Trade Team Update – – 7/28/08

July 29, 2008 at 3:58 am Leave a comment

By FX Insights

Trade Team Update – – 7/28/08

Well it was another boring and painfully slow day in the market’s as summer session conditions prevail. A trader asked me why I didn’t just sit home and scalp the range we were in today… 

Two reasons, first of all, it’s an NFP week and I’m very cautious to scalp during an NFP week combined with low liquidity because there’s too much of an opportunity for banks to pull some shenanigans on the market and I’d rather not get caught up in that kind of drama. 

Second, the choice between scalping during an NFP week or sitting at the pool and socializing was a no-brainer — I’m taking the pool… easy call… 

For the most part gold and oil were stuck in range which kept the euro stuck in a range, meanwhile the Dow took another whipping. I suppose Wall St. is still panicking over crumbling conditions within the financial markets. 

Be advised, the Dow is not tanking because the market is begging the Fed for another rate cut, this is not the case at all and the price action within the equities markets is very clear on this… Wall St. is genuinely worried about continued downside risks to the U.S. economy. And this is exactly what’s keeping the euro supported vs. the dollar at the present. 

Tomorrow:

We have two big events tomorrow… first, the German states will be reporting in with their statewide CPI figures and overall the data is expected to print hot, which would be EUR supportive. I have to forecast that we see data just as the market is expecting. 

The even bigger fundamental event are the U.S. Consumer Confidence figures. Now, last Friday the Michigan Sentiment printed surprisingly to the upside so there’s a distinct possibility that tomorrow’s data prints to the upside as well. 

But, I have to forecast a print at the 50 level or lower. At the time this data was compiled gas prices were at sickening levels acrossed the country, retailers were reporting weak figures, jobless claims were running hot, vacation spots were empty, foreclosures were running way hot, etc. Based on my research in these key consumer-driven areas, I have to forecast a USD- print if the truth is to be told, which is something you can’t always count on in this game. 

Now, should Consumer Confidence print at or below expected this would likely mean the euro will attempt a move up against the dollar while equities get hammered and commodities stay supported. So, keep your eye on the market correlated variables as the data is released and they will give you signs… 

EUR/USD:

Although today’s range was tight and there was very little price action to speak of, I’m seeing a price pattern develop that I’ve seen develop many times in the past after the euro’s made a downside correction, found a bottom, and was driven back up by fundamental factors. 

As I mentioned in the chat this morning when the euro made a move back down off the 1.5760 level was that if it can’t break through 1.5720 on that down move that it will remain supported above there towards the upside. That’s how the rest of the afternoon played out and we’re again flirting with the 1.5750 level as of the writing of this post. 

Based on real-time market conditions, the underlying fundamentals of the market, and price action patterns I see developing in the real-time I have to hold to my 1.5850 target being hit this week. 

Support has continued to build and sure up against any extended downside move and in my view the higher probability is to see prices move to test the upside and not the downside. 

Although there’s almost no visible momentum for the euro to move in either direction at the present, I’m seeing price action momentum patterns slowly developing and these patterns are confirming my view that we will likely keep attemping to move up as opposed to moving down to breaking previous support levels. 

Fundamentally, however, it’s important to note that things in Europe continue to errode. German Consumer Confidence hit its worst levels in 15 years. But, with the U.S. fundamentals in such an abysmal state, the market is not yet ready to beat up the euro for its bad fundamentals. 

Now, once the market mASSes get a full understanding of how dismal economic conditions in Europe are, it will be time for the euro to take it where it hurts. But for now, at least this week, it’s my view and opinion that we’re on track to do some upside testing. 

Overall key levels you’ll want to be mindful of are 1.5720 — if 1.5720 gives way this will open the door for the euro to test the 1.5700-1.5680 level. On the upside, if we can sustain a break of the 1.5760 level, we should move on to knock out stops between 1.5780 and 1.5800. 

Finally, I had a great question today from a fellow trader… He asked me what I do in a situation where the euro is stalled out between two of my key levels. Excellent question! 

This is exactly what happened today, so the answer is simple… if the euro is stuck between two key upside or downside levels, I then take a look at how many higher or lower openings we have and what the real-time price action is showing me… 

So this morning we were stuck at the 1.5760 level, stuck between two key levels, but we had 6 higher openings, then 7 higher openings. Any guess on what I did? You know it… I took a short at 1.5756 and 1.5761. Guess what the euro did? It dropped down to 1.5719 paying out a quick and easy 40 pips. 

OK, you know the drill, be smart, don’t overleverage, don’t make dumb knee-jerk trades, minimize your candlecharts and tech indicators and watch the price action, the market correlated variables, and what tomorrow’s data looks like…

Key Levels

Overall price action is still to the upside. I don’t really like the euro hanging around the 50 level for this long and during this time frame. It causes too much indecision and confusion for the market and this is when you get erratic moves that make no sense and then they stop and reverse on you in a split second. 

If we cannot even break the 1.5720 level to the downside in the next 50 or so minutes there’s a good chance the market will make a move up between 0100 EST and 0300 EST. Conditions can change of course, but this is the pattern that appears to be forming. 

There will be a bull vs. bear battle between 1.5810 and 1.5830. And there will be stops set in those price zones. I will surely take a new euro short above the 1.5800 level and will happily hold it on a swing basis if need be. I could careless about DD on euro shorts, makes no difference to me. 

A sustained break of the 1.5720 level should open the door to test 1.5700 – 1.5680 level which there should be not only stops sitting but eur buyers. 

I’ll post another update if I see anything developing.

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Natural Key Levels for the EUR/USD Trading Evolution

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