Well this weeks close could spell the end of the dollars strong trend in place for a few months against the Euro. Fridays close above resistance at the 1.31 level invalidates the breakout from the pennant from the week before. Taking a look at the daily chart we see that we are currently nearing the top of a descending channel at 1.3350 and that we are still in a consolidationg pennat formation. A break out of this pennant will determine the direction of this pair.
Taking a look at the weekly chart we have a longer term downtrending line that makes up the top of the descending trendline currently at about the 1.34 level. A significant weekly close above that level would signal the end of the downtrend in this pair and signal a move towards 1.47-50. Therefore, this week is a pivotal week. This could either be the end of the strong trend for the dollar or a continuation of what we have seen. If we get a bounce off resistance I would expect the pair to head back down to first the 1.29 level and then on towards 1.27 support.
We have quite a bit of data out this week and this weeks movements will be dependent upon such things.
I wouldn't be surprised to see a bounce off of resistance and things staying in this weekly consolidation pattern as analysts and traders change their mind on the direction of this pair every week which usually evinces indecision and consolidation. We have a weak U.S. economy and a weak Eurozone. Sentiment in the Euro was trending down as a result of the market fearing the ECB was not properly handling the recession and divided. Take your pick. Therefore, we will look to technicals.
So in short, I am currently long targeting 1.3350 resistance. A break of 1.34 and will target 1.47-1.5. If we get a bounce off of the resistance level, depending on the fundamental environment at that time, I may look to go short and target 1.29 initially.
I'm exiting my long eur/usd spot position from 1.32 here at 1.3330 before the Fed interest rate announcement for a $1,300 profit. May re-enter after announcement if comments are rosy about the economy.
Long spot position eur/usd here at 1.3245 1 lot. We have a breakout of the descending channel on the daily chart. So I will be targeting 1.3725. Confirmation will be a weekly close above 1.34 that will signal the end of the dollar trend.
Fundamentally, I don't see any reason for the strengthening in the equity markets.
In the face of extremely poor funadamentals: including but not limited to chrysler filing for bankruptcy, poor negative GDP number, and the swine flu outbreak, equity markets choose to rally. Fundamentals are pretty crazy right now. This did however, work in favor of my carry trades that I have begun with short yen positions. I will leave my puts open for the eur/usd and the GBP/USD for the time being in case risk aversing kicks into gear with reality hitting the market. However, I will go long spot with the eur/usd to target 1.3725 on the breakout of the descending channel on the daily chart.
As for the GBP/USD. If there is a close above 1.50 on the daily chart I will exit my put and go long targeting the 1.63.
Currently I am long with the spot here at 1.3264 from open as I said I would be to take adavantage of risk appetite. Should there be a weekly close above 1.34 we should easily reach 1.3725 and then 1.38 and on towards 1.40 and 1.45 on the breakout of the descending trianlge. However, if risk aversion should return I have a two lot option that is active at 1.3150 to take advantage of downward movement at $20 a pip instead of $10. Since I cannot lose more than the premium on that short position and I can exit before then on the break of 1.34, it does a an excellent job managing risk control so that I may profit in either direction as long as their is volatility in either direction. This is a great alternative to a stop loss. I will of course have a trailing stop at some point.
Yes, currently I am long at 1.3264 and yes, I am targeting 1.3725 resistance zone. And the reason I took this position was on the breakout of the descending channel on the daily chart for the eur/usd. Once there was a close above the descending channel that validated the breakout. If we take a look at the weekly chart we are bumbing right up against resistance which is the downtrending line making up a descending triangle pattern. If you take a look at this chart you may see several long tails which represent price action they may have substantially poked its head through the trendline. However, price action failed to hold above the trendline and were rejected by it. I think that we will have clear evidence of a breakout if the eur/usd closes the week above 1.34 thus ending the medium term trend of the dollar.
So for now targeting 1.3725. A close above 1.34 on the weekly and will start targeting 1.40 and 1.45.
Our Aussie trades are doing well. However, the Eur/USD is coming along slow with its weak economy. Tomorrow, I will be watching the ECB interest rate announcement and Trichets comments for direction of the currency. It is widely expected that interest rates will be cut by 25 basis points.
NFP is infamously the most volatile scheduled monthtly economic announcment in the Forex World. Surprising numbers in either direction could give us our trends in the short term. Higher than expected numbers, expect the yen crosses, eur/usd, gbp/usd, aud/usd pairs to gain. Horrible numbers expect all those pairs to tumble. Trading the nfp can be extremely risky with the jerky choppy movement. For example, if the jobs don't come out as bad as expected the USD may strengthen initially against the euro on some investors making bets they U.S. economy will recover before the eurozone; however, buyers of the euro may soon overtake buyers of the USD on a return of risk appetite to the market and the interest rate differential between the two currencies.
Eur/usd is currently at resistance at time of writing in the 1.34 range. I expect a drop to about 1.33-50 by the time of the nfp. If lower expect support at 1.3250. I don't expect the eur/usd to breakout of its 1.3250-1.3430 range prior to the announcement.
NFP came in better than expected increasing the profit on our short yen positions and, aud/usd, gbp/usd, and eur/usd positions. As long as the euro ends the day above 1.34 which it looks like it will we have a confirmed break of the weekly descending triangle targeting the 1.45-50 region.
I'm exiting my eur/usd long position early here at 1.3620 for 356 pip profit or $3,560.
Also I'm exiting my AUD/USD long position here at .7710 for a 320 pip profit or $3,200.
I will look to re-enter both trades buying on the dips. Medium term outlook has changed to bullish on both the currency pairs. I expect further bullish movements to .7900 on the aussie and at least 1.45 on the euro.
As you can see we had a clear breakout of the downward trendline making up the top of the descending triangle. A few times, price action has managed to stick its tail beyond the line; however, this is the first time it was able to actually close beyond it. The close is a significant amount to warrant a breakout. If we use the descending triangle breakout as a projection, this would put the pair right back in the 1.47-50 range.
Taking a closer look at the daily chart, you can see that we broke out of the downward descending channel sometime ago that made up a flag. When projecting using the flag, you take the flag pole and project it from the breakout point which would put us at about 1.42. We get this number since the movement from 1.25-1.3725 makes up 1,225 pips. We add that to the bottom of the pennant which was at about 1.29 which gives us the 1.42 region.
Also looking at the Daily chart we are closing in on resistance levels on the daily chart here at 1.3725 for an intraday resistance and you can see with the resistance line drawn that the pair could not close above 1.3660 for 6 straight days on the daily chart making it an important level to close above for further bullish movement.
Support can be found on the daily chart at the 1.3450-1.35 region. As you can see looking back at the bullish movement in march, price action was able to bounce off of that region a few times and make assaults on 1.3725, price action was rejected off of that level April 5th, and 6th, and we have just recently broke above that level that was serving as resistance which should now serve as support. Therefore, a move back down to 1.3450-1.35 would be an excellent place to buy to initially target 1.3725 and then 1.40.
Looking at the COT report. Institutional traders switched back to net long the euro/usd last week.
Fundamentally speaking we still have not seen any evidence in the economic numbers for optimism in the markets. However, Fed chairman bernanke, the IMF, and other central bankers are forecasting growth and an eventual economy recover some time this year. Therefore, traders are looking for a slowing in the deterioration of the economy. This seems to be the impetus behind this rally in equities as no one wants to miss the boat on finding a bottom. Economic numbers, continue to come out poorly, but risk appetite seems to still be returning to the market. Be careful to watch for a return of risk aversion during this global recession, but until then technically the eur/usd looks like a good buy, at least till 1.42.
