Daily USD commentary

[fxchi]

Everyone loves the Dollar…

Trading Commentary for Thursday, October 12, 2006.

The USD gained ground today in all major currency pairs. A slight pullback in the early US session allowed for a tremendous buying opportunity as the USD expanded its rally following the FOMC minutes release at 2:00 PM (EST). Forecasting this move early simply required the understanding of supply and demand. Recently, there have been more buyers of the USD than sellers… when the absence of buyers occurred, no sellers showed up. Common sense tells you that even if no one is getting short, there will be some profit taking after this huge uptrend. But, the buyers stood their ground (and on low volume) and the sellers never showed. From an objective standpoint, the buyers far outweighed any sellers, and it was time to get on board.

Critical point for Thursday: Can the EUR/USD break the 1.2500 level? This would be the last straw holding the USD back from putting in its best rally of the year. Contrarians will try to buy the majors against the USD as long as this level is held, but its going to take a lot more than bottom pickers to stop the USD. Relatively speaking, if the EUR/USD can stay below 1.2500, going long the USD in any major pair is a must.

Theoretically speaking, it would be bullish for the USD to have a small pullback and consolidate for a couple of days. This is known as “digesting the move.” Simply put, eventually the long speculators become less excited about the new prices they are getting and start laying off the buys. Then the long profit taking occurs (presence of sellers). If the sellers can not press the USD down hard, then we know the simple economics state that the buyers are still there… they just want better prices… for now. Always buy the pullbacks in an uptrend until it proves you wrong, it keeps your risk vs. reward working for you.

Below are the charts of 4 major pairs. You will see the key points compromised in all pairs but the EUR/USD. No matter what currency you are pairing against the USD… watch the EUR/USD tomorrow… and look for pullbacks over the next few days for buying opportunities.

Good luck!

 

[fxchi]

Consolidation in the dollar.

Trading Commentary for October 17, 2006.

The USD declined slightly in Monday trading. This decline could potentially be the healthy “digestion” I mentioned in the end of last week. But, the question all traders are asking is “Did the EUR/USD support at 1.2500 really hold??” The answer is… we won’t know until we see the reaction off of this weeks economic data releases. The sellers did not have enough data to push the dollar high enough to take out this key support level in the EUR/USD. But, bullish reports for the USD on Tuesday and Wednesday would easily provide enough conviction to break the 1.2500 level. With all the news coming out this week, especially with the double dose of inflation barometers…. We will see action.

Once again, the key level for all major USD pairs is the 1.2500 level in the EUR/USD. If we can stay below this level, you have to be long the USD. We are still in a downtrend in the EUR/USD, but we are hitting support levels causing a slow down in the number of eager sellers. The PPI on Tuesday on CPI on Wednesday will be the deciding factor on which side wins the 1.2500 battle.

GBP/USD has formed a nice consolidation down here between 1.8525-1.8650. We will not see any big action until this range is broken. The small bounce in the GBP/USD is due to the inability of the EUR/USD to stay below 1.2500. Big news at 4:30AM (EST) Tuesday, as the UK CPI is released. After an initial one-sided reaction, watch for the GBP/USD to slowly retrace the move as it returns to pre-release, levels in anticipation of the US and CAD numbers later in the session.

USD/JPY also has formed a consolidation pattern between 118.80-119.80. The longs might get nervous if the USD/JPY can hold below 118.80, as it is a likely level to trigger sell stops. As the consolidation area prices are set, the moves within the range have become steeper. Look for a long entry as long as the USD/JPY can stay above 119.00.

No matter what side you decide to take, here is some advice: Get flat going into the US PPI and CPI, pick your spots to limit your risk and maximize your reward, and do not find the intraday trend. Good luck.

 

[fxchi]

All Eyes on the Fed

All Eyes on the Fed

Wed, 25 Oct 2006 04:03:53 GMT


All eyes are on the FOMC interest rate decision expected Wednesday afternoon. Volume will be low until after the announcement. If you are planning on taking a position following the release, remember that the interpretation of the language is going to have the most impact on the direction. While some might feel that softer language may lead to a decrease in the USD, we believe that based on the economic reports of last week indicating a decreased concern for inflation, the language will be positive for economy, and therefore, positive for the USD, regardless of impact on potential future intrest rate hikes. Technicians are still watching the 1.2500 level in the EUR/USD. A positive move in the USD that cause a break below the 1.2500 range would likely cause a dramatic move in all major currency pairs. Volatility will ensue if this level is breached, so be prepared to weather the moves and stick with your convictions. If the EUR/USD can stay below 1.2500, the USD will go higher on all pairs.




As for the GBP/USD, the apparent rally is not due to an increased demand for the GBP, it is simply a minor retracement of the drastic down move triggered by everyone that shorted below 1.8650. Once the EUR/USD could not break the 1.2500 range, it is only natural for the GBP/USD to bounce back in line and wait for a broad based confirmation. There is still plenty of room on the upside if the FOMC news is bearish on the USD. No resistance above 1.8770 until 1.8840-1.8860 range.



The USD/JPY still wants higher. Institutions worldwide have been buying the USD vs. the JPY for weeks. But, a little bearish economic news on the USD makes the USD/JPY vulnerable for a quick short play. The USD/JPY below the 119.20-119.05 range could signal a nice 30+ pip move to the downside. On the other hand, any bullish news on the USD could easily push the chart above 119.80 signaling an extreme buy. The USD/JPY has been trending nicely these days, but watch out for the potential for random North Korea news to cause over-reactions.




After the FOMC release, give the market a little time to digest news and pick a direction, then pay attention to key areas across the majors for a perfect entry time. Make sure you do not buy the current highs or sell the current lows, wait for pullbacks/dips. Tip: Never miss your trade entry by being too picky on your price. Keeping yourself out of a trade for a few extra pips on the entry will guarantee you to have a position for all the losers, but only some of the winners. If you want the position, and you like the area, just put it on.

 

[fxchi]

A Moderately Weaker Dollar

The USD weakened today after the FOMC interest rate decision. No news was apparently bad news for the USD as it steadily moved down throughout the balance of the US session and even into the Asian session. Mid-way through the Asian session, all European/US majors are holding at or near these minor support/resistance levels:


RESISTANCE:

EUR/USD: 1.2640

GBP/USD: 1.8840-1.8860


SUPPORT:

USD/CHF: 1.2570-1.2560


USD/JPY has minor support around 118.60 and again around 118.20-118.00. Short the USD/JPY below 119.00 was the play today as the pair continued to move lower.

Broad based, the USD is sitting right at an important support level. Wait to open any new positions until we get confirmation of direction during the European session.

 

[fxchi]

Indecisive Prices

The slide in the USD continued today, but is now settling around areas of heavy consolidation. As stated yesterday, the continuation play of shorting the dollar if the majors breached support/resistance respectively was the play to make. At this point, entering into any new positions would provide a low probability trade. The US GDP is due at 8:30 EST on Friday. This report should cause some volatility, but probably not enough to push any majors out of the following ranges before the weekend:

EUR/USD: 1.2655-1.2755

GBP/USD: 1.8865-1.9075

USD/JPY: 118.15-119.10

For the same reason that you do not want to short a pair just above major support, you do not want to enter into a position (at any point) within a consolidation range. On tap for next week: Will the institutional USD buyers return? Will the EUR/USD take another shot at 1.2500? Have a great weekend.

 

[fxchi]

The Week Ahead
Mon, 30 Oct 2006 03:25:44 GMT
by Richard Regan


The week ahead.

The USD finally hit some moderate support during the US session on Friday. The trend is definitely down, but now is not the time to blindly enter into a short position. Never put on a short just above support. There were great entry points during Thursday and Friday's session. However, that move, as we know it, is done. The presence of sellers has become the absence of sellers (for now). Now we wait and see which of the two scenarios occurs:

1.) Resurgence of Sellers

OR

2.) Presence of Buyers

On Friday:

The EUR/USD stopped right at resistance.

The GBP/USD stopped 70 pips short of resistance.

The USD/JPY went through support and continued lower.

If you are looking for a benchmark chart to base all of your trend trades off of, here it is...

(USD/JPY chart 10/25-10/27)

If you are a trend trader, and you missed this, you must ask yourself why you were unable to participate in an almost perfect move.

Looking ahead at the week, we have plenty of economic releases and speeches. Look for inflationary indicator Monday (Core PCE price index), ISM and Bernake Speech Wednesday, ECB interest decision and Trichet speech Thursday, and of course, non farm payrolls on Friday. If you are an active FOREX trader, now is the time to be in front of your computer. If you sat through the majority of the choppy days in August and September, you should be actively participating in the market now. Breakout and Breakdown days are now following through and it's time to get on board.

 

[fxchi]

Ready For A Big Move

The USD is setting up for a substantial move. After days of continued downtrend, we see a tight range consolidation. This is almost always the sign of high volatility to come. The obvious play is to get on board in whichever direction it breaksout/down from todays range. But don't get fooled by a quick move that appears to be the start of the trend. Be patient and make sure an abundance of buyers or sellers have entered the market, then just look to get good prices and ride the trend. News came out today on the personal spending accompanied by comments from Fed Governer Lacker indicating a strong US economy. As my traders pointed out to me today, after a big down move, if good news comes out, and the USD does not rally, shouldn't we look for a big short on any negative US news? The answer is yes, but there is no need to develop a bias right now. Just make sure you recognize it relatively early and stay in the direction of the move.



CONSOLIDATION RANGES:

EUR/USD: 1.2705-1.2740

USD/JPY: 117.20-117.70

The GBP/USD already made a nice upmove today, while other currencies remained flat against the USD. I would steer clear of this pair until we see some more developments. Nice resistance just before and around 1.9100.

Still plenty of economic releases and speeches this week. I still believe that the probability of big moves is high this week. My currency pair of choice to watch this week USD/JPY. Good luck.

 

[fxchi]

A Rally in The USD?

After a tough couple of weeks, the USD is showing some signs of strength. Good economic releases on Friday helped spark the rally. Everyone will be watching to see if the buyers are really back, or if it is just a good opportunity to put shorts on. The amount of pullback on the initial move at least indicates a new range, which is bullish for the USD. There are a few front line levels that are easy picks if the USD can remain strong:

EUR/USD: Below 1.2725

GBP/USD: Below 1.9025

USD/JPY: Above 117.80

Clearly, we are currently trading very close to these levels. But if the USD can keep the buyers interested we may hold these levels. Breaching these levels is not, however, an easy short play. If this occurrs we will have to wait for more information to determine the next direction.

Remember: We had the presence of sellers for two weeks, absence of sellers for a couple of days, now presence of buyers on Friday. We have to be sure that the buyers are for real before jumping on the long USD bandwagon. Either way, the volatility is high right now and short term direction has had plenty of follow through. It's a good time to trade.

 

[fxchi]

Trading The USD

After weakness during the European session, the USD gained plenty of ground back during the US session. It is clear that there are important levels to the upside and downside, through which volatility and volume will occur. It is important to determine short, intermediate, and long term trends when choosing all trades. You may not always have all three line up in one direction, but depending on your strategy, at least make sure that your most important interval is in your favor. If you enter and exit trades on the same day, ensure that the trend of the last 1-3 hours is in the direction of your trade. Do not mix timeframes by having a bias on a macro level and allowing that bias to influence your trades on a micro level. Example: Your strategy indicates that the USD is in a downtrend, and fundamentally you believe that the weakness will continue. But, on an intraday trade, you choose to short into a steep uptrend, planning to exit and take profits by the end of the day. Clearly, this is a case of mixed timeframes. Your overall view may be appropriate for a 5-30 day trade, but do not use the same basis on an intraday trade.

Tip for new traders: It is very common for new traders to choose counter-trend strategies. This, along with many others, are the dominant reasons why the majority of new traders fail. Mathematically, it is far to difficult for an inexperienced trader to properly keep the numbers on their side if they are buying when everyone else is selling. Staying with the trend (suited to your time interval) is highly recommended until you have had at least one consistently profitable year.

Important range in EUR/USD: 1.2740-1.2780

(Look for directional trades to continue once this range has been convincingly breached)



Do not make any big plans until after the Trade Balance is released at 8:30 EST. As usual, volatility will ensue following the release. There is no reason to take a gamble on what the release will be or how the market will interpret it. Good luck.

 

[fxchi]

USD Weakens Ahead of Inflationary Releases

The USD weakened on the broader market throughout all of last week. We are at major support levels in the USD against all majors. The GBP/USD is already through all major resistance and continuing higher. The EUR/USD is approaching major resistance between 1.2900-1.2950. The USD/JPY has minor support around 116.80. The important question is whether the USD sellers will press on Monday before the PPI release on Tuesday. Common sense says no, but that doesn't mean the sell off won't continue throughout Monday's session. The key factor will be volume. If the volume is low, the likelyhood of a sustained sell off is unlikely. However, if the sell off continues on high volume, then we know just how committed the sellers are, and it is time to get on board. Intraday trades are fine to make either way, but be careful about taking overnight positions after the US session on Monday. All eyes are on inflationary measures in the US, and we have two major pieces of inflationary economic data this week. Either way, volatility is still high and it is the right time to be trading. Remember that the standard protocol of buying support and selling resistance has a low expectancy return for new traders... Stay with the trend.

 

[fxchi]

Bad News for The Dollar

It would appear that the general consensus on the USD is the perfect storm to the downside; All three major factors and across all possible timeframes.

1.) Supply and Demand: Clearly there are simply more sellers than buyers
2.) Technical Analysis: USD breaks all major support levels for all EU pairs
3.) Fundamental Analysis: All data points to a the Fed easing rates and a slowing economy for 2007

As a trader, the most important factor to take from this is… Volatility. If you play for big moves, here they are. There are plenty of people who believe that the Fed will not cut rates and allow the USD to continue to tumble against foreign currencies. So, will Bernanke hold off on cuts to save the USD? The answer is… it doesn’t matter. As traders, it is not our job to predict the future. I would recommend being aware of factors that are causing movements to occur and the expectations of most “experts”, but do not get caught up in trying to disseminate the news and guess a direction. This tends to lead to emotional involvement in a trade and can cause irreparable losses.

It appears that no one can offer any insight into why the USD would possibly make any gains on any EU currencies. The best answer that I have heard so far is that the ECB does not want the EUR/USD above 1.400 to prevent a downturn in tourism and international trade. Assuming that this trend continues for a while, we will undoubtedly see a dramatic increase in volume and volatility. The USD/JPY is an interesting pair. Although the USD has declined against it, we have not seen such a dramatic move correlated to the downtrend against the EU currencies. Logically, the Asian price fixing is coming into play here. The Asian export business is too big to allow for a dramatic spike in local currency versus the USD. The USD/JPY is still making nice moves, there is just more bang for your buck in the European currencies right now.

 

[fxchi]

Bernanke's Comments

Bernanke’s Comments.

Fed Chairman Bernanke speaks on Tuesday at 12:30 EST. Over the last few days, the downturn in the USD has received a tremendous amount of press and hype. This week is loaded with important economic releases and traders will look for any indication as to what the Fed’s monetary policy will be over the next few meetings. Support and resistance are out the window with moves like these. Do not get in the way or you are likely to get run over. Stay with the basic economic principles of supply and demand. Currently, the USD is over-supplied and under-demanded. The most important aspect of trading a high volatility, high momentum market is to stay with the intraday trend. Large institutional orders come out of nowhere and cause huge moves in the direction of the trend… make sure you are not on the other side. If the EUR/USD continues to make new highs, look for dips to get long. Be patient getting in and let your winners ride. The #1 news story on all business channels is the USD. It’s a great time to be a FOREX trader. Just be careful not to get caught up in the hype and attempt to disseminate and trade off of news releases. Let the market tell you which way to go, it’s much easier than trying to predict it.

 

[fxchi]

Trend Trading The USD

During the last few trading sessions, there have been no indication to initiate a short position into the face of a strong trend. As stated yesterday, buy the dips until you are proven wrong. Mathematically speaking, you odds are best if you stay with the movement in a strong trend. Counter trend trading is for the advanced trader and should not be used by those traders who have not mastered trading with the trend. Specifically, make sure that your trades are with the trend of the last 3 hours for intraday trades.

After Bernanke spoke today, the USD sellers did not get enough info from the speech to detour them from their course, and the USD lost major ground against EU currencies. If the institutions (who move the market) are buying the EUR, GBP and selling the USD, then we should be too. If the international economic community is right, and the EUR/USD does rally to somewhere between 1.3500-1.4000, it is important that we, as traders, capture as much of that move as possible. Remember to, for intraday traders, there will also be opportunities to short the EUR/USD on certain days during the rally. For the advanced trend trader, maintain a core long position in EUR/USD or GBP/USD and scalp intraday trades, adding to your longs on dips and selling them back on rallies. Reward potential is high right now, but make sure you manage your risk properly and never blindly hold a position past your initial risk parameters, no matter how much you believe in it. Much more economic reports due out this week. Watch for initial reactions, as well as, follow through or reversals following the volatile period after the numbers.

 

[fxchi]

Status of the USD

Clearly the downtrend in the USD has continued over the last several trading sessions. Major economic news will be released this week, starting with ISM non-manufacturing Tuesday and followed by ECB interest rate statement Thursday… and, of course, non farm payrolls on Friday. If you are swing trading, look for bounces in the USD to get short. If you are intraday trading, watch for a strong trend of the day (in either direction) and stick with it. Do not get caught trying to pick tops or bottoms in this market… the volatility is to high and the moves are too big. ECB’s decision on interest rates and their language going forward will indicate if they are truly concerned about the appreciating EURO. Trichet is a pro at saying nothing, but there will have to be some new information provided during the announcement. Also, non farms on Friday will give traders an indication of the state of the US economy, as well as, potential monetary policy changes by the Fed in 2007. There was no direction on Monday, however, volume did remain constant until the mid afternoon indicating that traders are ready to get on board when the next move begins. Forget about buying support and selling resistance for entry points and stay with the trend.