Low Risk, High Reward Trading Experiment

When the market opened this week the previous week's trends resumed - USD/JPY down, GBP/JPY down strongly, GBP/USD down, USD/CAD up, EUR/USD down. USD/CHF is still range bound. The unwinding of carry trades is not over yet, and the yen continues to extend its rally broadly.

Several key economic events are slated this week with monetary policy announcements from the Bank of Canada, Reserve Bank of Australia, the Bank of England, and the European Central Bank. Among the decisions, only the ECB is forecasted to shift policy - with markets calling for a 25-bp increase to 3.75%. Traders will focus on the subsequent press conference from ECB Bank President Trichet for clues on upcoming policy decisions, and whether additional tightening can be expected.

We will continue to watch, learn, and wait for the dust to settle before venturing to make another prediction based on our models.

The one we are watching most closely is USD/CAD. It appears that after one more push upwards it will have finished a final 5 wave pattern upwards and be ready to fall quite strongly. The top will likely be 1.1830 - 1.1850. The current price is 1.1800.

The stock markets continue to fall:

The weekend may have offered a bit of a reprieve to the market's downside, but it didn't seem to turn the tide. Fasten your seatbelts, investors – it could be a bumpy ride. Futures have turned sharply lower in early trading, with the Dow Jones Industrial Average (DJIA) indicated below the 12,000 mark. The blue-chip index has not breached this century-mark threshold since early November.

Overseas Trading
Things aren't looking pretty across the globe; in fact, selling pressure has been fairly steady on the major foreign indices . Indices across Asia have dropped more than three percent, following Friday's weak session in the U.S. The Japanese Nikkei lost 3.3 percent in Monday's trading, ending its fifth losing session in a row, while the yen edged to a three-month high against the dollar. Tokyo's broader Topix index lost 3.4 percent on the day. An analyst based at Manulife Asset Management in Hong Kong noted that "There is a certain degree of panic in today's trading patterns," and added that there isn't a specific reason for the sell-off, other than the continued pullback in U.S. markets and possible unwinding of speculative positions.
European markets put in their worst week of trading in four years, and reopened on Monday with more of the same. Investors remain concerned due to mortgage-lending trends in the U.S, the strength of the Japanese yen, and Chinese stock valuations. The London FTSE 100 is currently down 1.6 percent and the French CAC 40 has slipped 1.7 percent. The German DAX is down 2.0 percent.

http://www.schaeffersresearch.com/im.../070305ov4.gif

Yen Advances to Three-Month High as Investors Exit Carry Trade
By Min Zeng and Annie Pinkert
March 5 (Bloomberg) -- The yen advanced to the highest level in almost three months against the dollar as global stocks extended a slump, prompting investors to unwind riskier investments funded by borrowing in Japan.
The yen rose for a third day as investors exited so-called carry trades in which they borrow cheaply in Japan to buy higher- yielding assets elsewhere, taking advantage of the lowest borrowing costs among major economies. The currency reached its strongest since October against the pound and the highest versus the euro since November.
``Investors are cutting back their risk exposure,'' said Max Tessier, vice president of currency management at CIBC Global Asset Management in Montreal, which manages $2 billion in currency assets. ``Carry trade is running against investors. There is no argument to sell the yen right now.''
The yen rose 0.8 percent to 115.85 per dollar at 2:15 p.m. in New York from 116.80 on March 2. It touched 115.15, the strongest since Dec. 8.
The Japanese currency also advanced 1.5 percent to 151.76 per euro, from 154.10, after reaching 150.88, the highest since Nov. 24. The yen has rebounded from a record low of 159.65 on Feb. 23. The yen climbed 1.9 percent against the British pound, 2.3 percent versus the Australian dollar and 2.7 percent against the New Zealand dollar.
Traders who borrowed the currency to finance their investments in foreign corporate bonds and emerging-market assets had to buy back the yen to pay their debt financed in Japan, pushing the unwinding of the carry trade. The rise in implied volatility, a measure of how much investors expect the yen to fluctuate, also discouraged the carry trade.
U.S. Stocks
The dollar pared some losses against the yen after the Dow Jones Industrial Average rebounded and the U.S. benchmark 10-year government note erased an advance. This helped the U.S. currency cap its decline after a rout in Asian and European equities. The Dow Jones Stoxx 600 Index of European shares lost 1.2 percent.
The Dow average gained 0.2 percent to 12,138.53, rising from an intraday low of 12,039.11.
``There's a little bit of a relief rally in the Dow,'' said George Davis, chief technical analyst at RBC Capital Markets in Toronto. ``That's generating some short-covering'' in the dollar against the yen. A short position is a bet on a currency's decline.
The yen posted the biggest weekly gain since December 2005 against the dollar last week after proposed regulatory changes in Chinese equity markets sparked a rout of stocks worldwide, pushing investors to sell assets ranging from U.S. corporate bonds to emerging-market debt to repay loans in Japan.
Borrowing Costs
Japan's lowest interest rate among industrialized nations has encouraged investors to put on carry trades.
The Bank of Japan's interest rate is 0.5 percent, which compares with 5.25 percent in the U.S. and U.K., 3.5 percent in Europe and 7.25 percent in New Zealand. Japan's central bank boosted borrowing costs 0.25 percentage point last month. At 2 percent, Switzerland has the second-lowest borrowing costs among developed nations.
The Swiss franc, another funding currency for the carry trade, gained against the pound and currencies in New Zealand and Australia as people exited the investment.
``The yen will continue to strengthen over the next couple of weeks,'' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York. ``The unwinding of the yen carry trade is yet to run its course.''
Implied Volatility
One-month implied volatility on options on the dollar versus the yen rose to 9.65 percent, the highest since June 5, from 8.48 percent on March 2.
The increase may discourage carry trades, as it implies wider exchange-rate fluctuation risk. The one-month implied volatility of yen against the euro and the pound also increased.
The yen will gain 2 percent this week against the dollar as Japanese investors switch out of foreign assets to take advantage of rising interest rates at home and reduce the risk of foreign- exchange losses, Standard Chartered Bank Plc said.
``Japanese money is definitely going home,'' said Singapore- based Callum Henderson, head of currency strategy at Standard Chartered. ``The spike in short-term Japanese rates will exacerbate the rally in the yen.''
The dollar pared some advances versus the euro after the Institute for Supply Management's index of non-manufacturing businesses dropped to 54.3 in February from 59 in the prior month. Economists in a Bloomberg survey expected the index to fall to 57.1. Readings above 50 signal expansion.
The Euro
The euro earlier fell against the dollar on speculation the European Central Bank will signal it's in no hurry to raise interest rates amid a global sell-off in stocks.
The euro dropped to $1.3096 from $1.3192 on March 2.
The ECB will increase borrowing costs by 25 basis points to 3.75 percent when it meets March 8, according to the median estimate in a Bloomberg News survey of economists.
U.S. Treasury Secretary Henry Paulson and Japan's Finance Minister Koji Omi discussed currencies and the stock market in Tokyo.
Paulson said, ``currencies should be determined by the market.''

Generator Functions, The Wave Nature of Prime Numbers, and The Electric Universe

by James McCanney, M.S. ("The Professor")

Excerpts:

"He has stated that in his travels he learned that nature provides elegant yet simple solutions to even the most complex problems, and that she reveals these fundamental secrets to only those who pursue truth for truth’s sake, without the encumbrances of modern life or economic rewards that so many times cloud the visions of humans, especially scientists, most of whom are entrenched in the age of big business and government monopolized science.....

In the background Mr. McCanney continued working on the illusive mathematical problems facing celestial mechanics, that is, the unknown method of solving simultaneous differential equations. He believed that nature had provided a simple but elegant method to solve these complex problems that did not exist in current mathematical capabilities. He envisioned a mathematical technique that would be applied and reapplied to generate a final solution. In this respect, many unsolved problems of mathematics and quantum mechanics and even genetic molecular structures would have their solutions in this new mathematical technique...

His search lead to a technique that is the basis for the discovery of the solution to the prime number problem presented in this book, and which now holds promise at solving some of the great mysteries of Quantum Physics as well as Genetics. It is based on the “Mathematical Operators” that the Professor calls “Generator Functions”....

“the Generator Function is an operator that reflects conditions in nature, it builds up a first layer when applied to the basic building blocks, and then is applied to this construct to form a second more complex structure. The same Generator Function is then reapplied to this result and the process continues, with each successive application modifying the prior set of results”.

This leads to questions that are being asked for the first time....

An essential aspect of the Generator Function concept is that it creates intermediate or “false” solutions that are necessary steps to generate the final correct solution. This is possibly but one of the reasons why so many mathematicians have worked around the prime number problem without finding a solution, as they failed to see the total picture as presented in this book. Countless mathematicians have come to the conclusion that that prime numbers are random with but passing patterns. This book proves that to be incorrect....

In spite of these discoveries that were confirmed in many cases decades after Mr. McCanney’s theoretical predictions were published, he now has stated that the current treatise on prime numbers potentially may have the greatest significance in the history of both Physics and Mathematics. The solution of the Prime Number Problem has eluded every great mind since the Greeks first defined it nearly 2500 years ago. Cauchy, Gauss, Riemann, Euler, and countless others spent their entire lives scouring this problem, yet could not crack the fundamental problem of being able to directly calculate the prime numbers. Countless major unsolved problems in both Physics and Mathematics base their solutions on the prime numbers, yet no one could directly calculate these illusive and perplexing numbers, that is, until now.

It was in quest of this solution and the understanding of its importance that has brought us to herald this work, which is now explained in a way that only the good Professor can do, making it understandable by anyone with a rudimentary knowledge of mathematics. The solution is simple and elegant, the way nature intended."

An Organic Method for Solving Heretofore Unsolvable Problems

by James McCanney, M.S. ("The Professor")

Excerpts:

....the solution to understanding the prime numbers was like everything else in nature … it most certainly did exist … and it had to be elegant but simple. ... there had to be a new "method" of mathematics that had not yet been discovered.

....So it was at that fateful point in my theoretical life that I made a conceptual decision that was the equivalent of cutting off my right arm. I would take indefinite leave of working on the project labeled "Prime Number Problem" … until such time as I had forgotten all of what had to be false leads of all these other mathematicians I had studied and likewise abandoned my own set of false leads.

Many times I had to resist the temptation to reopen the "Prime Number Problem" file as I saw it sitting on the shelf, since I had not shed myself of all the dead weight yet. Patience my son, patience a little voice said inside of my head. And I then continued with the many other pursuits that have kept me more than busy over the years.

Then one day, after possibly 2 years of not thinking about the prime number problem, I sat down with pen and paper and the solution starting flowing like water over a newly opened reservoir. I was setting on a deck in the warm sun, and with a fresh supply of paper, began putting together the pieces of the puzzle. In retrospect, at times I thought that there was one or another aspect of the total solution that was paramount or more important than any other, but in the final analysis there are so many subtle and intricate solutions that have to be woven together to make the final solution work, that it is not possible to weight any one aspect above the others. As with many events, it was a collection of factors all working in harmony to give the true vision of the prime numbers...."

Tuesday March 6 at 16:00 ET

GBP/JPY has rebounded almost 500 pips in 24 hours, and appears to have almost completed its Wave 4 correction. It may possibly soon complete this upwards corrective A-B-C wave pattern, come to a high probability reversal value, and thus create a system compliant low risk / high reward trade opportunity. GBP/USD and USD/JPY have been highly correlated this past seven days, indicating that the carry trade activity has dominated the trading on both these pairs. In other words, GBP/JPY has dominated the majors that compose this cross currency. We think that GBP/JPY will undertake one more large decline to finish off this downwards Wave C.

Trade Experiment #355 Sell GBP/JPY at 226.00

Stop is 226.76

Target is 221.00

Risk is 85 pips

Reward is min. 491 pips

RRR is min. 5.8 to 1

Confidence level: fair
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis: Wave 5 of Wave 5 down.

p.s. - GBP/JPY reached a peak of 226.21, 21 pips higher than our entry price, and then declined precipitously 234 pips to 223.87. It seems well on its way to meeting our target at 221.00.

Sun 3/4
18:30 AUD TDMI Inflation Gauge m/m .2% 0.0%
18:50 JPY Capital Spending q/q 7.0% 13.5% 12.0%
19:30 AUD Company Gross Operating Profits q/q 2.5% 2.4% 0.6%

Mon. 3/5
3:55 EUR German Services PMI 57.2 58.0 58.3
4:00 EUR Services PMI 57.5 57.6 57.9
4:30 GBP Services PMI 57.4 59.0 59.2
10:00 USD ISM Non-Manufacturing Index http://www.forexfactory.com/images/m...mpact_high.gif 54.3 57.2 59.0
10:00 USD ISM Non-Manufacturing Prices 53.8 57.5 55.2
10:00 CAD Ivey PMI 60.5 55.2 53.8
11:00 USD St. Louis Fed President Poole Speaks
14:00 USD Fed Governor Warsh Speaks
19:30 AUD Trade Balance -0.88B -1.15B -1.34B
19:30 AUD Building Approvals m/m -0.9% 0.5% -1.9%

Tue. 3/6
1:45 CHF GDP q/q 0.5% 0.7% 0.4%
5:00 EUR GDP q/q (r) 0.9% 0.9% 0.9%
5:00 EUR Retail Sales m/m -1.0% -0.3% 0.3%
6:00 GBP BRC Retail Sales y/y 3.3% 2.2% 3.1%
8:30 USD Nonfarm Productivity q/q (r) http://www.forexfactory.com/images/m...mpact_high.gif 1.6% 1.7% 3.0%
8:30 USD Unit Labor Costs q/q (r) 6.6% 3.2% 1.7%
8:30 CAD Building Permits 11.3% 2.1% -9.0%r
9:00 CAD Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 4.25% 4.25% 4.25%
10:00 USD Factory Orders m/m -5.6% -4.3% 2.6%r
13:00 USD Philadelphia Fed President Plosser Speaks
14:00 USD Fed Chairman Bernanke Speaks http://www.forexfactory.com/images/m...mpact_high.gif
17:30 AUD Interest Rate Statement 6.25% 6.25% 6.25%
19:01 GBP Consumer Confidence Index 85 82 84
19:10 AUD RBA Assistant Governor Edey Speaks
19:30 AUD GDP q/q http://www.forexfactory.com/images/m...mpact_high.gif 1.0% 0.5% 0.3%

Tuesday morning, the Commerce Department reported that demand for U.S.-produced goods slipped 5.6 percent in January, which is the largest decline since July 2000. Orders for core capital equipment dropped 6.3 percent. The Dollar showed little reaction to news that productivity growth increased less than economists had expected in the fourth quarter. US economic data has not been a focus, but investors await Friday's US employment report which could be the key event for the Dollar. But the jump in unit labor cost by 6.6%, up from the previous 1.7%, may force Market participants to reconsider the possibility of a Fed rate cut in the second quarter, which has largely been expected.

Bank of Canada left its overnight interest rate at 4.25%. UsdCad was down -0.4% at 1.1758. As well, Reserve Bank of Australia left interest rate at 6.25%. Reserve Bank of New Zealand, Bank of England and European Central Bank will hold policy meeting this Wednesday.

hi itme, any idea where cable might be heading?

my best guess is that we are in a wave-4 of a larger wave-c of a larger wave-4.

i´d say cable goes now for 1.9220-1.9200 and will continue it´s uptrend to 1.9460 or to 1.9370 but my confidence level for this one is not good.


i think the news will give us a clue what to do. if the news are negative for the Dollar it could bring us up to 1.9460.

what do you think?

hmm,

maybe we´re going up right away.

i hate corrections

Wow, this is fascinating stuff, Itme. I studied Mathematics when I was in college so this stuff is right up my alley. I'm going to have to look up this book.

Itme, as per your analysis, what do you think is the chance of USD/CAD exceeding previous trend high of 1.1878 on Feb 8th, and going up to 1.2000 during the next push higher?

Anyone else's views are welcome too - whether technical or fundamental.

Thanks for raising this issue, pipSeeker. USD/CAD made it to a recent top of 1.1825 on March 5, pushed up by the carry trade liquidation process. This fulfils my prediction. I take this as the trend high and am inclined to believe that the direction of travel will be down from now on. However, I will try to enter trades which also comply with the alternative wave hypothesis that there will be one more high reached before the medium term upwards trend is finished.

Recent news releases, all supportive of the above assessment:

10:00 CAD Ivey PMI http://www.forexfactory.com/images/m...act_medium.gif 60.5 55.2 53.8
8:30 CAD Building Permits http://www.forexfactory.com/images/m...impact_low.gif 11.3% 2.1% -9.0%http://www.forexfactory.com/images/m...us_revised.gif
9:00 CAD Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 4.25% 4.25% 4.25%

Wednesday March 7 at 16:00

GBP/JPY reached a peak of 226.21, 21 pips higher than our entry price, and then declined precipitously 234 pips to 223.87 within a few hours. It then bounced back up to 225.12, then fell recently to 224.22. We interpret this rise and fall as Wave A and Wave B of a Wave 4 corrective wave. Temporarily Exit GBP/JPY at 224.22 (or close to this value), as we anticipate a rise in Wave C to 225.20.

Enter short trade again at 225.20 and hold till target of 221.00 is met, or the upwards 5 wave pattern is complete.

Temporarily Exit Trade Experiment #355 Sell GBP/JPY at 224.22 to lock in 169 pips of profit.

p.s. - GBP/JPY just dropped another 100 pips very quickly to 223.24. The wave count we based our temporary exit order on was obviously incorrect. The fifth wave was a very large one. We are now due for a correction up, or possibly even another move down before there is a strong bounce upwards. The large size of this latest downwards move (185 pips) suggests that the A-B-C Wave 4 upwards correction could be over, and the Wave 5 downwards impulse wave has started with this latest downwards move. We will see how the upwards move that follows looks.

p.p.s - GBP/JPY came down one more time as suspected to a new recent low of 222.97, which looks like the end of this particular downwards move.

p.p.p.s - The bottom so far is 222.85.
__________________________________________________
__________________________________________________

Previous Trade Experiment:

Tuesday March 6 at 16:00 ET

GBP/JPY has rebounded almost 500 pips in 24 hours, and appears to have almost completed its Wave 4 correction. It may possibly soon complete this upwards corrective A-B-C wave pattern, come to a high probability reversal value, and thus create a system compliant low risk / high reward trade opportunity. GBP/USD and USD/JPY have been highly correlated this past seven days, indicating that the carry trade activity has dominated the trading on both these pairs. In other words, GBP/JPY has dominated the majors that compose this cross currency. We do not deem the unwinding of carry trades to be behind us and expect another test lower before a resumption of the yen trend lower. We think that GBP/JPY will undertake one more large decline to finish off this downwards Wave C.

Trade Experiment #355 Sell GBP/JPY at 226.00
Stop is 226.76
Target is 221.00
Risk is 85 pips
Reward is min. 491 pips
RRR is min. 5.8 to 1

Confidence level: fair
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis: Wave 5 of Wave 5 down.

p.s. - GBP/JPY reached a peak of 226.21, 21 pips higher than our entry price, and then declined precipitously 234 pips to 223.87. It seems well on its way to meeting our target at 221.00.

Starting at the time of the scheduled interest rate announcement, NZD/USD plummeted 100 pips or 1.5%. We cannot always assume that an interest rate hike will automatically boost the value of a currency. I can recall another occasion when the New Zealand money lenders increased their interest rate, and that time the NZD/USD shot up and then continued to rise.

15:00 NZD Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 7.50% 7.50% 7.25%

_____________________________________________

NZealand central bank raises official cash rate to 7.50 pct, may hike further
SYDNEY (XFN-ASIA) - The Reserve Bank of New Zealand lifted its official cash rate by 25 basis points to 7.50 pct and said it may raise it further due to persistent inflationary pressures.

The central bank said the latest hike was necessary to cool domestic demand and a robust housing market.

The bank warned in January that a further rise may be necessary because of its concerns about inflation over the medium term. It last raised interest rates in December 2005.

The latest rise means New Zealand maintains its position as having the highest interest rates among industrialized countries and means the New Zealand dollar will continue to find support as a high-yielding currency though the currency fell over 0.005 usd after the interest rate announcement in Wellington this morning.

Traders remain wary about buying high-yielding currencies because of volatility in global equities and are reluctant to borrow in low-yield currencies to buy higher-yielding assets.

At 8.30 am Sydney, the New Zealand dollar was at 0.6796 usd from 0.6855 usd just before the announcement.

RBNZ governor Alan Bollard said recent indicators show clear evidence of a pick-up in economic activity in late 2006 and early 2007 with strengthening domestic demand being supported by a resurgence in the housing market and an expansionary fiscal policy. Bollard said the acceleration in housing reflects firming net immigration, a recovery in confidence, a continuing rapid expansion of mortgage credit at very low margins, and strong growth in household incomes. He said a recent increase in export commodity prices - particularly dairy - may also be a factor. 'All this is adding to resource pressures and increasing the risk of a re-emerging inflation problem in the medium term,' Bollard said in a statement. But he said the short-term inflation outlook continues to ease with the consumer inflation projected to be around the middle of the target band through 2007, benefiting from lower oil prices and the high exchange rate.

New Zealand's annual inflation rate fell within the RBNZ's targeted 1-3 pct range for the first time in 18 months in the December quarter when an annual inflation rate of 2.6 pct was recorded, down from the September quarter's 3.5 pct, largely due to a drop in oil prices.

Domestic price inflation is also expected to moderate somewhat in 2007, assisted by the effect of lower headline inflation. Despite this, Bollard said domestic inflation is projected to remain at high levels over the medium term and is subject to considerable upside risk. 'Our concern is that the recent pick-up in housing and domestic demand may gain momentum, giving rise to a stronger cyclical upturn at a time when resources are already very stretched,' he said. Bollard said this could reverse the rebalancing of the economy that has been underway since late 2005 and present substantial risks to the medium-term inflation outlook. He said it would also increase the prospect of a more costly correction in the country's external deficit.

[email protected]

Wednesday March 7 at 18:00

The exit/re-enter strategy backfired in this case, as GBP/JPY dropped 137 pips below the price we exited at. Now it has bounced again, which affords us a re-entry opportunity for our our short trade at 223.85.

p.s. - The wave pattern was larger than we are used to. What we thought was a completed A-B-C pattern was actually only an A-part of B. The Wave B extended further down than expected by 137 pips. Not realising this, we thought that the new downwards impulse wave (Wave 5) was underway, so we recommended re-entering the short at 223.85 (above). This was not a good idea, as we were still in a large upwards Wave C, which has continued on up to 226.88, a full 300 pips higher, which is a new weekly high. _____________________________________________________
_____________________________________________________

Previous Instruction and Trade Experiment:

Temporarily Exit Trade Experiment #355 Sell GBP/JPY at 224.22

Wednesday March 7 at 16:00

GBP/JPY reached a peak of 226.21, 21 pips higher than our entry price, and then declined precipitously 234 pips to 223.87 within a few hours. It then bounced back up to 225.12, then fell recently to 224.22. We interpret this rise and fall as Wave A and Wave B of a Wave 4 corrective wave. Temporarily Exit GBP/JPY at 224.22 (or close to this value), as we anticipate a rise in Wave C to 225.20.

Enter short trade again at 225.20 and hold till target of 221.00 is met, or the upwards 5 wave pattern is complete.

Temporarily Exit Trade Experiment #355 Sell GBP/JPY at 224.22 to lock in 169 pips of profit.

p.s. - GBP/JPY just dropped another 100 pips very quickly to 223.24. The wave count we based our temporary exit order on was obviously incorrect. The fifth wave was a very large one. We are now due for a correction up, or possibly even another move down before there is a strong bounce upwards. The large size of this latest downwards move (185 pips) suggests that the A-B-C Wave 4 upwards correction could be over, and the Wave 5 downwards impulse wave has started with this latest downwards move. We will see how the upwards move that follows looks.

p.p.s - GBP/JPY came down one more time as suspected to a new recent low of 222.97, which looks to be the end of this particular downwards move.

p.p.p.s - The bottom so far is 222.85.
__________________________________________________
__________________________________________________

Previous Trade Experiment:

Tuesday March 6 at 16:00 ET

GBP/JPY has rebounded almost 500 pips in 24 hours, and appears to have almost completed its Wave 4 correction. It may possibly soon complete this upwards corrective A-B-C wave pattern, come to a high probability reversal value, and thus create a system compliant low risk / high reward trade opportunity. GBP/USD and USD/JPY have been highly correlated this past seven days, indicating that the carry trade activity has dominated the trading on both these pairs. In other words, GBP/JPY has dominated the majors that compose this cross currency. We do not deem the unwinding of carry trades to be behind us and expect another test lower before a resumption of the yen trend lower. We think that GBP/JPY will undertake one more large decline to finish off this downwards Wave C.

Trade Experiment #355 Sell GBP/JPY at 226.00
Stop is 226.76
Target is 221.00
Risk is 85 pips
Reward is min. 491 pips
RRR is min. 5.8 to 1

Confidence level: fair
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis: Wave 5 of Wave 5 down.

p.s. - GBP/JPY reached a peak of 226.21, 21 pips higher than our entry price, and then declined precipitously 234 pips to 223.87. It seems well on its way to meeting our target at 221.00.

The euro fell modestly after ECB Chairman Trichet said interest rates in the euro zone were moderate instead of saying low as he used to, dampening expectations for further rate hikes. The euro dropped from 1.3160 to around 1.3120 after his comments.

The European Central Bank raised rates by 25 basis points to 3.75% today as expected. The markets did not hear the word "vigilance" which they were waiting for, so Trichet's remarks today were interpreted as not hawkish enough. Though he said the risk in the long term was to the downside, he added (as usual) that monetary policy was accommodative.

The Bank of England kept its interest rate unchanged at 5.25% as expected.

The New Zealand dollar first dropped 1.5% then strengthened to a new high after the central bank raised rates to 7%, further widening the yield gap versus other developed countries.

Traders will shift their focus to the closely watched US jobs report slated for release at 8:30 AM NY time. The February non-farm payrolls are seen slipping to 100k, versus 111k in the previous month. The unemployment rate is forecasted to remain unchanged at 4.6%. Average hourly earnings are expected to edge up slightly higher to 0.3%, from 0.2%. The labor figures will be closely scrutinized for any hint of decline in the US economy, particularly in light of the heightened talk of a possible recession. Also due out will be the January trade deficit, expected to narrow slightly to $60-billion, down from $61.2 billion.

Economic Announcements for Wednesday and Thursday March 7-8

Wed. 3/7
0:00 JPY Leading Index m/m 35.0% 35.0% 31.8%
1:45 CHF Unemployment Rate 3.0% 3.0% 3.0%
6:00 EUR German Factory Orders m/m -1.0% 0.4% 0.7%r
8:15 USD ADP Nonfarm Employment Change http://www.forexfactory.com/images/m...mpact_high.gif 57K 100K 121Kr
10:30 USD Crude Oil Inventories -4.8M 1.4M
13:00 USD Chicago Fed President Moskow Speaks
14:00 USD Beige Book
15:00 USD Consumer Credit m/m 6.4B 7.0B 5.0Br
15:00 NZD Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 7.50% 7.50% 7.25%
16:45 NZD Merchandise Terms of Trade q/q 2.4% -1.9%
18:50 JPY M2+CD Money Supply y/y 1.1% 1.0% 1.0%

Thu. 3/8

1:45 CHF CPI m/m 0.2% 0.3% -0.7%
2:00 JPY Eco Watchers Survey 49.2 47.2
2:45 EUR French Central Government Balance -5.5B -36.2B
6:00 EUR German Industrial Production m/m 1.9% 0.3% 0.1%r
7:00 GBP Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 5.25% 5.25% 5.25%
7:45 EUR Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 3.75% 3.75% 3.50%
8:15 CAD Housing Starts 196K 214K 249K
8:30 USD Unemployment Claims 328K 330K 338K
8:30 CAD New Housing Price Index m/m 0.3% 0.3% 0.0%
8:30 EUR ECB President Trichet Speaks http://www.forexfactory.com/images/m...mpact_high.gif
14:35 CAD BOC Governor Dodge Speaks
18:50 JPY Core Machinery Orders m/m 3.9% 1.8% -0.7%

Friday March 9 at 4:00 ET

Trade Experiment #356 Sell USD/JPY at 117.68 (limit order)

Stop is 118.21
Target is 115.10

Risk is 57 pips

Reward is min. 254 pips

RRR is min. 4.5 to 1

Confidence level: fair
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis: Wave 5 of Wave 5 down.

Recent Japanese news:

18:50 JPY Core Machinery Orders m/m http://www.forexfactory.com/images/m...act_medium.gif 3.9% 1.8% -0.7%

Fri. 3/9

2:00 EUR German Trade Balance 16.2B 14.3B 11.1Br
2:45 EUR French Industrial Production m/m -0.3% 0.1% 1.0%r
2:45 EUR French Trade Balance -2.8B -2.5B -2.6Br
4:30 GBP Industrial Production m/m http://www.forexfactory.com/images/m...mpact_high.gif 0.1% 0.2% -0.1%
4:30 GBP Manufacturing Production m/m -0.2% 0.2% 0.2%
7:00 CAD Employment Change 14K 8K 89K
7:00 CAD Unemployment Rate 6.1% 6.2% 6.2%
8:30 USD Nonfarm Employment Change http://www.forexfactory.com/images/m...mpact_high.gif 97K 100K 111K
8:30 USD Unemployment Rate http://www.forexfactory.com/images/m...mpact_high.gif 4.5% 4.6% 4.6%
8:30 USD Average Hourly Earnings m/m 0.4% 0.3% 0.2%
8:30 USD Trade Balance http://www.forexfactory.com/images/m...mpact_high.gif -59.1B -59.5B -61.2B
8:30 CAD Trade Balance http://www.forexfactory.com/images/m...mpact_high.gif 6.3B 4.8B 5.0B
10:00 USD Wholesale Inventories m/m 0.7% 0.0% -0.5%
12:30 USD Fed Governor Bies Speaks
13:30 EUR Fed Governor Kohn Speaks
15:30 USD Fed Governor Kroszner Speaks

GBP/USD is going to continue down from yesterday's high of 1.9352 to 1.9250. GBP/USD has been in this 100 pip range Since March 6 - Tuesday. This constitutes Wave B of an upwards Wave 4. After this comes an upwards Wave C targeting 1.9400.

GBP/USD is going to continue down from yesterday's high of 1.9352 to 1.9250. GBP/USD has been in this 100 pip range Since March 6 - Tuesday. This constitutes Wave B of an upwards Wave 4. After this comes an upwards Wave C.

USD/CHF is expected to rise all the way to 1.2350 from its current price of 1.2265 and then reverse, falling all the way to 1.2150, and probably even lower. [In actuality the price of USD/CHF fell first to 1.2257 and they shot up very quickly to 1.2350.]

USD/JPY was expected to fall down to 117.00 in Wave C of its downwards Wave 4 before rising to 118.70. In actuality the pattern was very bullish, the consolidation pattern was upwards tilting, and the Wave C was abbreviated. The fall was only to 117.18, which missed our entry. The rise so far is to 118.37. The downwards Wave C was interrupted by an upwards spike at the time of the US Non-farm payrolls, which came in at about the expected figure.

Friday March 9 at 13:00 ET

GBP/JPY has risen strongly so far to 228.73. This could be a trend high, or then again the rise could continue a little further to 229.00 before reversing. The end of the uptrend is probably near.

On March 5 we stated:

"The one we are watching most closely is USD/CAD. It appears that after one more push upwards it will have finished a final 5 wave pattern upwards and be ready to fall quite strongly. The top will likely be 1.1830 - 1.1850. The current price is 1.1800."

On March 7 we stated:

"USD/CAD made it to a recent top of 1.1825 on March 5, pushed up by the carry trade liquidation process. This fulfills my prediction. I take this as the trend high and am inclined to believe that the direction of travel will be down from now on. However, I will try to enter trades which also comply with the alternative wave hypothesis that there will be one more high reached before the medium term upwards trend is finished.

Recent news releases, all supportive of the above assessment:

10:00 CAD Ivey PMI http://www.forexfactory.com/images/m...act_medium.gif 60.5 55.2 53.8
8:30 CAD Building Permits http://www.forexfactory.com/images/m...impact_low.gif 11.3% 2.1% -9.0%http://www.forexfactory.com/images/m...us_revised.gif
9:00 CAD Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 4.25% 4.25% 4.25%

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In actuality USD/CAD did top out at 1.1825 (the top of Wave 4? - or, the top of Wave 1), dropped to 1.1732, then rose again to 1.1815, then recently broke the upwards trendline and dropped quickly to 1.1704. The most probable wave hypothesis is still undefined as far as we're concerned.