10/13/2010

Fundamental:

The markets rallied today with the Dow and S&P both making modest gains.  The dollar index fell to its lowest close since January.  Anticipation of quantitative easing from the Fed and positive/better than expected corporate earnings contributed to the gains in the market.

Gold is expected to increase in value which if is correct, that should cause a decline in the dollar since the strength of the dollar is to gold and investors are looking for safer investments.  Risk aversion is up substantially (around 65%) for the dollar.  This means that investors have taken money from “riskier assets” like the US Dollar, and have placed it in safer/more stable investments, like gold.  It seems market sentiment is suggesting investors are starting to view the equities market as a safer investment, because more money is being funneled into it which is helping to drive the market surge. 

The correlation between the stock market (S&P, for example) and the dollar is quite interesting.  Normally the dollar and S&P follow a similar trending pattern but because risk aversion has grown, the correlation has deteriorated.  This means for example, when risk aversion is low, an increase in the stock market would normally mean an increase in the value of the dollar.  Since risk aversion is high investors seek to put their money in more "secure" assets; an increase or jump in the stock market most likely will mean a decline in the value of the dollar. 

Yesterday, the Fed released its notes from the September FOMC meeting.  The minutes outlined that the FOMC will keep federal fund rates at 0 to 1/4 percent.  It was also brought to attention that inflation was too low and not balanced in correlation to the percentage of the unemployed Americans and consumer product prices. Because there was no increase in interest rates, inflation will most likely remain low in relation to maximum employment and price stability.

Because of these announcements and results I would have expected a run past 1.400 but the Eur/Usd pair touched briefly above 1.400 over night and then shot down. 

FOMC minutes : http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20100921.pdf

Technical:

The EUR/USD pair channeled around for the day; I was expecting a break out of some type. I was leaning more towards a long break out but I began second guessing my analysis because the pair didn't move much in comparison to the US market move and risk aversion news.   I did see however that the Bollinger Bands were indicating a large movement, either short or long.  I suspect since the pair has broken my R2 (resistance 2) at 1.404 it will head to my R3, which I have at 1.4136. I will be surprised if it hits that level today but have I placed some limit sell orders in that area.  

I'm not ready to void out the two Doji Candle sticks from 10/7 & 10/8 but I am not basing any short positions off of them until I see further confirmation that a temporary top is in place.  I'll be looking for an engulfing bearish candle, overbought RSI (Relative Strenght Index), more Doji candles. 

It looks like the dollar is about to hit an all time low for the year so that may mean that risk aversion is increasing and traders are taking more money out of the dollar and placing it in less risk averse strategies like commodities (Gold & Oil).    

10/11/2010

The market is indecisive.  It may be due to the lack of progress that was made in the IMF (International Monetary Fund) meeting last week.  There was no exact decision regarding the "currency wars", the dollar and other currencies are facing, in relation to China's deflated currency.  The US is pressuring China to allow its currency to rise in value. By intentionally keeping their currency low, China has somewhat of an advantage not only for exporting but also for enticing local businesses to outsource because of the attractive lower costs its currency can provide to manufacturing businesses. 

Another reason the market has remained rather calm may be due to the anticipated relief the Fed is expected to provide to help boost the US economy.  The FOMC notes should be released in the next day which will help give direction as to what the Fed will do.

Trades for 10/10-10/15 2010

10/10/2010

• Went short at 1.388 for 14 pips. Target has already been reached.  $41.40 profit.  Eur/Usd opened with such a large gap from Friday's close, in most cases it retraces and in this case, it has retraced all the way down to 1.3960.

• I have a buy limit for 3 mini lots at 1.3920.  I'm looking to scalp only 4 pips.  I am placing the trade at 3920 b/c that is the pivot point for today and it most likely will encounter resistance there before breaking through, if it does.  If it does not hit target by the morning of 10/11, I will re-evaluate or cancel the order.

• I have a sell limit at 1.4061 for 5 mini lots with a target of 4 pips.  That is the second pivot point for the Eur/Usd and it has been really struggling to get past the first pivot point at 1.4002.  Volatility is fairly low so I'd be surprised if it hits this target but I will leave it open over night. 

• I may place a sell limit at 1.400 b/c of the strong resistance the Eur/Usd has been facing there

10/11/2010

• I cancelled my buy at 1.3920 since it wasn't caught over night.  Due to the consolidated movement over the night, I reversed the order and placed a sell stop at 1.3915.  The order was for 3 mini lots with a 7 pip target. I also placed a buy stop at 1.3965 for 3 mini lots with a 7 pip target.  When one of the two orders fill, I use the other order as a stop, in case the sell or buy doesn't fill.  This order filled short at 1.3915 and hit its target at 1.3908 for a profit of $26.10.
• I placed a buy stop at 1.3852, because that is the 2nd pivot point of support I have drawn.  Order is for 5 mini lots with a 5 pip target.
• Sell limit at 1.4061 remains open

10/13/2010

• Bollinger Bands:

1. Were wide and were setting up for a good movement but I wasn't sure in which direction. I placed a sell stop at 1.3943 with a profit target at 1.3820.  That sell price was determined by the Bollinger Bands high and low.  I put the sell stop 15 pips below the low of the Bollinger Band, to avoid a false breakout.  
2. I placed a buy stop above the high of the Bollinger Bands at 1.3976, with a target at 1.4023. Each order had a stop loss of 20 pips

•    I had a sell limit placed for 7 mini lots at R2 at 1.404 with a profit target of 5 pips.

Weekly Forex Outlook for 10/10-10/15

Technical:

The Eur/Usd pair closed Friday at 1.39354.  It opened Sunday at 1.39939 (a 58 pip increase).  The daily and four hour charts are showing that the Euro is quite overbought, which if is the case, would mean that a correction or consolidation is in order. The Euro daily chart is also showing two Doji Candle sticks (10/7 & 10/8).  Doji candles seen after a run up or run down, usually mean indecision or even a chance of short term reversal.  I would definitely feel comfortable entering a short position if the candle following the two Dojis is a bearish candle.

Regardless the overbought position and the two daily Doji candle sticks, it is still a fact that the Euro has gone 22 consecutive days without closing below a low of the previous day. 1.400 is actually a psychological barrier that the pair has moved up past but then quickly retraced below it .  If a retracement is in order, I would expect the pair to drop to the 1.3680 area which is the 23.6% fibo retracement from the beginning of the September uptrend. If it breaks below 1.3680 and has a daily close below that level, I would expect it to drop to it's 50% fibo retracement of 1.333.  After retracing, it should continue its upward trend to 78.6% fibonacci retracement from the 12/2009 high of 1.5143.  The 78.6% upward retracement would be in the area of 1.442.

My 50 day SMA has crossed up above my 200 SMA which could be an indicator that there will be a little more of a move up, maybe to 1.4065 before it consolidates.  The crossover in my opinion isn't enough to justify an up movement though.  

Fundamental:

This week we will have corporate earnings, the FOMC meeting (Tuesday), a report from chairman Bernanke, PPI, Unemployment claims, Retail Sales, and Consumer Sentiment, to name a few.  Forex Calendar 


Also, with the dismal results the Unemployment Claims Report released on Friday, it is expected that there should be further announcement of aid from the Fed, which would have a negative affect on the dollar.  Most likely, the Fed would buy back bonds:  The intention would be to lower interest rates.  By lowering interest rates, this would hopefully free up available credit to consumers and businesses, allowing them to spend more money.  This most likely would be good news for the stock market.  However, by purchasing bonds, this would put more money into the economy/market, which would devalue the strength of the dollar, most likely having a negative affect on it.