July 11 - July 16 2010

Our indicators show that the USD weakness has peaked and may be (just may be) looking to make a comeback. This is now a time and place to enter into position trades. We are looking to short the following pairs EURUSD, GBPUSD, EURJPY, GBPJPY, AUDUSD, NZDUSD, etc. and long on USDCHF, USDJPY, AUDNZD, AUDJPY, etc.

Since these areas are critical levels of support/resistance, as the case may be based on which pair we are considering, the market may give us false breaks in either direction. For example, if we go long on the USDCHF, there are possibilities that the market will confirm the bottom at least once more, if not twice. This is not a guarantee, and sometimes, we may just miss the boat. So we shave to start with small positions and observe the pairs' behavior at critical pivot points. These points are where we may expect the market to change course and continue in the direction of the most recent trend, in this example, more downside. Of course, if my indicators are wrong, then we will hit our Stop loss on the very first trade, and we wait for the next reversal signals.

Let us see how it all pans out.

Levaz

We have the following trades.

EURUSD short at 1.2680 SL 1.2780 TP 1.2450

This trade is purely based on the fact that the Euro failed to conquer the resistance line. There is a chance that there will be attempts, but we will take advantage of that to get a higher entry point. The very patient traders can try an entry of 1.2700 or 1.2720. If the Asian market takes cue form the outside candle pattern on the Daily charts, then we need to get in at 1.2659 or 1.2625 if it moves away form our desired entry points too quickly.

The first level of support should show up at 1.2550 and then around our target TP level.

Since we are trying to get ahead of the market, this trade may take a couple of days to evolve properly.

Levaz

Here is a good trade with potentially lot of pips to give.

USDCHF long at 1.0541 SL 1.0441 TP 1.0825

Once again, the warning is that we are trying to predict what the market is going to do in the next couple of days. There are many factors that can affect our projections. So use small order sizes, and we can add more positions (regular 2% risk or even higher) once the pair starts to close in on our target, which we will of course move further if it turns out that we are in the right place at the right time.

This is the exact opposite of the EURUSD trade, so bear that in mind as well.

GBPUSD short at 1.5129 (1.5090 - aggressive) SL 1.5229 TP 1.4850
USDCAD short at 1.0350 (1.0300 - aggressive) SL 1.0450 TP 1.0100
USDJPY long at 88.23 SL 87.23 TP 92.50

So we have a variety of trades to pick from. Notice that ALL our trades are majors ONLY. Every one of them is either for or against the USD, therefore, taking 2 or more trades is the same as one large order.

I would suggest that if you normally use 0.10 lot sizes (10K), then use 5K (0.05) orders and enter two trades.

Notice also that almost all our trades are based on USD strength (or rather weakness of the other currencies) with the exception of the CAD. This is because while all the other currencies have touched their respective support/resistance trend lines and failed to break through, Canadian employment numbers were incredible. They added 95,000 jobs last month where market expectations were only 20K. This means that an interest rate hike is 99.9% assured in this months BoC announcement. They simply have not choice but to do so. The market has already factored in most of that (interest rate increase) already, but they do need confirmation after the fact.

Levaz

EDIT - A clerical error was brought to my attention, I apologize for the mistake. The TP on USDCAD should be 1.0100 and not 1.1000 as printed earlier. Thanks Ruby.

EURUSD short at 1.2680 SL 1.2780 TP 1.2450

Order not picked up, market came as high as 1.2646

USDCHF long at 1.0541 SL 1.0441 TP 1.0825

Near miss on this one as well, market came to 1.0543

GBPUSD short at 1.5129 (1.5090 - aggressive) SL 1.5229 TP 1.4850

missed here too, even the aggressive players were disappointed with market peaking at 1.5077

USDCAD short at 1.0350 (1.0300 - aggressive) SL 1.0450 TP 1.0100

another near miss with market as high as 1.03439

USDJPY long at 88.23 SL 87.23 TP 92.50

Asian market took this one far away from us, but it looks like we may picked up. May want to consider an aggressive entry at 88.50 as it seems to be the market bottom for the interim. It increases the SL by 27 more pips.

This should not be a concern, since if we are on the right track, the market will more likely than not come back to test the bottom (and freak out the amateurs even though they made the correct call). There is no guarantee that this will occur, but it would be nice to see such a test as it reinforces the accuracy of our analysis. However, the second time round, we must wait for the market to pass our entry points and enter on the return in the direction of our trade, just in case the market takes one bit of news and decides to squeeze the players.

If the market does not return to pick us up, then we try our best to get in at a good entry further into the move, but earlier yet than others, in the knowledge that we picked the correct direction and strength of the movement.

Levaz

EDIT - 9:30AM - The USDCAD order was just picked up. There are still hopes that the GBPUSD will come into play, let us see how that one works out.

USDCAD short at 1.0350 SL 1.0450 TP 1.0100

Above order was the only one picked up, and now we allow it to play out.
Please move the TP to 1.0300 and use a 50 pip trailing stop.

New orders for tonight

EURUSD short at 1.2600 SL 1.2700 TP 1.2450

Aggressive traders can enter into trade right now - 1.2586'ish, which is where I have entered my position. We have had so many near misses already, I am willing to risk the extra 20 odd pips to make sure that I am in trade.

On a side note, it has been observed that China purchased over 500 million of Spanish bonds after a 2 month hiatus. This could bring our the Euro bulls in the short term. Technically, it is old news, but since it is only just come out, we never know how and who will react to this kind of news.

Levaz

USDCAD short at 1.0350 SL 1.0450 TP 1.0100
Above order was the only one picked up, and now we allow it to play out.
Please move the TP to 1.0300 and use a 50 pip trailing stop.

As i did not use a trailing stop, this one closed at TP for me. Either way, hopefully some of you got a few pips on this one.

EURUSD short at 1.2600 SL 1.2700 TP 1.2450

This one started out well, and went even further in our direction when Portuguese and Spanish bonds were down graded. For some reason, market started covering shorts when German ZEW news which was much lower than expected. That should have typically taken the pair much lower. And finally when US data showed that their deficit was higher than expected, the pair simply shot up and hit our Stop loss.

It does not make much sense to me either, but this happens sometimes. It is very difficult to trade in what seems to be an emotionally driven market. They do not react to the fundamentals nor do they adhere to the technical. And since it is well known that the market can stay unreasonable for longer than one can stay solvent, it is best to sit out for a day or two until things settle down.

Levaz

No trades today, China data released tonight, and I do not trust the data. Imagine, releasing data for the last quarter within 2 weeks of the quarter end. It is highly improbable that the data is REAL (the accuracy of Chinese data has always been questioned anyways) and since I am not in tune with the market, it is best to stay out.

Levaz

In order to adapt to the newer market conditions, we are going to modify our approach a little, yet again.
- This is summer trading with lower liquidity.
- We have several Central Banks intervening constantly to protect their currencies from appreciating either against the Euro, USD, GBP or a combination of two or all three. These banks - SNB, BoK, PBoC, several Middle Eastern Banks, RBI, etc. - involved either for price control or sheer speculation, will have to unload the unwanted foreign exchange that they have accumulated over the last year. Apparently the SNB alone is carrying a floating loss of $ 6 Billion from all the Euro purchases since last March and then in summer (remember the 3 month EURCHF trade from FA).
- EURUSD had crossed a daily movement of 200 pips for the second time within a fortnight. That is a sign of extreme volatility. Until last year, this pair ATR was around 50 pips and that was the SL we used for several years. We increased it to 100 pips, and now 200 pips does not make for safe trading.
- Market sentiment has evolved. Bad US data now works against the USD and the stock markets. It also boosts the Euro, CHF, GBP and Yen. Bad news from Europe is pretty much ignored (this will not last long).
- The G20 brought a seismic rift between the Europeans and the Americans. Europe wants to reign in spending and budgets, US wants more QE measures.

What does all this mean to us - we are going to change our strategy to day trading. We look for good entries, take a quick 50 - 100 pips and get out. We will no longer hold positions for days, weeks or months, as the volatility can wipe out our gains before we collect and take out our Stops (as was seen with the last EURUSD trade).

That said, we have the following trade:

EURUSD long 1.2910 SL 1.2860 TP 1.2960

Reason for the trade is that the USD index is moving down further depicting USD weakness. FOMC reduced their positive outlook for the next half of the year. Congress refused to pass (or even discuss) this years budget until after the November elections. Even though it is obvious that Europe has only kicked the proverbial can down the road (to next year or the year after), their austerity measures seem to have pacified the lenders, especially China who purchased huge chunks of Spanish (last month) and Portuguese bonds (this week). Real possibility of QE Part II from the Feds will further dilute the little value of the USD (which will make it easier to pay off the debts of course).

Now, about the trade itself, the best entry would be at 1.2850, but I am not so sure that the pair will come down that far initially. As for the upside, there is a huge barrier option expiring tomorrow at 2pm NY at 1.3000 The Euro and GBP are sitting just under critical technical resistance. The Euro is almost at the 60% fibo on the recent move down from April 12 high of 1.3626 and the recent lows of June 7 at 1.1875 There is also the 100 DsMA, at 1.2920, which was breached today, but these MA, being "moving" averages, are not an exact point, so give or take the ATR (which is now around 135 pips).

The options expiry means that there will be interest for the market to gravitate towards the barrier as long as it is generally within the daily ATR. Technical resistance and barrier protection interest will be the obstacles. So, you can set your TP higher (1.3000 or 1.3130 if it breaks the barrier with a lot of authority) if you wish, but I would stay up for the European session, if I were you. Do not leave the trade unattended if you deviate from the basic signal.

Alternatively, if the options protection get bad news from the East tonight and start the retreat that I was waiting for (Remember, I said we would love to short the Euro around 1.2950 just last month or so but I am not willing to enter into until I see some USD strength) then out Stop may well get taken out. Which is why we are looking for a quick in an out.

Levaz

EURUSD long 1.2910 SL 1.2860 TP 1.2960

Target achieved over night. The 1.3000 barrier option was breached as well. We now look to see if that was all or if there is still more strength to the Euro. Reason being that most of those last minute longs were probably hedges by the options traders to protect from losses in case the barrier is broken. Now that it has fallen, they are more likely than not to close their long positions.

Levaz

Just a reminder that we have two "get our money back" trades outstanding. One at 1.2318 and the second more recent one at 1.2700. While the 1.2700 still carries relatively good chances of recovery, we may not see the first one come into play unless we see Greek restructuring, which IMHO has to come sooner than later. For right now, the market seems to have forgotten (or deliberately ignoring) the debt crisis in Europe. It has not gone away, just pushed down the road a year or two. Also, note that with the austerity programs, there is much less government spending (supposedly) which will means lower consumption, and lowering production and definitely lower tax collections. We just have to wait for the market to come to this realization again, and be there at the right time to take advantage of it. Conversely, the US is seriously contemplating QE Part Deux, which may hamper our Euro shorts.

Levaz