The Alba System Journal- EUR/USD intraday system

[trendie]

QUOTE:
Basically, I will be looking at a weekly chart plotted with a 5 SMA and a 21 EMA.

I calculate the difference between these 2 moving averages and plot this value into a spreadsheet. I do this for several candles (weeks) and basically look to see if this value is growing or shrinking.

If the value is growing, then I know that momentum is bullish.

If the value is shrinking, then I know the momentum is bearish.
ENDQUOTE:

Havent you essentially described MACD ? Moving Average Convergence Divergence?
Why use excel, when standard chart functionality allows this, for little effort?
Unless, you are adding a twist.

PS: 5-EMA and 21-EMA. These are the ones I use.

Anyways, good luck; look forward to your continued interesting posts.

PPS: Vegas can be a pain to stick to in ranging markets.

 

[Askjo]

Erase

 

[Big Pippin]

QUOTE:
Basically, I will be looking at a weekly chart plotted with a 5 SMA and a 21 EMA.

I calculate the difference between these 2 moving averages and plot this value into a spreadsheet. I do this for several candles (weeks) and basically look to see if this value is growing or shrinking.

If the value is growing, then I know that momentum is bullish.

If the value is shrinking, then I know the momentum is bearish.
ENDQUOTE:

Havent you essentially described MACD ? Moving Average Convergence Divergence?
Why use excel, when standard chart functionality allows this, for little effort?
Unless, you are adding a twist.

PS: 5-EMA and 21-EMA. These are the ones I use.

Anyways, good luck; look forward to your continued interesting posts.

PPS: Vegas can be a pain to stick to in ranging markets.

I laughed out loud when I read your post because you are absolutely right. In theory thats what a MACD does. I plotted it on my weekly chart to test it out. I compared the MACD with my own excel trendline and found that there were differences on certain days which gave conflicting signals. I'm not sure why this happens because in theory, the lines should match up (or at least be going in the same direction). I might not be setting my MACD up correctly. I used 5,21,9 as my settings. Is this how you set yours up? Any help would be appreciated since this would save me some time.

As far as the Vegas method goes, I'm not trading it exactly. What I like about the system is that it plays on momentum. There were a few things that I picked up from the system that I want to start incorporating into my own trading (mainly to give me a weekly bias and look for momentum shifts). Most of my trading will still be based on key levels, support and resistance, Fib levels, and divergences. I'm not a big indicator fan so MACD is probably the only thing I will use.

Anyways, thanks again for catching that. That's one of the benefits of having trading forums. Other traders can help you out!

Happy trading friend.

 

[trendie]

Glad to be of help.

I usually get my explanations from Chart School. Some explanations explain the formulas.

http://stockcharts.com/education/IndicatorAnalysis/indic_MACD1.html

I think options on the MACD are %D, %K, and "slowing". On MetaTrader-4, try choosing 1 for "slowing", and see what happens. I believe the "slowing" option is to smooth the MACD line further by showing an average of the MACD line, if that makes sense.
( 1 will mean no smoothing (probabaly what you're getting), 2 means show the average of the past 2 data-points, 3 =average of past 3 data-points. etc. )

I dont use MACD. I use the 5 and 21 EMAs straight from the charts.

 

[Big Pippin]

Monday, October 9, 2006

The Now:

The USD/JPY has been the spotlight pair in the Forex at the moment because of all the nuclear testing going on in North Korea. They sure do have a thing for nukes don’t they? The talk of the town is that traders will most likely sell off some Yen and buy up some Dollars but long term effects are still uncertain.

But what does North Korea have to do with Japan?


It’s true that Japan is a totally different country, but geographically they are close by. Just imagine your next door neighbor training his pit bull to attack humans in his back yard so that he can use Fido as his personal weapon. Now even though it really has nothing to do with you, I’m sure your friends might be a little more hesitant to bring their young kids (or even themselves!) over to your house the next time you have a cookout. The point is that there is an added risk. Traders see this nuke testing in North Korea as a possible risk to holding Japanese Yen in case something were to happen to Japan so the result is that the Yen will lose ground to a more stable currency like the Dollar.


Coming Up:

GBP Trade Balance
4:30 am ET; 8:30 am GMT
Forecast: -6.2 b
I don’t think this will move the market unless there is a much higher or lower number than the -6.2 b forecasted.


ECB Comments
11:00 am ET; 3:00 pm GMT
Trichet is expected to speak at this one. Watch for him to confirm the ECB’s plan of raising rates. Although he was hawkish the last time he spoke, a confirmation will support the Euro. I don’t think he used the words “strong vigilance” in his last speech and that is trademark phrase, so if he says it tomorrow, not only should it help the Euro, but it will also be entertaining J


Weekly Bias- This is how I feel about the 4 majors for the week: '

EUR/USD; GBP/USD= Bearish
USD/CHF; USD/JPY= Bullish



Chart Analysis:

EUR/USD

I can see this chart possibly getting down to 2500. It’s been a freefall since the Euro dropped past its 50 and 100 SMA and 2500 is where the 200 SMA is currently at. This looks to be the next big support area. Stochastics also shows that the price is not completely oversold yet so I wouldn’t be surprised to see a little more selling power.

There’s a nice downward channel on the 4hr. chart. You can see that the price is right at 2600. Stochastics shows oversold, so we might see a slight retracement to around 2650 or so, but I think this pair will at least hit 2550 and possibly go down as low as 2500. If the price doesn’t retrace yet, the Euro might go down to 2550 before bouncing up.

Trade Idea:

Sell at 2620; Stop Loss= 2660; Target= 2550

OR

Buy at 2550; Stop Loss= 2520; Target= 2600



GBP/USD

The Cable is stalling at 8650 which is a key support area. Stochastics is showing oversold on both the daily and the 4hr. chart.

Trade Idea:

CONSERVATIVE:
Buy at 8650; Stop Loss= 8630; Target= 8700

OR

AGGRESSIVE:
Buy at market price; Stop Loss= 8630; Target=8700


USD/CHF

Not really sure about this one. You can see that the Swissy broke through its 200 SMA which tells me the price could continue to go up at least to 2650. However, both the daily and 4hr. chart are showing overbought so I’m not really sure what to do here. I’ll hold on this pair for now.



USD/JPY

The Yen is at very strong resistance right now. Stochastics is also showing extreme overbought conditions on both the 4hr. and daily chart.

Trade Idea:

Sell at 119.00; Stop Loss= 119.30; Target= 118.50

I’m a little uneasy about going short on this pair because of all the Nuke testing in North Korea but I still think this trade is viable because if anything, this will be the retracement if the dollar does shoot back up.


Related Charts:

 

[duckfu]

I laughed out loud when I read your post because you are absolutely right. In theory thats what a MACD does. I plotted it on my weekly chart to test it out. I compared the MACD with my own excel trendline and found that there were differences on certain days which gave conflicting signals. I'm not sure why this happens because in theory, the lines should match up (or at least be going in the same direction). I might not be setting my MACD up correctly. I used 5,21,9 as my settings. Is this how you set yours up? Any help would be appreciated since this would save me some time.

As far as the Vegas method goes, I'm not trading it exactly. What I like about the system is that it plays on momentum. There were a few things that I picked up from the system that I want to start incorporating into my own trading (mainly to give me a weekly bias and look for momentum shifts). Most of my trading will still be based on key levels, support and resistance, Fib levels, and divergences. I'm not a big indicator fan so MACD is probably the only thing I will use.

Anyways, thanks again for catching that. That's one of the benefits of having trading forums. Other traders can help you out!

Happy trading friend.

MACD has 2 lines. The first, often called the MACD or Main line, is the difference between 2 moving averages - 12 ema and 26 ema in a classic MACD. the second line is a moving average of the MACD line ("smoothed").

What you are calculating with your speadsheet is the MACD line.

 

[Big Pippin]

MACD has 2 lines. The first, often called the MACD or Main line, is the difference between 2 moving averages - 12 ema and 26 ema in a classic MACD. the second line is a moving average of the MACD line ("smoothed").

What you are calculating with your speadsheet is the MACD line.

I am taking the difference between the 21 and 5 ema. So I put the MACD settings at 5,21,9, but I compared the lines and they don't match up. On some points I'd get a conflicting direction. This is why I'm still confused. In theory, the Main line should have the same slope as the line in my charts but this hasn't been the case.

 

[duckfu]

I am taking the difference between the 21 and 5 ema. So I put the MACD settings at 5,21,9, but I compared the lines and they don't match up. On some points I'd get a conflicting direction. This is why I'm still confused. In theory, the Main line should have the same slope as the line in my charts but this hasn't been the case.

Yeah, it depends on the charting package, some calculate MACD differently. If the spreadsheet works, to hell with the MACD

 

[Big Pippin]

Tuesday, October 10, 2006

The Now:

Ok, so I was pretty much wrong on my chart analysis yesterday. My weekly bias is right on track as the both the Euro and Pound are dropping while the Swissy and Yen have been skyrocketing. I just thought we would see a little retracement before seeing the dollar continue its run, but it looks like the move is still going.

Why is the dollar gaining ground? I’ve been reading around and found 2 driving factors that seem to be the reason for the dollar surge.

The first is that traders are pulling back their expectations that the Fed will cut rates in the next couple of months. The Fed has been surprisingly hawkish recently and its becoming more apparent that rates will be held constant in the near future. Instead, traders are looking to see the Fed cut rates sometime near the end of Q2. This means that the US economy is not slowing down as fast as people thought.

This leads to the 2nd point—a stronger US economy than what traders expected. The Bureau of Labor Statistics released a report showing that there were more jobs created than what the original reports were showing. This means that the job market is still going pretty strong.

“The Bureau of Labor Statistics (BLS) estimated that businesses created 128,000 new jobs in August, a relatively weak figure. Now, with more information, it estimates that employers added 188,000 new jobs that month—a fifty percent upwards revision. BLS also undercounted the number of new jobs created between March 2005 and 2006 by 810,000.”

Read the full article at:

http://www.heritage.org/Research/Economy/wm1233.cfm

In addition, the housing market drop is expected to slow down since the drop in construction in prices. Since the housing slump has been the driving force in the dollar sell off, this should give the dollar some support.



Coming Up:

FOMC Minutes
2:00 pm EST; 18:00 GMT
The important thing to look for here are statements indicating that inflation is still a concern. Anything that suggesting that rates will be held steady will give good support for the dollar.



Chart Analysis:

EUR/USD

Yesterday I said I could see the Euro get to 2500. After yesterday’s dollar surge, it looks like that may happen. 2500 looks like a good place to buy because it’s where the 200 SMA is, which makes it a viable support area. There’s been a lot of selling pressure on the Euro so I think we’ll see a retracement soon.

Trade Idea:
Buy at 2500; Stop Loss= 2455; Target= 2550



GBP/USD

Right now it looks like nothing could stop the Cable from falling, except for the fact that it has been showing oversold conditions on a 4 hr. chart for 2 days now. Other than that, I don’t see too many barriers to stop it from falling. I’m going to hold on this pair for now.


USD/CHF

Woowee this pair is soaring! After cutting through its daily 200 SMA, this pair has kept going all the way up to 2700. Now it’s stalling. Retrace or keep moving higher? That is the question.


USD/JPY

Just like the Swissy, the Yen has broken through it’s major resistance level at 119.00 like it was little twig and looks like it is on it’s way to 120.00. This pair seems to have a knack for 50’s and 00’s so I’m going to make a low risk play on buying it and targeting 120.00.

Trade Idea:
AGGRESSIVE- Buy at market; Stop Loss= 119.20; Target=120.00

OR

CONSERVATIVE- Buy at 119.50; Stop Loss= 119.20; Target= 120.00



Related charts:

 

[Big Pippin]

Wednesday, October 11, 2006

The Now:

After having some nice volatile days in the market, things seemed to quiet down today. There were no major economic reports to push the market except for the release of the FOMC minutes.

The minutes basically confirmed the fact that the Fed is still paying close attention to inflation and that interest rates will probably remain high for a while.

The dollar did make a small push after the minutes were released. The move probably could’ve been bigger but it seems that a small aircraft crashed into a building in New York City. The fears of another terrorist attack (even though the crash was ruled to be completely accidental) may have stunted the dollars push after the minutes.

A couple days ago I mentioned that the Euro would hit 2500. That prediction came true today after the minutes were released. I don’t see the dollar making another push right away unless something drastic happens. For now, I think the dollar bulls have taken their foot off of the gas pedal and are in neutral right now. I think we could see a slight retracement in all the dollar pairs.



Coming Up:

US Trade Balance
8:30 am ET; 12:30 GMT
Traders are expecting the trade balance to improve, especially with the drop in oil prices. The consensus for tomorrow’s report is -66.5bn compared to the previous -68.0bn. If the trade balance report shows a lower number than this, watch for the dollar to make another push.

US Jobless Claims
8:30 am ET; 12:30 GMT
This will most likely be overshadowed by the Trade Balance, but any positive US data right now will just add fuel to the dollar’s hot run. The consensus is 310,000 and the previous number was 302,000.

US Beige Book
2:00 pm ET; 18:00 GMT
Watch for continued statements regarding high inflation or anything to suggest that rates will have to remain steady. This should be more kindling to the Dollar flame if the report shows inflation worries.


Chart Analysis:

EUR/USD
2500 is going to be a strong support. You can see that it lines up with the 200 SMA. The Euro got down to 2500 on June 22 and July 18 and both times, price bounced back up. I expect the same to happen again. Even if this does happen to be a new bullish dollar trend, I think we will at least see a retracement as the Euro is showing oversold conditions in both the daily and the 4 hr. chart.


GBP/USD
The Cable is taking a pause right now as you can see from the range bound movement between 8500-8600. It’s still near the oversold conditions but we’ll have to wait and see what happens with this pair.


USD/CHF
Nothing seems to stop the Swissy right now. It just keeps pushing higher and higher, breaking through resistance like nothing. Both the 4hr and daily charts are showing extreme overbought conditions, and with the huge run it’s been making, I’m thinking about shorting this pair soon. The Swissy hasn’t been past the 2700 level since way back in April. Expect to see a retracement very soon.


USD/JPY
There wasn’t much changed in the Yen. I still think this pair will spike to 120.00 before heading back down. Yesterday I mentioned a trade idea to go long at 119.50 and target 120.00. This trade is still in play at the moment. Coincidentally this leads me to another trade idea, which is to fade the 120.00 level.

Trade Idea:

Enter short at 120.00; Stop Loss=120.45; Target=119.50


Related Charts:

 

[Big Pippin]

Thursday, October 12, 2006

The Now:

After a pretty good dollar run, I think we are finally seeing the retracement we were all waiting for. The trade deficit widened to -69.9bn which is a record for the second month in a row. The consensus was about -66.5bn so this number was wider than expected. The word on the street is that although the trade balance has widened, the US is having no problems attracting foreign investors to fund this deficit. This means that this probably won’t have a long term affect on the dollar.

The Beige Book showed mixed results. Some regions said they experienced growth while others said that their growth had cooled. More specifically, many districts claimed that housing sales have cooled down shown by decreasing prices, rising inventories, and slower sales. On the other hand, consumer spending has been rising (with the exception of houses) in many districts.

The bottom line is that the US data right now is pretty much telling us that although the economy is not booming like it used to, it’s holding steady which indicates that rates will most likely stay put from now until early next year. Traders were placing bets that the Fed would cut rates in the near future but the recent reports and hawkish statements from the Fed have pretty much put that rumor to rest.

Start paying closer attention to the currencies paired against the dollar. Watch the ECB, BOE, and BOJ and see what they are doing and saying about their economy. I think this will be particularly important to pay attention to, especially now that the dollar picture is becoming a little clearer.



Coming Up:

BOJ Interest Rate Decision
1:00 am ET; 5:00 GMT
BOJ is expected to keep their rates the same. Of course if they don’t, the market will go crazy. Don’t bet on that happening though!

US Retail Sales (excluding Autos)
8:30 am ET; 12:30 GMT
Consumer spending has been growing lately and has been the backbone for the dollar support so I’m looking for a good Retail Sales number. The consensus is 0.0% from the previous 0.2% last month. Anything higher than the 0.0% would support the dollar and a number of 0.2% should cause a nice move.

Michigan Consumer Confidence
9:45 am ET; 13:45 GMT
This will be a good report to watch because it gauges the consumers’ confidence on our economy. The consensus is around 86.3 from the previous number of 85.4. If retail sales come out good and consumer confidence shows a high number, I think we’ll see another good day for the dollar since consumer confidence translates into more consumer spending and better retail sales numbers. Remember, consumer spending right now is one of the upsides to the US economy right now so this report will be pretty important



Chart Analysis:

EUR/USD

As I suspected, the pair has bounced up to 2550. I think it will get up to 2600 and then bounce back down. Notice how the 50 SMA also lines up with 2600. This should make it a pretty nice resistance level. Look for this pair to bounce back down to 2570 or even 2750.


GBP/USD

There was more range trading between the 8500-8600 levels. I still don’t have a clear direction for this, but signs are showing that this pair will probably head to 8650 before bouncing back down. Once again, the 50 SMA is in line with 8650 which makes it a good resistance point. The daily stochastics is in the oversold area and is showing a cross up which could be signs of a retracement. The 4hr. stochastics is still in neutral territory right now but its slope is moving upwards toward the oversold area. It looks like if the Cable does get to 8650, the stochastics will also show oversold which looks to be a good level to go short, since this will also be when the price hits the 50 SMA as resistance.


USD/CHF

We are finally seeing this pair settle down after the dollar took this pair for a joyride! The same story goes for this pair as the Cable and Euro. The Swissy has broken out of its upward channel and I think it will head down to its 50 SMA which will probably be around the 2620-30 level.


USD/JPY

1900 will be the next “make or break” level for the Yen. It’s a level that everyone will watch because it was a strong resistance level. It just so happens that the 50 SMA also is headed towards that level. I think the break or bounce at this level will determine the direction for at least the next day or so. Watch this level closely.


Related Charts:

 

[Big Pippin]

Friday the 13th!

Uh oh! Friday the 13th! Is it a nightmare on Forex Street? Not really, but it was pretty hectic.

The Now:

I mentioned yesterday that consumer spending has been the backbone for the dollar support and today’s positive reports in both Retail Sales and Consumer Confidence caused huge gains for the dollar, particularly against the Euro and Yen. The actual retail sales report came in a -0.4%. On the surface that looks like a bad figure, but you have to dig a little deeper to get the real story. Gas prices have been dropping like a rock lately and because of this, gasoline sales have been dropping. This is factored into the entire retail sales report. When gas prices drop, US consumers tend to spend more on other things. So if you take away the gas sales, retail sales actually went up 0.6%. Now the true story is revealed and we can see that consumers are spending more money on other things now since they don’t have to fill up their SUV’s with $70 worth of gas every week!

The other big story was the Michigan Consumer Confidence report. Yesterday I mentioned that this would be an important report to watch because if this number came out positive along with a good retail sales report, we would see a big move for the dollar. Well my friends, the consumer confidence report came out very positive. In fact, it came out higher than forecasted. The forecast was at 86.3 and the actual number was 92.3. Basically this means that consumers are confident in our economy (lower gas prices tend to be their measuring stick) which means higher consumer spending which translates into higher retail sales and a stronger economy.

With the holidays coming up, I expect to see consumer spending continue its growth. It will continue to be the catalyst for the dollar bulls until the end of the year. Regardless of whether or not gas prices go up, I still think consumer spending will rise. Wage growth has been growing faster than retail sales for the past 5 months so even if gas prices do rise, I think the higher salaries will compensate and we’ll see the stores filled with crazy parents rushing to get the last “Tickle Me Elmo” doll for their precious babies. You gotta love the holidays!

For all you Alba enthusiasts, there was finally an Alba trade today. I didn’t take the Retail Sales breakout because it was a news candle, but I did take the breakout at 10:10 (the close of the 10:00 am candle) which closed at 2505. My stop loss was at 2525 and my target was at 2495. My target was hit at 10:30 am and I closed 2 lots and moved my last lot’s stop to breakeven. I trailed my last lot to the high of the next candle which made a new low where I was eventually stopped out at 2492.

Result: +20 +13 -9(spread)= +24 pips


Chart Analysis:

EUR/USD

Despite the positive US news, the dollar will have a tough time breaking 2500. You can see that it’s been a strong support level and it also happens to be where the 200 SMA is on the daily chart. I think we’ll see another test of the 2500 level and then a retracement to around 2550-60. I say 2550-60 because that is where the 50 SMA on the 4hr. chart is headed, making it a short term resistance level.


GBP/USD

I’m still not sure where this pair is going. Daily stochastics is showing oversold but on the 4 hr chart, stochastics is still heading down. My gut is telling me that we’ll see the Cable make a move towards 8500 before bouncing back up. 8500-8600 still seems to be the range for this pair as it can’t seem to move past those levels.


USD/CHF

I drew a new channel on the 4 hr. chart to better fit the new price action that’s been going on. I’m not sure if this pair will hit 2800 because the stochastics on the daily chart is showing extremely overbought and seems to be peaking. I think we will see another push to 2750 before this pair heads down.


USD/JPY

As I said yesterday, 119.00 would be the make or break level for the Yen. It seems that the pair has bounced off of 119.00 and will probably hit 120.00 on Monday before bouncing down. I’m prepared to fade the 120.00 level as this level hasn’t been reached since November 30, 2005. This will be a low risk trade and will play off the fact that people will do some profit taking at this level.

Trade Idea:

Sell at 120.00; Stop Loss=120.15; Initial Target= 119.70

Try to ride this trade out. If it does get down to 119.70 move your stop and go for 119.50. The Yen has a knack for going from 00s to 50s and vice versa.


It’s been an exciting week and I hope you all have had great trading days. Have a great weekend everyone!

-BP


Related Charts:

 

[Big Pippin]

Monday, October 16, 2006

The Now:

Well I hope you all had a great weekend and are recharged for another week of exciting trading in the Forex. Last week was definitely an exciting time for the dollar and this week will be either the continuation or rejection of that greenback rally.

First thing to talk about today is the Russian Central Bank. Word on the street is that they will be adding the Yen to their foreign exchange reserves. As a result, the USD/JPY dropped back down to 119.00. It did not reach 120.00 like I thought it would before dropping back down. 119.00-120.00 will most likely be the range for this pair in the short term unless a major economic event occurs or a news report comes out with an unexpected surprise. I’ll talk more about it in the chart analysis.

The next thing to discuss is the issue of the UK house prices. The Rightmove house price index showed that UK house prices rose 2% in September which led to a short term rally for the Cable. There are more UK economic reports coming out later this week which are forecasted to be weak so I don’t expect this rally to last very long unless:

a) The dollar comes out with negative economic reports this week.

OR

b) The UK comes up with surprisingly positive reports.


Weekly Bias-O-Meter:

The bias-o-meter is pretty much the same as it was last week. Unless there is a major shift in momentum, I expect these biases to remain in tact throughout the week.

EUR/USD; GBP/USD= Bearish

USD/CHF; USD/JPY= Bullish



Coming Up:

There is a basket full of news reports coming out tomorrow. It will be very difficult to try and trade based on one report. Wait until after 9:15 am ET (1:15 GMT) before trying to pick a directional bias.


UK CPI
4:30am ET; 8:30 GMT
The consensus is 0.2% from the previous 0.4%. A higher number than expected could cause a short term rally for the Cable but the market will still be anticipating the US reports set to come out later in the day.

Germany ZEW Index
5:00 am ET; 9:00 GMT
This was a big mover last time so be prepared to see the Euro rally/decline if there is a big surprise from the forecast of -22.2. The previous number was -20

EU CPI
9:00 am ET; 9:00 GMT
The forecast for the Euro-zone CPI is 0.1% from the previous -0.1%. Use the data from this news report along with the ZEW index to gauge a directional bias for the Euro but remember that US data is still set to come up out later in the day.

US PPI (Headline)
8:30 am ET; 12:30 GMT
The previous number was -0.6% while the forecasted number is 0.1%. I’m sure this forecast takes into account the falling oil prices. Anything less than the forecast could cause a short term sell off for the dollar. If all the other reports came out around it’s forecast, look for this report to be the catalyst for the rest of the day’s movement.

TIC Data
9:00 am ET; 1:00 GMT
Previous number= $32.9bn; Forecast= $55bn
I don’t see this having too much of an effect on the dollar unless it comes in at a very low number. If for some reason the TIC data comes out at around $33bn (the previous number) or lower, then the dollar will lose some ground. However, I think this is highly unlikely and we’ll probably see a number around the forecast.

US Industrial Production
9:15 am ET; 1:15 GMT
Previous number= -0.1%; Forecast= 0.0%
Again, I don’t think this will have too much of an effect on the market unless there is a big surprise from the forecast.

US Capacity Use
9:15 am ET; 1:15 GMT
Previous number= 82.4%; Forecast= 82.3%
Like the US Industrial Production report and the TIC data, I don’t see this report doing too much to the dollar unless we see a significant surprise from the forecast.



Chart Analysis:

EUR/USD

I keep showing this daily chart because it highlights the significance of the 2500 level. You can see that the Euro is really testing this level right now. Stochastics is, and has been, showing oversold conditions for some time now. I think a rally to 2580 is likely to occur if the US news isn’t extremely positive. Why 2580? This is the average between 50 SMA on the 4hr chart and the 100 SMA on the 1hr chart so it looks like a good place for resistance.


GBP/USD

I still don’t know exactly what this pair is going to do. It’s been spiking past 8600 the past few days but always seems to close right back near 8600 or slightly lower. 8500-8600 still seems to be the range for this pair. If I see a break past 8650, I’m pretty confident it will go to 8700. You can see that the Cable bounced off of the 50 SMA right at 8650 so if the pair can break that, I think we’ll see a rally to 8700. Vice versa, if the pair breaks below 8550, I think we’ll see the pair move down to 8500 or close to it.


USD/CHF

There’s not really a clear picture on the Swissy right now. Sure we see it testing the support right at 2700 which also happens to be it’s lower trend channel line on the 4 hr. chart. However, stochastics on the daily chart are showing extreme overbought conditions with a cross down which looks like a sign that we are going to see more retracement. Right now it’s a toss up. The support could hold where it is at and bounce back up to around 2750, or the pair could continue retracing to 2650 where the 50 SMA is at on the 4hr. chart.


USD/JPY

Just like the Swissy, the Yen is in the same predicament. On the daily chart, it is showing extreme overbought conditions and appears to be headed down. However, it is testing the 119.00 level which also happens to be where the 50 SMA is on the 4hr. chart as well as where the 100 SMA is on the 1hr. chart. In addition, the stochastics on the 4 hr. chart is showing oversold. Through technical analysis alone, this pair really looks like it will bounce to 119.50. Fundamentally however, if the US reports tomorrow don’t come in so hot, we might see the support broken. To add to the fundamental dilemma, last Friday, BOJ governor Fukui said that the bank will consider a rate hike by the end of the year. If US reports don’t come in with good numbers, the Yen might recover some ground.


The story is in motion. How will it unfold? Will the Greenback continue to rise in glory or was it just a fluke? Can you feel the excitement? Stay tuned because you don’t want to miss any of this nail-biting action! Have a great trading week everyone!

-BP

 

[Big Pippin]

Tuesday, October 17, 2006

The Now:

Well it was an exciting day today in the Forex as it was full of economic activity. The dollar lost some ground in the 4 majors and we saw some support and resistance levels broken. Quite a few news reports came out with surprises but it didn’t really seem to play too much of a role in today’s movement.

The Yen saw a nice gain after Omi, the Japanese Finance Minister said that he would welcome Russia’s decision to increase Yen exposure in their reserves. This fueled a Yen surge and it broke through its support at 119.00 and went as low as 118.50.

The TIC data came in at a whopping $116 bn compared to July’s $33 bn. While you would think this would cause the dollar to surge again, you have to question the discrepancy between the two months. Roughly $72 bn is needed per month to finance the US trade deficit and if you take the average between July and August’s numbers, you would get $74 bn which is just barely enough to cover our debt. This was just another one of those “dig a little deeper” reports where you had to analyze more than just the report number to get the big picture. Needless to say, this did not cause the dollar to make a rally.

Other causes for the dollar’s inability to regain strength?— PPI came in at -1.3% compared to the forecasted 0.1% and the Industrial Production report came out at a surprising -0.6% compared forecast of 0.0%.

Technically speaking, the dollar showed all signs of weakening. The charts yesterday showed that a reversal was likely to happen soon. With today’s weak US reports, there was nothing to stop the dollar’s tumble and now it’s time to look at whether or not another dollar rally is in the forecast.


Coming Up:

BOE Minutes
4:30 am ET; 8:30 GMT
Watch for any MPC votes for higher interest rates. The way UK data has been coming out lately it seems like a rate hike for November could be a good possibility.

US Consumer Prices- CPI (Headline/Core)
8:30 am ET; 12:30 GMT
Headline Forecast= -0.3%; Previous= 0.2%
Core Forecast= 0.2%; Previous= 0.2%
This CPI report will factor in the effect of falling oil prices. Be sure to watch for any surprises, especially in the Core CPI.

US Housing Starts
8:30 am ET; 12:30 GMT
Forecast= $1.64M; Previous= $1.67M
Real estate has been cooling off, so a further drop in housing starts will hurt the dollar. If the figure happens to come in higher than the previous number at $1.67, then watch for a good dollar surge, especially if the Core CPI is on target or slightly higher than forecasted.


Chart Analysis:

EUR/USD

Yesterday I said that the Euro would rally to around 2580 because that’s where the 50 SMA on the 4hr chart was around. Since then, the action brought the 50 SMA lower and the price stalled out around 2560. If you made a play on this, you might want to consider exiting since it failed to break this resistance. From here, it looks like the Euro will make a short term drop back down to around 2500. After that, we should see another bounce up. However, if US news comes out strong tomorrow and the market breaks 2500, look for this pair to drop to at least 2450. I think this is highly unlikely since 2500 is a strong support level but in case it does, just be ready.


GBP/USD

This pair finally made a clean break out of the 8500-8600 range. Yesterday I said that if the Cable broke 8650 that it would make a move to 8700. Well the Cable did break 8650 and surged as high as 8734. At this point it has stalled at the 100 SMA on the 4 hr. chart and is showing overbought. The pair is currently at 8700 and looks to be headed towards 8650.


USD/CHF

The Swissy simultaneously broke through its lower trend channel line and 2700. Right now it’s testing support at 2650. It looks like a short term bounce could happen. I see this pair going back to 2700.


USD/JPY

The Yen is in a sticky situation right now. After breaking through 119.00 and its 50 SMA it’s stuck between 118.50 and 119.00. I’m not sure what this pair is going to do so I’m not even going to try to guess. At this point I could flip a coin and just pick a side because technically speaking, this pair looks like it could go either way right now.



By looking at the charts, it looks as if the dollar is poised for a short term rally tomorrow. If the US reports are positive then this will solidify my thinking and may even cause the dollar to push further. However, regardless of the news I still think we will see at least a little dollar rush as there will probably be some profit taking. What happens after that is still a mystery to me.

Happy trading everyone!

-BP

 

[Big Pippin]

Wednesday, October 18, 2006

The Now:

The story for today was the Housing Starts report. Yesterday I talked about how the market showed signs of a short term dollar rally. Given the surprising increase in Housing Starts, the dollar was given some fundamental juice to spark some gains across the 4 majors.

The previous Housing Starts number was $1.67M. I noted yesterday that if today’s report came in at a higher number, we would see the dollar rally. Given that the forecast was at $1.64M and the actual number was $1.77M, the market reacted and pulled the dollar higher.

The CPI came in lower than expected at -0.5%. This shows the effect of the falling oil prices. Core CPI which excludes Food and Energy came in right at its forecast at 0.2%.

The BOE minutes sounded very hawkish. With all the positive UK data that has been coming out lately, I think there is a good chance we will see a rate hike in November.


Coming Up:

UK Retail Sales
4:30 am ET; 8:30 GMT
Forecast= 0.3%; Previous= 0.3%
A higher number than 0.3% should cause a short term rally for the Cable. It’s looking more like the BOE will raise rates in November so a good number would provide support for the Pound.

Jobless Claims
8:30 am ET; 12:30 GMT
Forecast= 310,000; Previous= 308,000
I don’t think this report will do too much to the market. Just watch for any major surprises.

Philly Fed Index
12:00 pm ET; 16:00 GMT
Forecast= 7.0; Previous= -0.4
This was a real market mover last time when the Index came in much lower than expected. Anything greater than 7.0 should cause a nice short term dollar surge.


Chart Analysis:

EUR/USD

Wow, I usually have a pretty good sense of the market, but I was spot on my analysis yesterday (not to toot my own horn!). We did end up seeing a dollar rally all the way down to 2500 followed by another bounce back up. 2500 has proven to be a very strong support level. At this point I don’t know where this pair is going. I see the short term range as 2500-2560 (2560 being where the 50 SMA is on the 4hr. chart). If there is a break of the 2560 level, there’s a good chance the Euro will get to 2600, and if the 2500 level gets broken (not just a spike), look for the Euro to drop to at least 2450 if not lower. However, with no major economic catalysts tomorrow, I doubt we’ll see any move that big.


GBP/USD

The Cable also appears to be stuck in a range. In this case it’s between 8650-8720 (the 100 and 50 SMA on the 4hr. chart). Currently, stochastics is heading down and isn’t in the oversold territory yet. If the Cable can break 8650 (it’s 50 SMA) then I think it will get down to 8600.


USD/CHF

I have no idea where this pair is going. After bouncing off of its 50 SMA on the 4hr. chart, the price has stalled right around 2700. Stochastics is heading up but it’s still not in overbought territory. I think this pair will hit 2750 but I’m not sure if it will bounce down to it’s 50 SMA again before moving up.


USD/JPY

Like the Cable, the Yen is stuck in a range between its 50 and 100 SMA on the 4hr. chart. If the Yen can break 119.00 (its 50 SMA) we may see a move to 119.50. On the other hand, if the Yen breaks below 118.50 (its 100 SMA) then we’ll probably see a move down to 118.00.



After 2 days of the dollar getting hammered, followed today’s mini dollar surge/rebound, the market seems to be at a standstill. Everything looks neutral right now and it’s hard to see where the majors will go next. With no extremely major economic events tomorrow, I don’t think we’ll see heavy movements to decide a direction. For now I’m waiting for a clearer picture.

Happy trading everyone!

-BP

 

[Big Pippin]

Thursday, October 19, 2006

The Now:

It’s funny how when I say that it’s unlikely we’ll see a big move in the Forex, it just seems to soar like a rocket! I should’ve known that the Philly Fed Index was going to put the market in a frenzy again. Last month the index came in at -0.4 which was a big negative surprise and it caused the dollar to tumble. Well with the forecast for this months report at 7 and the release of the actual number at -0.7, the market pulled a de ja vu and sold off the dollar.

Not only did the index come at a much lower number than expected, it actually decreased from last month’s number. But really, this report is only solidifying what I’ve been saying for a while now. The US economy is not growing at its fast pace anymore. It’s still growing in certain areas such as consumer spending and at the same time it’s declining in other areas, such as the real estate market. And I don’t know how many times traders need to be reminded that the Fed is not going to increase rates NOR will they decrease them. For the next few months, the interest rates will hold steady.

The Leading Indicators Index came in at 0.1%. Although that was slightly lower than the forecasted 0.3% it still was an increase from the previous month which was set at -0.2%. What this is telling me is that the US economy is growing—but at a slow pace and that it will probably continue to move at this pace for the next few months. I still expect consumer spending to rise, especially with the holidays coming up so I think the dollar will still be able to hold some ground against the majors.

For the Alba lovers, there was an Alba breakout today at 9:40 am ET. Entry was at the close of the candle at 2588. The stop was at 2562 and the target was at 2604. The target was hit at 10:40 and I closed 2 lots and moved the last lot’s stop to the low of that candle which is where I eventually got stopped out at 2597.

Result: +32 +9 -9(spread)= +32 pips


Coming Up:

UK GDP
4:30 am ET; 8:30 GMT
Forecast= 0.6%; Previous= 0.7%
A growing GDP will help support the idea that the BOE will raise rates in November. A strong number should continue the Cable’s rally against the dollar.


Chart Analysis:

EUR/USD

Yesterday I said that a break of 2560 would lead to a move to 2600. Today’s poor Philly Fed Index report made that prediction come true. So now the Euro is past 2600 and has pierced through its upper trend channel line. 2670 is the next resistance level because it is where the 50 SMA is on the daily chart and also where the 100 SMA is on the 4hr chart. Stochastics on the 4hr chart is showing overbought right now but on the daily chart it is sloping upwards and still in middle ground. This leads me to believe that we’ll see a short term retracement, followed by another Euro rally to around 2670.


GBP/USD

The Cable made a nice rally today. Right now it’s testing resistance at around 8780. I think it will make another short term rally to 8800 overnight, but will fall back down to 8750. Stochastics is almost showing overbought on the 4hr. chart and with the 200 SMA at around 8780, the technicals are indicating another short term dollar rally.


USD/CHF

The Swissy made a huge gain against the dollar. Right now the pair is at a good support level. On the daily chart it is hovering right around its 38% retracement level as well as the 200 SMA. However, stochastics is still heading down and is not in oversold territory yet. I see 2 possibilities. The pair can continue its downtrend and if it breaks 2500, I can see it getting to at least 2470 and maybe even 2450. Or the pair can bounce off of support and rally to 2650.


USD/JPY

All signs on the Yen are showing that a dollar retracement is going to happen soon. Right now the pair has bounced off of 118.00. On the daily chart, notice how the lower trend channel line matches the 50 SMA, I think this will provide good support. On the 4hr. chart, the 200 SMA is hovering right around 117.80.


Trade Idea:

Aggressive: Buy at 117.80; Stop Loss= 117.20; Target= 118.50

OR

Conservative: Buy at 117.50; Stop Loss= 117.20; 1st Target= 118.00, 2nd Target= 118.50


Conclusion:

The dollar took a beating today. I’d like to say that dollar will make a strong rebound tomorrow but there aren’t any US reports that can give it some juice to move. But then again, I said this yesterday and look what happened, so just remember that anything’s possible.

Happy trading everyone!

-BP

 

[Big Pippin]

Monday, October 23, 2006

The Now:

Well Friday was a pretty dull day in the markets since there were no major economic reports out. However, my chart analysis did follow through after today’s action because of the speculation that the Fed will raise rates, not cut them, sooner rather than later.

The big “I” word, inflation, has been the topic of discussion lately and it seems the Fed, along with a bunch of economists are still worried about it. In other words, while many traders were expecting the rates to decrease after this pause, the focus has shifted to the possibility that the Fed will actually raise rates due to inflationary worries.

So what does this mean for the dollar? Simple—Open up your charts for today and notice the dollar rally that occurred. Higher rates= dollar strength. The rates will hold steady for now, but what traders are trying to find out is the Fed’s next step. If it appears that inflation is high and rates need to increase, then so will the dollar.


Weekly Bias:

My bias is still the same as the past 2 weeks even though the dollar lost some ground last week. One thing I am noticing though is that the dollar rally is getting very weak. In fact on some of my other pairs that I watch, my Bias-O-Meter is giving me a dollar negative bias for the week. This leads me to believe that we might start seeing dollar negative weeks soon unless economic factors (US reports, Fed, etc.) can provide enough support for the dollar.

GBP/USD; EUR/USD= Bearish

USD/CHF; USD/JPY= Bullish



Coming Up:

Big Pippin’s Dentist Appointment
8:30 am ET; 12:30 GMT
Previous= $$$; Forecast= $$$$$$
I have to go in to my dentist dude and get some new grills for my choppers. I’m going platinum this time because gold is out. The previous number was $bling, and the forecast for tomorrow’s appointment is $ a lot more bling. Afterwards I might swing by my auto shop and get some new rims for my ride.

Seriously, there’s not really any note-worthy news reports coming out. I think trading will be dead tomorrow as traders will most likely be waiting for the interest rate statement on Wednesday.


Chart Analysis:

EUR/USD

After today’s dollar rally, I see 2 possibilities. The price is currently at 2550. On the 4 hr. chart stochastics is showing oversold conditions and the daily chart stochastics is heading up and is not showing overbought yet. This pair could bounce off of 2550 and head back up to 2600 or we might see it test that strong support at 2500 before bouncing back up. Unless of course the Fed makes some crazy statement that they will definitely raise rates which would probably put the market in a frenzy and push the dollar below 2500. But that’s just my imagination running wild again.


GBP/USD

After breaking through it’s 200 SMA on the 4hr. chart, the Cable has moved back down and is once again testing support at around 8700 which is where both the 50 and 100 SMA on the 4hr. chart are. Stochastics on both the 4hr. and daily chart show that the Pound will make a rally and I think the safest target is around 8770, which is where the 200 SMA is currently at on the 4hr. chart. The more aggressive target would be at 8800.


USD/CHF

Ahhh a good ol’ hidden divergence on the 4hr chart. Notice that as the Swissy made lower highs, the stochastics made higher highs. This is a good technical indication that the price will move back down. My dilemma here is that on the daily chart, today’s candle formed a huge green blob. Usually whenever I see a huge green or red candle, it’s usually followed by a continuation of that trend. So you can see that I’m torn right now. The safest and least risky play on this pair would be to short the pair at 2700 with a stop at 2750 and a target at 2600.


USD/JPY

I have no clue what the Yen is going to do right now. The one thing I do know is that between the 50 and 00 levels, the price is drawn to them like magnets. Right now the pair is hanging around 119.29. The only safe trade idea that I see is if the price breaks 119.50. You could go long somewhere around 119.60 and target 120.00. Just keep a tight stop since your potential profit is only 40 pips.


Conclusion:

Fundamentally, the dollar looks poised for another rally now that inflation has everyone shakin in their pants. Wednesday is the big interest rate statement and it’s most likely that rates will be held the same. On that same day, Existing Home Sales comes out so that could cause a dollar sell off if the real estate woes continue. Overall, it should be an exciting week so be ready!

Happy trading everyone!

-BP

 

[Big Pippin]

Tuesday, October 24, 2006

The Now:

The markets moved in accordance with the technicals today since there were no major economic catalaysts. The best movement was in the Swissy where I said yesterday in the chart analysis that there was a nice hidden divergence. Like magic, after hitting 2700, the Swissy dropped back down to as low as 2641. Now would be a good time to lock in some profit since it has bounced off its 50 SMA on the 4hr. chart.

There isn’t much to talk about since the real action probably won’t begin until tomorrow. However, I did read something pretty interesting that I’d like to share:

“One of the key reasons for Fed’s recent hawkishness has been record level of Dow Jones Industrial Average which reached a high of 12,116 yesterday. Typically the Fed will not loosen monetary policy until US equity markets begin to show weakness. Yet the rise in US stock market has been driven more by prospects of a benign interest rate environment rather than underlying fundamental growth. (Note the latest warning from CAT and Ford’s massive Q3 losses.) Therefore, any strong indication by the Fed that it may resume rate hikes is likely to trigger a sell off in equities which ironically enough may force the Fed to ease off. Thus trapped between a rock and hard place we doubt the US monetary officials will do anything but remain still for the time being. “

Read the full article at:

http://www.dailyfx.com/story/currency/eur_fundamentals/Euro_Recovers_Early_Losses_1161685669590.html



Coming Up:

Germany IFO Index
4:00 am ET; 8:00 GMT
Previous= 104.9; Forecast= 104.5
I don’t think this will be a big mover but any number lower than 103 could cause a short term Euro rally.

US Existing Home Sales
10:00 am ET; 14:00 GMT
Previous= 6.30M; Forecast= 6.25M
This report will be watched closely since real estate has been declining lately. A strong number (7.5-8.0M) should cause the dollar to soar. A weak number like 5M will most likely cause a dollar sell off, especially if the Germany IFO Index was strong.

US Interest Rate Statement
2:15 pm EST; 18:15 GMT
Previous= 5.25%; Forecast 5.25%
The overwhelming consensus is that the Fed is going to keep interest rates the same so if for some reason the Fed changes rates, expect a huge move in the dollar. The statement will also be watched closely for inflation and the pace of growth for the US economy.


Chart Analysis:

With the interest rate statement coming out tomorrow, I’m not too sure how well these prices will follow the technical indicators. Be cautious when trading tomorrow.

EUR/USD

The Euro is right around 2550 and technically this pair looks like it will get to 2600 sometime tomorrow. Remember, 2500 is a key support so a break of that level will probably cause a move to at least 2450. If US fundamentals are strong tomorrow we might see a spike below 2500.


GBP/USD

I said yesterday that the technicals showed signs for a Cable rally today, and that’s exactly what happened. My safe target was the 200 SMA on the 4 hr. chart and that’s about as far as the Cable got. If you took that trade, it’s probably best to exit now. 8700-8760 will most likely be the range until the news comes out tomorrow.


USD/CHF

The hidden divergence once again proved to be an exceptional trading tool as my trade followed my analysis perfectly. Yesterday I said to short at 2700 and target 2600. Well even though the Swissy didn’t get down that low it got as low as 2641. If you are in this trade it’s best to lock in some profit, close your trade, or move your stop to breakeven as the price is now resting on the support of the 50 SMA on the 4hr. chart.


USD/JPY

The Yen looks like it will have good support at 119.00 since it’s a 00 level and it’s also where the 50 SMA on the 4hr chart is lining up at. Stochastics on the 4hr shows that the Yen will probably continue to drop for a little while longer. The news will once again be the deciding factor on where this pair goes tomorrow. Technically I can’t really find a clear direction.


Conclusion:

The dollar lost some of its gains today but tomorrow’s news should cause some big movements. Be very careful if you trade tomorrow as we’ll probably be seeing plenty of spikes. I should have a clearer technical picture after the interest rate statement.

Happy trading everyone!

-BP

 

[Big Pippin]

Wednesday, October 25, 2006

The Now:

So the Fed kept interest rates unchanged which was pretty much expected. However, their tone was relatively flat. It seems like most traders were expecting them to sound a little more hawkish but instead, the Fed was pretty moderate in their statements. Basically they still mentioned their inflation worries but they said it with a cool and calm voice.

“Inflation pressures seem likely to moderate over time.”

“Going forward, the economy seems likely to expand at a moderate pace.''

“Some inflation risks remain.”

So the vibe that people are getting is that the Fed is going to keep rates unchanged. What is getting under everyones skin however is that the Fed isn’t really giving any strong clues as to what they are going to do after this pause.

Existing Home Sales fell to 6.18M which was lower than the forecasted 6.25M. This just adds confirmation that the housing market is really cooling off. The median house prices fell from $225,000 to $220,000 in September. This was stated as the biggest year-over-year drop since 1968. While month-over-month declines aren’t uncommon, year-over-year drops are more serious. The housing market has been a big factor for the slowing economy and today’s report just adds confirmation that the economy will still continue to be sluggish.

On the other side of things, the German IFO index came in at 105.3 which is higher than the previous number at 104.9. This provided support for the Euro and is the cause for some of that Euro rally we saw today. I realized I made a mistake in my post yesterday because I said if the number was lower than 103 it would cause a Euro rally. I meant to say that it would cause a dollar rally. It doesn’t matter now anyways since the number came out higher than the forecast but I just wanted to clarify so that no one gets confused.



Coming Up:

US Durable Goods Orders
8:30 am ET; 12:30 GMT
Previous= -0.5%; Forecast= 2.0%
With the balanced Fed statement today, pay close attention for any surprises because traders will be looking for some sort of direction.

US Jobless Claims
8:30 am ET; 12:30 GMT
Previous= 199k; Forecast= 305k
I don’t think this will have much effect on the market unless there is a huge surprise.

US New Home Sales
10:00 am EST; 14:00 GMT
Previous= 4.1% Forecast -0.1%
I think this will be the most closely watched report because of all the press the housing market is getting. Once again, look for any surprises because it would put the market in a frenzy.


Chart Analysis:


EUR/USD

All technical indicators are showing signs for a short term dollar rally. Currently the Euro is right around 2600 with stochastics showing overbought on the 4hr. chart. An aggressive play would be to short now and target 2550 with a stop at around 2650. However, a good conservative play would be to short at 2650 because that is where the 200 SMA is on the 4hr chart is as well as the 50 SMA on the daily chart. What this means is that this is a good resistance point so if price gets up that high, we’ll probably see a drop in the Euro. Daily stochastics is still headed up and is not overbought yet so this trade looks like it could happen. However it’s still not 100% certain that the price will get that high before dropping because the 4hr stochastics is already showing overbought and looks to be heading down now. Either way, the conservative play looks to be the safest option if the trade actually triggers.


GBP/USD

The Cable is looking pretty bland as there really hasn’t been a clear direction the past few days. Only trade idea I see is to short at 8800 and target somewhere between 8730-8740. The reason is that stochastics is showing overbought on the 4hr. chart and 00 levels always make for a good support/resistance level. The reason I target 8730-8740 is because that is where the 50 SMA on the 4hr. chart will probably be if this trade triggers.


USD/CHF

I really don’t have a clue where this pair is going right now. The Swissy is currently at 2649 and my gut is saying that in the short term the pair will reach 2700 because the 100 SMA on the 4hr. chart is at 2631 which makes for an ok support area and stochastics on the 4hr. chart is showing oversold. However on the daily chart, stochastics looks like it is moving down and there are no support or resistance levels nearby. I’m not 100% confident in this pair as of now but a short term rally to 2700 seems like the most probable scenario.


USD/JPY

I said yesterday that 119.00 would provide good support and so far it has been holding up. Now that stochastics on the 4hr. chart is showing oversold, a long trade seems like the best bet. A low risk trade would be to go long now and target 119.50 with a stop at 118.80 (which is right below the 100 SMA). On the flip side, if price moves below 118.80, look for a drop to around 118.20 which is where the 200 SMA is on the 4hr chart. Stochastics on the daily chart looks like it could be headed down so this short trade might be another possibility.


Conclusion:

With the balanced statement from the Fed, it seems like traders are once again playing a guessing game with the dollar. Look for any extreme surprises on any US economic reports coming out soon because they will probably cause any dollar related pair to move quite nicely.

Happy trading everyone!

-BP

 

[Big Pippin]

Thursday, October 26, 2006

The Now:

The big story for today was of course….yup you guessed it--- New Home Sales. With all the attention the housing market has been getting, it’s no wonder that the New Home Sales report stole the show today.

Open up a dollar paired chart and the first thing you’ll see is the dollar getting creamed just like the Cardinals creamed the Tigers in game 3 of the World Series. Now find a news source and look at the numbers for the New Home Sales report. You’ll notice that new home sales actually surged to 5.3%, higher than what was forecasted. Now why on Earth would the dollar fall when new home sales actually went up?

Well let’s pause for a moment and think of why new home sales went up. By searching for the cause of the new home sales increase we can get the bigger picture on what’s actually going on.

New homes are a bargain! The main reason new home sales went up is because of the drop in new home prices. The oversupply of new homes is causing house prices to drop, thus people are buying these houses at a discount. When I say that house prices dropped, I don’t just mean they fell a little bit. No my friend, I’m talking about a big drop. In fact, new home prices haven’t dropped this big since 1970. September new home prices dropped 9.7% from a year ago! Talk about a bargain!

What this tells us is that the housing market is continuing to weaken, which adds to the fact that the US economy is slowing. And when the US economy is slowing, the dollar begins to fall. Voila! Mystery solved---ahem…at least for today!


Coming Up:

US GDP & US GDP Deflator (Core)
8:30 am ET; 12:30 GMT
Previous= 2.6% Forecast= 2.1%
Deflator (Core) Previous= 2.7%; Forecast=2.5%
This will be the big news event for the day. Markets will be watching these two reports very closely so be on your toes and watch for any surprises.

US Consumer Confidence
10:00 am EST; 14:00 GMT
Previous= 92.3 Forecast 92.4
This will most likely be overshadowed by the GDP report but you should still keep an eye on it.



Chart Analysis:

EUR/USD

With the weak US fundamentals today, the Euro has broken through all of its moving average resistance levels on the 4hr chart. With the strong movement, the technicals are now indicating a reversal. Notice on the daily chart that we have reached the 100 SMA. This also happens to line up with 2700 so this should make a pretty good resistance level. Stochastics on both the 4hr. and daily chart are now in overbought territory (although the daily stochastics still shows a little more room for buying power) and we can see the makings of bearish hidden divergence. As far as technicals go, I see a good probability that the Euro will move back down to around 2650 (where the 200 SMA is on the 4hr chart).

Trade Idea:

Sell at 2750; Stop Loss= 2800; 1st Target= 2700; 2nd Target=2750


GBP/USD

The Cable made a nice rally today and is currently at around 8900. Stochastics on the 4hr. and daily chart are both in and around the overbought territory so it looks like we may see a drop in the near future. I just don’t have enough technical information to come up with a specific trade.


USD/CHF

The Swissy is testing support right now on the 50% Fib level on the daily chart. It has pierced through the 200 SMA and is now resting right above the 50 SMA. Stochastics on the daily still shows a little more room for some selling power, but a reversal could be coming shortly.


USD/JPY

Well 119.00 was broken through and now it looks like there’s a good chance the Yen will hit 118.00. I’m not sure how far the Yen will fall before moving back up because Stochastics on the daily chart still shows a good amount of room before becoming oversold. 118.00 should be a good support level because it’s also where the 200 SMA is.

Conclusion:

Technicals show poise for a dollar rally tomorrow, but fundamentals will ultimately decide the overall direction tomorrow. However, if US reports are weak, I don't think we'll see too much of a dollar sell off and could see the dollar gain back some ground.

-BP