May 30 - June 4 2010

We will stay out of the markets for today and tomorrow as it is the memorial day weekend and liquidity will be very low. There are possibilities of large moves in this environment, which may have nothing to do with either fundamentals or technical analysis.

If you do catch a move, get in and out fast, as you do not really know the why and when it will start or stop. A single order of USD 100 million can affect the markets.

The only possible trade tomorrow may be the ERUGBP as the UK will have to make its EC transfer on the last day of the month. The time to watch is around the GMT noon fix. If you are going to take this trade, make sure you wait for the move to start (see a sudden burst of 10 - 20 pips and use a tight Trailing Stop of no more than 10 pips. Also use a tight SL of no more than 20 pips.

The outlook for the Euro is not good over the weekend. Spain got its debt rating reduced from Triple A to AA+, which is not bad really, however, in light of all the anti-Euro sentiment, that is a big deal. Also, negative comments from ECB's Smaghi about Germany having to convince its electoral to help bail out other EU nations by threat of total annihilation does not bode well for the Euro either.

Levaz

We stay out today as well. We need to see how the market reacts to all the news since Friday afternoon.

Levaz

The market is giving us some sort of direction. Here is what we see for now

USD - trend upwards, currently stable in correction/consolidation
GBP - trend sideways, currently stable within new range of 1.4200-1.5000
EUR - trend down, with potential for recovery via short coverings.

Trades for today:
GBPCHF short at 1.7100 SL 1.7150 TP 1.6400

This trade has a huge risk to reward ratio. The rational is that this pair has not gone higher than 1.7113 since Sept 17 2009 in two past attempts and this current rise to the same critical line of resistance.

If it does break the 1.7113 line AND closes above that line, then we have mild resistance at 1.7200, followed by 1.7400 and then nothing all the way to 1.8000 - so we switch our position if it does cross 1.7200 again with a very tight stop as it probably will not dare come back down.

Somehow, I feel that the numbers out on Friday will cut short the GP strength and do wonders for the USD. Again, this all depends on how the market reacts - this risk-on / risk-off sentiment is creating havoc in trading strategies.

Other trades:
GBPJPY long at 131.87 SL 130.50 TP 135.00 (use a 50 pip trailing stop or 100 pip if you don't want to risk being taken out by the normal volatility. I would use the 50 pip trail as the 100 pip may not get activated in case the Japanese stock markets open lower first)

If it looks like the GJ [pair is not going down too far in Asian trading, then you may want to consider buying at 132.57, SL and TP remain the same. Treat this a a high risk trade as it is after all the GBPJPY - one of THE most volatile pairs there is.

Levaz

We are going to wait out the activation of our previous trade GBPCHF.

We must be a bit careful, as the GBPJPY is set to explode - I believe higher.

Also, we need to be a bit wary of how the market will react and position itself prior to the NFP numbers to be released on Friday. Typically, good numbers should be good for the USD, but with this risk-on / risk-off sentiment, it could be better for the Euro and GBP. So we must wait and see the market reaction before we made out moves.

Levaz

We are going to be a bit more aggressive today. I term it aggressive, as we are taking a strong stance in light of NFP tomorrow, and the build up is that the numbers are going to be good for the US economy - how they are interpreted / applied by the markets is another story.

We also have a bit of contradictory news from the markets in that it has been reported that the SNB has run out of funds to defend the CHF which means we should expect it to gather strength at least against the Euro and the GBP. The contradiction is that the EURUSD is heavily oversold, while still more downside (a lot) is expected. More Spanish banks are being merged, Spanish bond spreads are almost at pre-bail-out peaks in-spite of the bail out, Hungary is now added to the Euro turmoil, Japan's party in control has no clear leader, so there is a bit of confusion to go around.

So we have the following trades:

GBPCHF short at 1.6941 SL 1.7041 TP 1.6500 (lock in 100 pips when trade is 200 or more in profit)
GBPUSD short at 1.4550 SL 1.4650 TP 1.4250 ( same as above)

Here is a high risk trade considering that it should be taken out tomorrow unless the market takes the expected good US data and turns on the RISK once again.

EURUSD long at 1.2150 SL 1.2100 TP 1.2250 (or 1.2450 if we get lucky)

The Chinese have a DNT options expiry probably either tomorrow (after NFP) or next week - the limits are 1.2100 on the low and 1.2500 on the high. The are bound to protect both ends fiercely. Apparently the DNT is worth USD 3 Billion - so there is interest from holders on either side to break or protect. Should be fun.

Tomorrow is NFP, expect volatility. Trade safe.

Levaz

Another potential trade, which is not normally recommended, except for the "Pros" -

GBPJPY short at 137.50 SL 139.00 TP 133.00

On the 4H charts, this pair is closing in on the 200sMA from below which is a good entry point. Slightly above is the 300 and 400 sMA which can serve as the SL points. Typically, the Yen pairs are more apt than other currency pair to honor the Fibo lines AND/OR the MA's.

Use a smaller than normal lot size, if you want, but the risk to reward is pretty reasonable as the pair could go down to 131.00 or even 128.00 if we are lucky. That is potentially a 900 pip trade for a 150 pip risk.

Levaz

Damn, we missed this one by less than 100 pips. I hope some of you managed to get the short around 136, which still makes for a good 300 pip profit at time of printing.
I suspect there should be more downside until after the G20 meeting.

Levaz wrote:Another potential trade, which is not normally recommended, except for the "Pros" - GBPJPY short at 137.50 SL 139.00 TP 133.00

These two trades are doing quite well. You can either book profits before the end of this weeks trading or lock in at least 100 pips and see how far the GBPUSD goes. I would leave the GBPCHF alone as it is now clear that the SNB will not be as aggressive protecting the Euro as they realize that they are fighting a loosing battle, and the disaster of the BoE (Bank of England) losing a similar battle is still fresh in all Central Bankers minds.

Levaz wrote:
GBPCHF short at 1.6941 SL 1.7041 TP 1.6500 (lock in 100 pips when trade is 200 or more in profit)
GBPUSD short at 1.4550 SL 1.4650 TP 1.4250 ( same as above)

This one did not pan out as well as I had anticipated. Fortunately, we were aware that this was a very risky trade, and kept a very tight SL.

Levaz wrote:
EURUSD long at 1.2150 SL 1.2100 TP 1.2250 (or 1.2450 if we get lucky)

Between all the trades, we should be well ahead.
GBPUSD in profit approx. 166 pips
GBPCHF in profit approx. 117 pips

If we add the GBPJPY short from 136.00, the tally goes up another 300+ pips
Less the 50 pip loss on the EURUSD, we are sitting on 500+ pips today!!

That is a fair gain for the week.

Levaz