Have a good lunchtime.

 

[Mr Spread Better]

Equities Nearing A Breakout Point

www.paddypowertrader.com

Hi folks,

I’m trying to practise one of the harder disciplines of trading-patience. To my mind there are a whole load of markets with the ‘pause’ button pressed, waiting for the next big move. And the way I trade is to wait for a chart signal, rather than try and second guess the markets.

In a quiet morning before the US payrolls data I spent some time looking for clues in my daily charts. The bullish signals in gold look to have gone, the oil price is looking as pretty as Kerry Katona on a bad day and the main currencies are close to looking interesting, but not quite there, so I’ll leave those for next week.

But the main equity markets look to be closing in on decision day’ will it be this afternoon? I’ve shown the daily chart for the Dow, but it’s the same story for the S&P, Dax and FTSE. The charts are all showing a pennant chart pattern; the exact lines and breakout points will vary as we all draw slightly different lines, but the idea’s there. And the idea is that the markets are getting pretty damned close to breaking either the support or resistance line.

The trouble is, the charts aren’t offering much of a clue as to the next move; sometimes the angle of either the support or resistance line can offer a higher probability of the direction of the break-out, but these are pretty much down the line.

Fundamentals only cloud the issue. We know that world economies are in it very deep, the bond markets continue to drop heavy hints with the price of insuring against default continuing to rise (the Mole mentioned the rise in yields on Italian and Greek government bonds over the yield on the Master-bond. But whilst we laugh at these second-rate economies, bear in mind that the credit default swap on UK bonds has soared to 125).

But in the short-term we could be due a Santa Claus rally, so I’m trying hard to balance on the fence and let the charts tell me what to do next.

Still on equities, I made a note yesterday to mention how well yesterday’s channel had worked (Equities Rally Ahead Of Rate Cuts). I pointed out a possible sell opportunity at the top of the channel, and backed it up with a small sell bet at 4234. I didn’t make a lot as I decided to close out at 4210 ahead of the UK rate decision, but it was money in my back pocket so everything was hunky dory.

I didn’t trade again yesterday, but did notice how well the FTSE index bounced off the bottom of the channel. “Wahey! We’ve got something here,” I thought. I came very close to buying the after-hours market when, once again, it tested the lower channel line. Luckily, my distrust of moves in the US, and the lure of roast chicken, left the trade pad empty.

The price dropped below the channel line and has struggled to regain the initiative today. But will it return this afternoon? Like I said earlier, I’m not going to pre-empt the next move. However, I can see some signs of an ambush, like the one that caught me the other day. Equities are gradually declining as the market talks up the payrolls number to above 400,000. All of this is reasonable, but I’m not going to jump in and sell on a bad number today.

Happy Payrolls.

 

[Mr Spread Better]

Equities Break To The Upside

Morning folks,

I was more active at 7 o’clock this morning than Mrs FT can ever remember. Before breakfast I’d placed long bets on FTSE, the Euro and Sterling; but I’d have done better to close the forex trades before tucking into my Weetabix. My equity trade’s in the red, but I think that could be more to do with poor timing rather than getting the direction wrong.

Friday’s blog (Equities Nearing A Breakout Point) highlighted that the main equity markets were nearing decision time; they were due to break out of a tightening range pretty soon.

Reaction to the US payrolls data saw equity markets sell an outrageous dummy, with both the Dow and S&P 500 crashing to the downside of the pennant. I pointed this out in the comments box, saying that I’d wait for a confirming close before getting carried away. Once again the market provided a great example of why we wait for the confirming closes before committing to a big move; equity markets put in a wicked reversal, finishing at the highs.

This morning the Dax, FTSE and 2 US indexes have broken above the pennant formation. To be consistent I want to see a daily close above this pattern before getting too carried away, but I did tuck away a £2 long bet on FTSE when it retreated from 4330 to 4252. Yep, I know that was too early now thanks, but I’m prepared to be patient.

Even before I looked at the FTSE, I was long of Euros and Sterling this morning. I’ve been watching both currencies for a reversal against the Dollar, but the signs hadn’t been quite there. The EURUSD chart looked the most promising and that was my first trade, going long of a fiver at $1.2825. Check out the chart:

There’s been a gentle upward drift in the lows, with the rate testing the 21-day moving average. This morning the price broke both the moving average and the downtrend line. Yep, I need a daily close before calling the turn, but with markets happy to back equities it seemed a reasonable bet to short the Dollar.

Buoyed by the success of this trade, I stuck in a £2 long on GBPUSD at $1.49. This one flew out the door and was soon above $1.50. I brought my stop loss on both trades to guarantee a small profit and went for my breakfast. I returned to find that the world hadn’t quite changed yet; equities hadn’t held their gains, dragging the Dollar crosses lower. My GBPUSD trade was stopped out at $1.4928 for a £56 profit and I took the top off my EURUSD trade, selling £1 at $1.2877 and £1 at $1.2833. My remaining £3 is protected at $1.2845.

With lots of Christmas and family stuff over the next two days I’m sticking with the long EURUSD and FTSE positions today and will have a good look at how markets close tonight before deciding whether it’s time to add to these positions. The one trade I looked at but didn’t have the bottle to put on was a Harlequins win in France. If only……

Definitely worth a read over a coffee is the latest piece on Irish Banks by Zebu.

Happy Trading.

 

[Mr Spread Better]

US Shares Stumble At Fifty-Day Resistance

www.paddypowertrader.com

Hi folks,

Last night reinforced my view that I should take profits in UK time, rather than leave my positions to the US lottery. My winning positions were stopped out when the evening session decided to test the downside, leaving me flat and contemplating my next trade. Interestingly, several markets have struggled to take on the mighty 50-day moving average; however, one that has, and came out with flying colours, is the FTSE index.

Yesterday afternoon I watched my FTSE long (opened at 4252) push above 4400, and felt a warm glow inside. Looking back (the easy bit), it would have been good to lock in some half-decent gains and wait for the next opportunity. However, I decided to take the long view and felt that my stop at 4320 was conservative enough. WRONG! The trade died last night for a gain of £136, followed by the market bouncing again.

I’m looking at using twin strategies on the FTSE over the next few days:
1) My short-term trading strategy whenever my indicators flash up. This is usually in no more than £2 and run with a tight stop and no blinking until I close the trade. I opened one of these trades just now, buying £2 at 4370, setting my stop at 4340.

2) For any longer-term trade I want a decent pullback, ideally to the 50-day mav, though I might be tempted in if 4300 was tested and held the line.

My long position in EURGBP went the same way last night, though at least there I’d taken some profits on the way up. My entry level was at £0.8690 and I took profits at £0.8719 and £0.8753 before being stopped out at £0.8730. Total profit on the trade was £181.

Looking at the US Dollar, the neckline on the Head & Shoulders pattern I mentioned yesterday (An Equity Rally Please Santa) is still holding, so no excitement there.

In other markets it’s interesting to see the resistance the 50-day moving average is putting up. In my article on moving averages I mentioned that the longer the time span of the moving averages the more street cred they gain. So although I focus on the 21-day mav as a trend indicator, the longer averages (50, 100, 200 day mavs) carry a bit more weight. Check out the EURUSD chart below:

I’ve been watching and trading this one a lot recently; the price action has been OK and the shorter averages are starting to push up. But so far the price has bounced back from the 50-day average. There’s a similar story with the S&P and Dow, though the Dax has pushed through this morning. The only major to show a daily close above the line is the FTSE, where traders will now look at that as a line of support.

For what it’s worth, I reckon the chart patterns are leading to a break above these averages; the question then will be whether they can act as a support.

Finally, please give generously to suffering executives:

Happy Trading

 

[Mr Spread Better]

All aboard The Euro Express

www.paddypowertrader.com

Hi folks,

The Euro has been unleashed; free from the shackles of the 50-day moving average, it blasted through $1.30, adding a further 250 pips, and wiping the floor with Sterling. The Dollar index has broken below the neckline of the Head & Shoulders pattern, giving a good bid to gold. And over in the equity markets there looks to be more enthusiasm for a rally in the UK than in the US.

In yesterday’s blog (US Shares Stumble At 50-Day Resistance) I highlighted a few markets that had come to a halt at their 50-day moving averages. The US equity markets are still in limbo, but the Euro cracked the average with attitude and this morning’s buying frenzy put on a further 250-pips against the Dollar. Next target looks to be the downtrend line at $1.34-$1.3440.

I’ve been trading the (slightly) less exciting EURGBP currency pair, which hit new highs today. My trading started well, buying the Euro at £0.8769 and closing out the trade at what looked like a toppy £0.8832. Then I made the classic trader’s mistake of thinking I was in touch with the market. The EURGBP rate has been rising for a lot longer than the EURUSD pair and the price looks overbought on the daily and all the shorter relative strength indicators.

So after returning to a flat position, and clearly going against the trend, I sold £1 at £0.8830. Why? Especially since I’ve been banging on about the strong trend and not going against it. I’ll use a sporting analogy; a team is at its weakest just after it’s scored. Now don’t get the wrong idea, Mrs FT was at work. But it’s a misplaced confidence after getting something right. This reminder to keep to my rules is currently costing me £60, but I can live with that. However, if £0.89 is broken and held I’ll cut the position, kick the cat and write myself another reminder to stay switched on when I’m in charge of money.

The fall in the US Dollar has taken its Index below the neckline of the Head & Shoulders pattern I’ve been showing in the past couple of blogs. Usually this chart pattern leads to a pretty substantial fall, but some traders want to see a break of 83.11 before getting too excited.

Gold has had a whopping day as a result of the weaker Dollar, rising $20 on top of yesterday’s gains. The chart points at resistance around $833, but if the Dollar really tanks I could see this level being broken.

Oil is also warming up; the gambler in me fancies a small long bet ahead of next week’s meeting, but I’d prefer to wait for a reversing trend; one bet against the trend is enough for today.

Happy Trading

 

[Mr Spread Better]

Is Sterling Next In Line For a Rally?

www.paddypowertrader.com

Morning folks,

It’s too early to make a firm call on Sterling but, in the same way that I highlighted the Euro rally, it’s well worth having a look at. The US Dollar is continuing to weaken and, to my mind, the Euro’s 9% December rise against Sterling is hard to justify. But a word of caution, this week has a whole Christmas stocking full of big economic news at a time when quieter markets could lead to more extreme market moves.

When I saw yesterday’s headline in the UK’s Sunday Times, “Britain ‘will not intervene to prop up pound’” I briefly wondered if it would act as a red rag to the Euro bulls. But on closer inspection it was no more than a cheap headline. The Treasury weren’t going to raise rates to protect the currency. Well, no sh*t Sherlock!

All the same, it got me looking at my charts a day early and there are early signs of a revival. The two main charts I watch have very different characteristics; let’s look at the GBPUSD first:

The GBPUSD currency pair could be in the early stages of a rally. A short-term uptrend has taken the price above the (very subjective) downtrend line, and just above the 21-day moving average. To me this chart looks like the fall from $2 coming to an end, but it’s too early to confirm the reversal. First off, I’m looking for a break above $1.51 and for the 21-day MAV to turn upwards.

That will tempt me into trading the long bet. However, I suspect the bigger trend won’t come into play unless November’s $1.55 level is taken care of.

Against the Euro it’s a wholly different story; the EURGBP is one of the strongest trends I’m watching. But it’s had one helluva run, rising by 9% in December and remaining way overbought. In some ways this trade has more appeal as I can’t find any way of justifying the move, but this trade is a far stronger wind to spit into.

The trouble is that this move has been so strong it will take a while to show a good trend reversal, such as the 21-day MAV pointing at the ground and not the sky. The way I’m looking to play this one is to watch the candlesticks for a reversal pattern; at some point soon there should be a great trade here shorting the Euro even before the moving average trend changes. Stage one will be when the price doesn’t make a new daily high; the next stage will be a close below the previous day’s low.

At this stage both trades are high risk so I’ll keep my bets small. I’m having to make my annual trip to the shops this morning so I’ll leave any trades until the US session.

If you’re new to trading be very wary of markets over the next 3 weeks. I spend a lot of time looking at chart patterns, but they are far less reliable over the Christmas period. Trading patterns are confused by a lot of traders preferring the pub to the dealing desk so volumes are a lot lower. Also, a lot of funds have specific re-balancing requirements that might lead to large trades in different directions.

To confuse matters even more, there’s a lot of news this week, including a likely cut in US interest rates and an OPEC meeting. Check out all the news events in the Weekly Wrap.

Happy Trading