Saturday, July 30, 2011

What FX Price Behavior means vs. Techncial Chart Analysis

Focus on EURGBP vs. GBPUSD

The US economic fundamentals from jobs/unemployment, real estate prices and the recent revision on the US GDP didn't provide any follow through recovery for the US Dollar. To top it all these reports, the political gridlock in Washington added more negative sentiments among all the global markets from stocks to the foreign exchange market. And this has led the US Dollar as indicated by the USD Index to move lower to an important psychological support price below the 73.85 basis point. With a low registered this week at 73.42 may well be defined as the key levels where traders would have reacted to a heavier selling pressure for the US dollar. However, not a lot of investors, market strategists and traders are willing to take any fresh short positions with the US currency. And still opted to continue supporting the precious metals market as new historical prices are dominating this week's trading sessions making a new high at the USD1632.79/oz.
We have seen the spread /straddle strategies applied between bull and bear Foreign exchange institutional traders on Spot and futures have added the volatility on market reactions. Although, in between market sessions investors have learned to take a sideline attitude while watching and waiting for the outcome of a struggling political vote. And more importantly as to how such a play would be made on both sides of the market.


The European cross rate of the EURGBP has been more resilient to these factors; although the corrective move of the Euro can be seen more compared with a steadier GBPUSD making a comeback to the 1.6490 levels, while the EURUSD reaching a 1.4536 high from a 1.4228 low for the week ending the 29th of July, 2011. The indirect trading effect of the EURGBP cross pick has withstand almost all the swing trades and volatility on a session to session levels and maintained its trend back to the 0.8750 closing price from a corrective move at the 0.8883 high in line with the corrective move of the Euro.
The price behavior of the Pound and the Euro in a bigger techncial perspective have been more in line with its bullish trend. Meaning, that inspite of their low price extensions, have found some support to recover due to the fundamentally oriented market  pushing the US Dollar to do the same from its recovery. As we have mentioned, that the critical price for the USDX below the 74.40 and 73.85  range levels for the week would reinforce its bear signals. And this is contrary to its registered high of 76.70 made during the 2nd week of July.
For a complete report and analysis visit our website at http://megatrade101.com/


Tuesday, July 26, 2011

Volatility Remains High

The Political bickering in congress has led the instability on the market between bulls and bears. However, the obvious weakness of the US dollar is due to this indecisiveness of an agreement in raising the debt ceiling. Although, the repercussions towards the financial markets worldwide are known to everyone concerned. As the deadline nears this August, the market susceptible to wide price fluctuations are increasingly present. Certain surprises would occur before and after the designated time table and would make the financial market investors more jittery as well as excited for major players (institutions) participating in the current conditions. This is no place to trade for retail investor or main street speculative investors who would only get caught flat footed in their daily trades.

With that said, the USDX registering 73.52 low with an opening gap at 73.70 from the Friday closing of 74.10 basis point have shown its weakness in reaction to the stalemate not being able to reach a reasonable agreement. Although, the opening gap could be treated a long opportunity for bulls with a substantially large portfolio to take short trades and generate a short gap trade between trading sessions from Europe and the North American sessions.

As the EURUSD have extended its gains, so did the rest of the majors across the board including the Aussie and the Kiwi. The USDJPY and especially the USCHF have seen strength as the market have pushed the majors to their recent highs in value against the US Dollar. Although, the critical levels for the US Dollar is seen from its current low it now boils down to making the right choices as to which currency pair to trade with. A confirmation before a trade would be the likely choice for others as it really boils down to risk aversion and risk appetite to a certain degree for every investor and trader who would play these market conditions.

However, these market conditions are not close enough to the previous market movements when the GBPUSD moved rapidly down when John Majors walked out from the ERM, the Chernobyl accident that led Gold and even sugar to skyrocket and the worst drought from the Ohio Mississippi basin that led the soybeans market go haywire.

When all is said and done the normal market conditions would be more suitable for smart investors and taking a sideline to relax is a smarter way to go. Markets will always be there! so choose wisely!

Monday, July 18, 2011

Market Timing resolves Trading Difficulty

The degree of trading difficulty for the Foreign Exchange Market for the past few weeks have been gradually increasing together with the kind of volatility we can see on the price action alone. From a thinly traded market during short holiday trading from the fourth of July weekend have been at a steadier pace of volume increases and momentum build-up / declines as prices narrowly gain and looses its gains, as it quickly did within two to three day spreads. With other traders / analyst caught in between the haggling reports from the rippling contagion crisis in Europe, causing the prices relatively to move in both directions on a day to day basis. Although, the trend still remains intact during the end of the trading week, where the trend is still well identified for the European currency pairs including the cross rates. And with minor corrective movements as we go along the way.

With this week's thin market reports on both sides of the continent; the obvious market sentiments from the previous trading weeks would be the same, until any real serious fundamental would point otherwise. With price action within a wider trading range; the degree of having a successful trade would depend on a properly executed market timing on entry and exit strategies. However, the risk tolerance should be well defined in advance, as this market would not be suitable for short term trades that barely have enough for a negative tolerance while maintaining the respective positions. As wide price fluctuations can easily trigger a stop on both sides of the trade. This also goes the same way with having an appropriate amount of funds to risk for a wide and volatile market. If not, please do not even bother to consider any risk in exchange for the thrill of winning big, which may eventually turn in to a total loss of trading capital.

However, the relative trading analysis of timing the market weighs more in any successful trade. A trade decision to go long or short for a certain period of time needs to be well defined. Using the shorter time frames for entry and exit strategies would be appropriate. And segregating the charts into a daily, weekly & monthly basis should be able to determine the overall position and not the other way around. As everyone knows that each and every technical tool being used in most trading platforms are lagging indicators that portrays the action after the fact. Staying ahead of a lagging indicator would surely improve the winning ratio in every trade.

Knowing how to calculate these indicators forward/backwards outside of the embedded chart indicators; the likes of the simplest and commonly used trading tool like the Relative Strength Index (RSI), Moving Average Convergence /Divergence and George Lane's Stochastics would be very useful to know. This certainly would be a way of staying ahead of the competition; so to speak with other market participants when trading actively in the market place. By the time most traders would be coming in the market from their confirmation, you would then be coming out of the market ahead of the pack.

Although, the orientation of each trader and investor differs from one another. And knowing where one's comfort level of risk appetite and tolerance can only be enhanced by improving one's skills in trading by due diligence studies and obtaining the right information from reliable resources.

Monday, July 11, 2011

European Majors weak on Contagion

The crisis on Greece and Italy has weighed heavier versus the US unemployment data last Friday that led the current directional trend lower for the Euro & the British Pound. Frantic investors shifting to the US Dollar for safe Haven and flight to quality have pushed the US dollar Index higher and have penetrated its initial trend line resistance above the 75.08/50 basis point level range.

Increase volatility have made other traders reluctant for the past week and month's trading to create further positions on both sides of the direction. As the past week's move for the EURUSD has tapped the 1.4566 level highs where a lot of bullish speculators have been holding their positions leading to buy in any price lower for the Euro. Unfortunately, the bearish signals were there except no one have anticipated such bearishness to make a follow through until it continued to move lower on the first trading day of this week.

On a technical perspective, it has been the USDX compared with its inverse counter part of the EURUSD was more identifiable where one could see the three piercing formations made from the past few weeks. And this can only be seen on the weekly charts of the USDX vs the EURUSD & the similar configuration with the EURGBP cross rates. Apparently, the 1st initial support from a rising Fibonacci fan formation for the EURUSD is at the currently low of 1.3910/30 and thereafter is the 1.3750-1.3880 range trading; where we would find some profit-taking may take place from earlier shorts from the 1.4180 previous support price levels, now the 2nd resistance from the 1.4080 price levels. An average trading range between 120-150 pips up and down price swings can be attributed to the increase volatility currently present in the market place.
A complete report is found on our website: www.megatrade101.com

Trend Following EUR-GBP Live.2.

Monday, July 4, 2011

Volatility increase after 4th of July

Not much market activity would be seen while the 4th of July weekend is celebrated. Apparently, thinner market may often be susceptible to wider price fluctuation soon after the holiday trading and the upcoming NFP and the ADP figures which some analyst attributing a slight pull back for unemployment numbers. Likewise , the continued discussions on Greece selective default are weighing on the market, although resolutions to these problems would be on the table for further discussion to avoid and actual defaults by Greece. But the highlight for the week would focus on the NFP figures.

Trading Strategies: Much of last week's market movements were clear, although, the much expected US Dollar decline were attributed to the strength of the Euro recovery as declining Gold prices and oil have contributed to investors shifting interest for the Euro rather than the precious metals. But in spite of the declining metal prices, it has not helped the US Dollar to continue it strength but rather maintained it gradual decline relevant to the weak data from last week that prompted the continued strength for the EURGBP cross rate to move back higher to the 0.9010-60 range levels. Thus supporting our market view report from last week's outlook "Focus on the EURGBP Cross & the EURUSD." Please refer to our video support for this market analysis.

The Asian opening lower for the the USD would continue to have a spillover effect for the mid-week prior to the NFP figures. Leaving enough room for the corrective move although, seen on a short term basis on a daily price movement for the European majors like the Euro. Currently, at the 1.4527 maintaining a fairly flat price due to the current market inactivity from US major investors. Whenever such corrective movements are made we, would be expecting a corrective move midway to an engulfing candlestick bar for the weekly for the Euro coupled with a EURGBP cross rate to move lower towards the mid-price range of 0.8860 or lower levels. Thus making a a bearish signal by the end of this week's trading activity.

The relative contrary movements from between the USDJPY & USDCHF may also be a influential factor for the Euro & Pound to likewise do similar price actions on a day to day basis heading towards the mid-week's trading activities. With the opening of the new month for July, position adjustments would be made clear before any real fresh position trade would be expected for the major participants. Besides, being the beginning of the 2rd quarter of the year's trading, whenever a mid-year ends with the USD lower a probability to follow its cyclical pattern to recover for the third quarter would be logical.

Thus maintaining our long term objective with a long term position for the USDCHF to make a come back. Choosing the USDCHF has been preferred rather taking the USDJPY. As a cross trade in the near future we would consider choosing the between the EURJPY and GBPJPY to maximize the market potential of our USDCHF long term objective as shown on the chart above. As such, positions taken would relatively depend on the size and allocation of trading portfolio that one has. However, we do not recommend that this strategies be applied for retail investors as it carries a higher degree of trading difficulty and risk tolerance to maintain 2 or three simultaneous positions in the market.