An Effective Analysis vs. Contrarian Theory in Forex

Effective Analysis I

T-Perspective vs. Fundamentals
Fed's Ben Bernake meeting on Friday at the Jackson Hole Economic symposium might be the catalyst that would overshadow the general outcome of the US Consumer Confidence expected to be favorable for the USD. 

And subsequent results of the US GDP figures culminating  the Fed's Beige book survey by the middle of the week. However, a slow yet grandually accepted growth or economic recovery has been stated contrary to QE3 expectations that still prevails to some analyst and investors eminent to such action by the Federal Reserve. There will always be a highlight on this event while the European crisis continues to find some finalization to resolve these problems.

Finding the volumes to weigh on which side would the market cling towards its final direction still remains to be seen. But the underlying Technical perspective for the US Dollar (Index) has initially provided a small window of positive market breath.

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DXY GBPUSD EURGBP CROSS RATE - LIVE 8.23

Video Support: Strategy Ability to Spot a Potential Trade

Strategy - Ability to Spot a Potential Trade

On Current Market Conditions:
After trading higher for the past few weeks, the stock market's ability to gain more ground has been dampened by investor's lackluster trading activities due to uncertainty and unclear market's direction. Alongside several reasons of the ECB's unconfirmed increase of unlimited Bond purchasing program and the Bundesbank's undoubtedly in disagreement to this program have curtailed the market's ability for the Euro to regain footing above its current price of 1.2350 level.

With that said, trading interest likewise have been low with volumes at its lowest levels for the second half of the year and the market's sluggish price action particularly this week's trading in the foreign exchange market. Unwinding market position's with the US Dollar based-trading on the latest COT report have only provided a small glimpse without any real market direction to base a considerable trade to start with. Although, there are some technical market consideration being set-up in the closing month's trading may well be taking place prior to a dramatic price action. This is where the ability to 'spot a potential trade' before any market price action could take place is vital in any trading decision especially in the forex market.
With current prices and market behavior in check; cross rates are still the prefered pairs to trade with a few exceptions the likes of Cable, Swissie & Aussie pairs that has a more direct correlation with the US Dollar at this particular trading period. However, the Aussie has had its run since June with a daily corrective move lower for the past week; while Cable likewise would still have some room to move higher. As these pairs are quite successful in covering its mark & directional trend behind the Euro being in the limelight. Meanwhile both currency pairs creates a daily market squeeze with a spill-over reaction with the EURGBP cross rate. But once such moves have been defined we would see a breakout from the European pairs higher.
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DXY T- Perspective & Analysis

The daily US Dollar Index chart shown above is used as the primary indicator for the directional market trend that influences the other major currency pairs traded.

The focal point to draw a Fibonacci rising Fan (solid-blue line) is set at the May 01, 2012 low; while extending the line to it higher point on July 12 as shown on the figure. With the three (3) consecutive (green-broken lines) extending higher as the projected probable support for the USD dollar index as the interim trend moves lower from its highest price registered at 84.10 on July 24. Thereafter, an established down trend was confirmed but likewise within the higher major-trend channel (green broken background weekly channel) and daily price action slightly below the Exponential 10 Day Moving Average.

A bearish signal were indicated before the down turn as a selling pressure shown with a price divergence contrary to its Stochastic / RSI technical indicator vs. the current trend between May 31 and extending to July 24th which fell short of its 84.50/70 objective and only registered an 84.10 high. And the succeeding tops thereafter were lower thus making an interim trend bearish but still within a major rising trend channel reflected on the weekly candlestick chart formation of the US Dollar index as of today the 17th of Aug. 2012.

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Technical Perspective: USDJPY

The USDJPY breakout above the 78.90 has triggered a follow-through for the past three trading days. Although, the reports were mix for the USD; it has recovered from the low of 82.04 and simultaneously breaking above the 83.05. This led the currency pairs to move together, while the USDJPY rally confirmed it's interim trend higher.

Extensions would be critical at the 80.50 which is at the 50% Fibonacci retracement levels of the previous decline. A move above these levels and a higher closing price for the week would provide a more positive outlook for the USDJPY to continue. Expect session to session pullbacks with the USDJPY, however the technicals of the breakout would be equivalent to the length of the consolidation.

Technical Perspective: GBPJPY Cross

As we have mentioned in our Market view analysis, the GBPJPY cross being an isolated case has followed the the USDJPY appreciation for the past few days trading activity in line with the USD recovery. The 77.65-77.90 price range support has held well as the USDJPY accelerates to its current levels at 79.31.

A clear breakout from the consolidation range of 77.90-78.90 for the past couple of weeks. This has led the cross GBPJPY to keep pace while the GBPUSD have maintained a steadier-to-lower session-to-session bias price and after the UK slightly better unemployment report that came out. The current rally of the GBPJPY is seen at the current price of 124.27 after breaking its trendline resistance at the 122.50 as shown in the chart and maintained above the above 21Day moving average of 123.08 levels.The primary extensions to 125.50 is critical for the week if and whenever the USDJPY continues to rally above the 79.65-80.10

Forex Market SRO 8.13

With the USD Index trading its weakest range for the past week with barely a high registered at 82.87 and a low at 82.04 have stalled again after a corrective move for the past two weeks from July 25 to the current price working at 82.55 mid-range level.

This was primarily due to the low interest of fundamental as well as any political reports that could seriously drive both the Euro and USD in any real direction. Which has kept the Euro at bay at the present levels of 1.2280-1.2300 price range at the start of the Monday trading in Asia and Europe. However, GDP reports in Germany, EU Zone including the Great Britain's Consumer Price Index; followed by the BOE minutes may add some early price action by middle of the week. The succeeding news reports in between Friday's US Michigan Confidence numbers may help turn the tables around from any directional price action brought about at the middle of the Wednesday results.

But the psychology of market price action and its behavior is still relevant to the growing decrease of speculative participants after the market squeeze experienced last Wednesday & Thursday's volatile up and down swings that have caused some USD short-covering on Aug 02 & a counter-trend reaction of market liquidation on Aug 03. Where a lot of speculative positions were caught flat-footed of such reaction.

Although, we have provided a signal in our market view report of the eminent price move dated the July 30-Aug 01, 2012 that has led to a market squeeze which we have experienced from those two consecutive days of counter trend price movement in both directions.

The consolidation of price swings ...pls. continue 

Degree of Trading Difficulty & Volatility

The degree of trading difficulty has taken toll even amongst the best hedge funds portfolio managers like Louis Bacon of Moore Capital Management. Where he has decided to lessen his company's trading capital exposure due to dried-up Market liquidity taking place and the degree of trading exposure in placing a huge structured trading strategy of their portfolio in the current market conditions. 

With a higher degree of expectations every year after a posting  contrast with his previous success of 18.3% since inception, a 1990 and 1992, return of 86 and 45 percent was some of the highlights. But contrary to the previous year down by 2% and currently a 0.35% as of June this year 2012.

Although, Mr Bacon does not trade a huge portion in the FX market; but this has shown that a substantial amount of value in trading confidence in the market proves the overall degree of trading difficulty have gradually been increasing alongside the volatility of market price fluctuations. Once more "what is the percentage of a potential & profitable trade?" comes into question with the current market conditions. What trade tools are applicable and practical to increase the degree of trading successfully in the market today? These are the vital questions that needs to be addressed before any trading decision should be made which we would likewise be discussing in our next article.

For now, after a gruelling trading 2 weeks of daily up and down market swings experienced particularly with the Euro and the Sterling Pound last Aug 02-03; where market prices have traded within a wider-trading range before and after Mario Draghi's remarks. Not to mention the inability of the FED, ECB & the BOE to do more to justify a quantitative easing actions which the market participants were so eager to anticipate & speculate the need to take action. At the same time some analysts have started their interest in challenging ECB President Mario Draghi to make good and follow-through his strong comments of preserving the Euro currency last week.

The two (2) day market price movement of the Euro with short-covering actions by sellers have led the market squeeze of the EURUSD, GBPUSD and spilled-over on the USDCHF.  Market capitulations would gather pace with increase volatility and major market price swings towards the next trading weeks to follow. No new catalyst to spur any dramatic price action for the week as market investors wait out for stocks to continue its rally after its corrective moves.

On the technicals;...pls. continue 

Tug of War 3 - ECB vs. FED or Bundesbank

Is Mario Draghi - the new sheriff in town?

The strong statement by the ECB President-Mario Draghi has placed him to our opinion, "as the new sheriff in town!" The Tug of war between European government policy makers has been dragging on for quite sometime with the unresolved crisis between the other neighboring countries in Europe has had a nibbling effect on the global economy. But for now those statements made have given some relief for the Euro in managing to gain some ground from its initial low price of 1.2041, as compared to the 1.1875 dated last June of 2010 and in November of 2005 were it touched a low at 1.1640. Which we believe that the ECB would not allow such price levels to go any further. 

Although, a weak Euro is as constructive as it can get for manufacturing sector, which is extremely good for Germany and France, as well as Italy for that matter. Especially in these critical times where exports are encouraged to spur-up growth for Italy. Nonetheless, Draghi's have caught a lot of traders and investors by surprise and is subsequently being challenge to show what he really has in store. Meaning, what else would he do with the up coming meetings by both the ECB and the Fed this week.

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