EurAnalysis

When the market closed on Friday, it was getting ready to test the 1.3900 area for the third time that day. If it breaks it, it could run away and maybe we will see the 1.40 area. On October 17, it hit 1.3913 but it was short lived and fell about 150 pips. Im looking forward to what this week brings, but I am anticipating a Euro sell off as well.

I found this in my email a few minutes ago. It is from a commercial site. I posted it on another thread on Forex Factory. I really want to share it here. I hope AaronWard will not object. We are fine now he and I.

It is so funny yet so scary since that is exactly what happened with the bankers and the investment houses. This is my last post until at least 5:00 PM.

All comments are welcome.

A simple (humorous) look at bank derivatives

October 23, 2011 by Adam
Filed under: Trading Videos
http://club.ino.com/trading/wp-conte...op-150x150.jpgA Banking Primer: Understanding ‘Derivatives’

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing strategy that allows her customers to drink now and pay later; keeping track of the drinks consumed on a ledger (thereby granting the customers ‘loans’).
Word gets around about Heidi’s “drink now, pay later” marketing plan and, as a result, increasing numbers of customers flood into her bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for her products. Consequently, her gross sales volume massively increases.

A young and dynamic vice-president at the local bank recognizes that these customer debts [accounts receivable assets] constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions transforming these customer loans into DRINKBONDS [aka securities] bundling and trading them on international securities markets.

Naive investors don’t really understand that the securities being sold to them as “AAA Secured Bonds” really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb – and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to tell Heidi she must demand payment on the debts incurred by the drinkers at her bar. She demands payment from her alcoholic patrons; but, being unemployed alcoholics — they cannot pay back their drinking debts.

Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi’s 11 employees lose their jobs.
Overnight, DRINKBOND prices drop by 90%.

The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the United States federal government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi’s bar.
There in a nutshell is what’s going on in the banking industry called ‘derivatives.’

I think we may get a gap down due to disappointment, but it will be closed. I anticipate some upward movement. Either to 1.40, or, if this level fails, even to 1.43. If we get to 1.43... then a massive selloff should be on the way (as ANY further upwards movement is just uncomprehendable to me. Impossible. Cannot be. I decline to belive it until I see it).

1.40 reasons
1) My fib shows 61.8 retracement there.
2) If I calculated properly, last month pivot point is at 1.3712 and first supply a little above 1.406. Not a perfect match, but enough.
3) Psychological resistance.
4) Seems to be a nice supply area, too.

1.43 reasons:
1) Rising and falling longer-term trendlines meet there.
2) Looks like solid supply to me.

The last scenario is that the big money will be bored with EZ and instead of waiting for Wednesday will start selling earlier. But even if it is to happen, I expect selloff to start not lower than 1.39. So eventual gap down will get close before a mayor ride.

The possibility that is improbable - gap up - will probably mean, that 1.40 test is likely, either after closing the gap, or without it.

First time i am posting chart or my analysis so may be its not as good as other members post on EurAnalysis.
As far as eur/usd trade and hold above 1.3910 for me it would more likely turn itself to greens and go to 1.4160
If it breaks 1.3550 then we can see 4 Oct , 6 Oct and may be 1.30
But i am neutral and my range would be between 1.3950 to 1.3550

I hope ypu are closing that sell you have in play???

Hello EurAnalysis Members!


PT, I'd say Green. IMHO, no real reason except people's desire and hope for the magic pill come Wednesday.

Like Yohay, I am Bearish.

Good trading to all this week!

Hi guys,

I hope you enjoyed your weekend. I sure did as I stopped thinking about economics for first in couple of months. Now back to work.
Here is a bunch of statisics. I shall stop calling it Elliot waves, as some of you pointed out Elliot waves have some rules. Well, I dont have any. So lets call it Tom waves.

First of all, to the system. I tried to explain it several times, I even consider writing it into my profile, as I dont like repeating myself. But very fast:
3 grades of waves, always closing prices. Daily, H4, H1. I examine similarities between waves in cycles. Current cycle started at 6.6.2010.
First always comes excel chart with points marked for measuring. Then excel table with statisics of Tomwaves. Statisics are always written to start of the wave.

Enjoy:
Grade 1 (daily close) – So from this point of view, we are in the correction with relative strenght @ 53%. Thats B zone correction which ranges between 46% and 59,5%. Due to the strong downtrend and crappy EUR fundamentals, I think that 59,5% is the maximum correction height for now. That would give us 1,3977 as top zone target. If this zone is broken, it may lead to very strong correction towards 1,415, but right now I dont see that as likely.

Grade 2 (H4 close) – Excell chart is a bit messy here, but I wanted to show you all points which were selected for measuring, as there will be MT4 charts following, which show zones with simmilar behaviour. So from G2 point of view, I will examine current bullish trend starting 4.10.2011.
Trend started with G2 trend of 146,6% and raged until 17.10., where it reached 1,38914. Then there was a weak correction down with strenght 30% and correction up with strenght 99,4 %, which was this Fridays close. 30% correction down would suggest continuation of uptrend. 99,4% falls into C zone, which are corrections with relative strenght between 75 and 99%. Corrections from C zone, which occured during period 6.6.2010 till now are marked in following MT4 charts. As you can see, all of these corrections were either breakpoint of a recent trend, or attempt of a breakpoint. Yet it is needed to keep in mind they were usually accompanied with overshots following previous trend. This would again suggest, that we could see 1,39x and then we break down.

As FF doesnt allow me to spam whole server with charts. To be continued .....

....

Grade 3 (H1 close) – Here I will focus only to current top from 17.10. till now, so we can decide, whether we shall spike up or not. Within this range, we see only very high corrections ranging between 70 and 85%. This would again suggest, that we are in a breakpoint zone. Strongest trend here was Fridays 164%, and therefore, I incline for that last spike up again.

So prediction for coming week: Spike up to 1,39x and then downfall.

I hope you enjoyed this trip to my brain.

Good luck in next week, whatever crystall ball you are using.

Tom

I am sorry guys for it beeing so messy. Yet FF servers just somehow tried to fit attachements into one page and messed up order. What a shame.

EDIT: Ok, I have find out why is it so messy. Although it was all in *.png, FF somehow separated attachements to thumbnails and Images. So the order is right. Just in my first post, that last Image belongs to Grade 1 waves at the beginning.

T.

I found your thoughts and charts very interesting. Thanks for posting it. Good trading this week.

early interbank trade down to 3840... max 3855, current 3843... someone is dissapointed with the EU meetings... people start waking up to the reality...

Excellent analysis, Tom. Well, maybe I can't get everything, but being enable to make such detailed statistics.... And I am glad, that your analysis shows similar results to my poor newbie logic

BTW, you are from Czech but use german vocab in your excel sheets ?

I think real disappointment would be opening below 1.38. And this seems to me more like a 'tradition' (EURUSD recently gaps down often. I recall only one gap up, but it was tiny).

I will post some small parts after I study the report that just was released. Here is a teaser...I love Jim Willie...


The so-called Troika consists of the Euro Central Bank, the EU Commission, and the Intl Monetary Fund. The EuroCB is the proud owner of over EUR 1 trillion in toxic sovereign bonds and a raft of impaired bank stocks. The commission presides over a union that no longer has unity, is loaded with economists and bank agents, but has no control of a purse. The IMF is in disarray, sits on heavy commitments but only commands funds that are donated. And lately, many national pledges for funds have had no follow-up delivery. The new head Christine Lagarde must be regretting her decision to depart France to preside over an empty trough. But the Lagarde departure might be a strong hint that the French financial situation is rapidly falling apart, growing more insolvent by the month. The IMF has numerous pledges from member nations that have not materialized, as reported in the Hat Trick Letter. The latest news on that front is the United States showing abject neglect, as the USDept Treasury will leave the European bailout to the Europeans to deal with. The US has decided against expanding the IMFund account, the news being cowardly released after 6pm on a Friday afternoon. The group of the United States, Canada, and Australia have poured cold water on the plan to inject $350 billion into the IMFund coffers, even though Geithner spoke so confidently about the infusion. He also lectured other finance ministers brazenly. And to think the G-7 Meeting in Poland did not show him respect. They have cause to distrust the American bankers. Clearly, over 80% to 85% of new funds would have come from the US. The reality is that the US as the newest Third World applicant, thus cannot afford the payment. The US financial ragtime media offered numerous stories about the certainty of the US contribution. Then again, the media has little vested interest in truth and accuracy. The Global Ponzi is unraveling. See the Zero Hedge article (CLICK HERE).



See you later...

Good point Blobik

As I mentioned, got a small long on the gap. Right now she does well If she shows any bad signs I will kill the trade.

Actually the gap theory does not work in general for forex open after a weekend, I have tested it. But in this case you got a chance

No buddy...i have set my stop because i think it wont go to that level and if goes to that level then it might go beyond 1.40

I only trade the gap, then the price opens towards direction that I don't believe will dominate during Monday. For this Monday I think we will still have some upward pressure. Mentioned my reasons for 1.40 and eventually 1.43 I would not be bold enough to trade a gap up in this situation (as it would be almost above support/resistance level ).

But when finally waiting for another pack of non-informations and non-agreements on Wednesday will end... then this thing must fall eventually!

ADD: Okay, I killed it perhaps too soon, but on the open it is much better to exit early then to get caught by "no volume" and "market temporary indecision". Price stopped moving on M1, and I never expect too much on "gap-trades". In fact when price reach medium of the bollinger band on M1 it is often the best it can do attempting to close the gap in about an hour... and I prefer to go to sleep than to babysit, or move SL to entry. So I took my tiny +16 pips into pocket.

Man I am really glad you and Holy grail liked it.

Well it aint german. Kurz is czech word and it means rate, but, well to be honest, germans feudal lords were in Czech in 19th century, then Hitler again, and nowadays there is a lot of German capital in here right now. So german vocabulary affects czech language a lot. Damn those prussian bureaucrats, still messing here (Ok, that was a joke, no offence to germans).

T.