In a recap of the week so far as of 10:15AM EST:
AUDUSD reached 1.0202 Monday but has had rough going since then, reaching a low of 1.0075 this morning, lower than the 3/2 low at 1.0086. However, this could be the beginning of a downward slanting rectangle where price will consolidate. The upper boundary of this (drawn on the four-hour chart) is 1.0185. The 50 daily moving average is at 1.0041 and the 100 is at .9958. Aussie hasn't had a weekly close below parity since the end of January and no daily close below parity since February 15. Let's see how it closes today.
EURGBP has had a good week, climbing from its weekly close last Friday of .8533 to a high of .8600 this morning. This is resistance so what it does here is going to set the tone for future price action. There's a potential inverted head and shoulders pattern that requires a break.8672 for confirmation. A close greater than .8600 this week would be bullish.
EURJPY finally climbed above 115.69 today, touching 116.01! That's been a long time coming. Ideally, the pair will close above 115.69 this week. If it does so, that's very bullish. Price is above the 200 daily moving average and the pair is above a resistance line on longer-term charts. However, 116.14 is the upper boundary of the bear flag on the monthly chart I posted the other day so I wouldn’t be surprised to see some consolidation take place. Definitely a pair to buy on a retracement, perhaps to 114.50.
EURUSD pushed on up this morning, touching 1.4007, a big psychological barrier. Price targets are present on up to 1.4060 where there's some good resistance. A weekly close greater than 1.3862 is all it's going to take to maintain bullish momentum for now. There's good support around 1.3880/50 so anyone not already long might find an entry at that level.
GBPJPY spiked to 135.24 this morning. February's high was 135.54 so that's the price to exceed. However, there's formidable resistance here, both on short- and long-term charts. It could push somewhat higher to 136.53 (the point where wave C would equal A on an ABC structure off the low of 125.51). At that point, though, I'd expect to see a nice retracement, possibly to 129.50/25. This is .618 of the move up from 125.51and the prior swing low at 129.52. Obviously, a close above 135.54 would be strongly bullish. Coupled with the break recently over a long-term trend line, one would want to be long. There's potential for price to move up to 141.19 (confluence) and 145.98, last April's high.
GBPUSD had done a nice job this week, taking over its 1.63 resistance with a spike to 1.6344 yesterday. 1.6465 is possible in the near term. While a weekly close above 1.6300 would be nicely bullish, it might be a lot to expect at this point. The pair dropped to a low of 1.6236 today. The daily 10-SMA is at 1.6225; the 20 at 1.6168. Price needs to stay above those at least.
USDCAD continues to sink. Gee, that's what I wrote that last Friday. Well it's true again this week with a new low of .9684. This is below the 2008 low of .9711 so the bears are fierce. I also wrote last week that below .9711 there's not a lot stopping it until it reaches .9417. The triangle price target was .9549. A break in oil prices downward would relieve some pressure on this pair. How likely is that?
USDCHF managed a low of .9202 this week, a real bummer for those expecting the USD to rally anytime soon. As I wrote last week, I prepared charts earlier this year that show it could get to 90 and it seems to be on its way. The high this week was .9331, quite a bit lower than last week's high of .9506. This was just above a prior support level so it's strong resistance. I will note that the sentiment seems extreme. When everyone's bearish or bullish, there aren't many people left to continue to drive price in the direction everyone expects it to go. I wrote the other day that 75.62 is do or die support for the USD index. It hasn't gotten there yet.
USDJPY is caught in a narrow range from 80.94 to 83.97. A close outside those boundaries would be significant. Until then, trade the range.
Friday, March 4, 2011
EURUSD—3-hour
Euro looks very bullish and, in the prevailing sentiment, "unstoppable" as to 1.40. There are several price targets in the low 1.40 zone as I've previously blogged about. I'm long from 1.3866.
However, don't just jump on this train, long. First, the pair is at resistance with the high this morning of 1.3976. Second, NFP is coming out at 8:30AM EST. Price swings around this can take out otherwise good trades. Third, the pair could begin a corrective swing down.
Much safer for longs is to wait for a retracement around the 1.388/50. Below this be bearish with possible lows of 1.3713, 1.3650 and 1.3526.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
However, don't just jump on this train, long. First, the pair is at resistance with the high this morning of 1.3976. Second, NFP is coming out at 8:30AM EST. Price swings around this can take out otherwise good trades. Third, the pair could begin a corrective swing down.
Much safer for longs is to wait for a retracement around the 1.388/50. Below this be bearish with possible lows of 1.3713, 1.3650 and 1.3526.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
EURGBP—Daily
There's much of interest on the daily chart.
First, a long-term consolidation period within a symmetrical triangle began late last summer. There are various ways to define the touching points but one way is with A ending at .8335 (606 pips), B ending at .8649 (314 pips) and C ending at .8356. This is somewhat speculative but because there's a nice 1,2,3 off of B, I like it.
Another feature of interest is the potential inverted head and shoulders pattern. This won't be confirmed until a break above .8672. If it is confirmed, the price target is .9059. This is in line with a target I have on my daily point and figure chart of .9100. The high this past October was .8941. Just beneath here is a confluence zone.
Finally, of course, there is this morning's push over the recent .8593 high. So far, the price high has only been at the round number of .8600 so this is resistance. It's also just above the daily downtrend line.
The monthly chart (not shown) shows the pair in a triangle with the C leg potentially in progress and a possible target of .8271. The upside of the monthly triangle is .8723. The pair went into this consolidation triangle during an uptrend so, from an Elliott Wave perspective, ultimately one would expect it to break upward.
Bottom line is that there is bullishness in this pair, especially longer term. However, there is short-term pressure. If the pair can cleanly close above the daily triangle today, above .8600, then the short-term bias changes to bullish as well. So how would I trade it? I'd wait for a retracement, possibly back to retest the triangle around .8560. However, because this .8600 is resistance, a stop and reverse would be appropriate if the pair closes below the triangle and better, below .8462.
Support is at .8462, .8356, .8265 and .8068. Resistance is at .8672 for now. I'll update it for next week if the weekly close is above .8600.
Since each pip of this pair is worth 1.63 USD, one might want to establish a smaller position than normal.
Here's the daily chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
First, a long-term consolidation period within a symmetrical triangle began late last summer. There are various ways to define the touching points but one way is with A ending at .8335 (606 pips), B ending at .8649 (314 pips) and C ending at .8356. This is somewhat speculative but because there's a nice 1,2,3 off of B, I like it.
Another feature of interest is the potential inverted head and shoulders pattern. This won't be confirmed until a break above .8672. If it is confirmed, the price target is .9059. This is in line with a target I have on my daily point and figure chart of .9100. The high this past October was .8941. Just beneath here is a confluence zone.
Finally, of course, there is this morning's push over the recent .8593 high. So far, the price high has only been at the round number of .8600 so this is resistance. It's also just above the daily downtrend line.
The monthly chart (not shown) shows the pair in a triangle with the C leg potentially in progress and a possible target of .8271. The upside of the monthly triangle is .8723. The pair went into this consolidation triangle during an uptrend so, from an Elliott Wave perspective, ultimately one would expect it to break upward.
Bottom line is that there is bullishness in this pair, especially longer term. However, there is short-term pressure. If the pair can cleanly close above the daily triangle today, above .8600, then the short-term bias changes to bullish as well. So how would I trade it? I'd wait for a retracement, possibly back to retest the triangle around .8560. However, because this .8600 is resistance, a stop and reverse would be appropriate if the pair closes below the triangle and better, below .8462.
Support is at .8462, .8356, .8265 and .8068. Resistance is at .8672 for now. I'll update it for next week if the weekly close is above .8600.
Since each pip of this pair is worth 1.63 USD, one might want to establish a smaller position than normal.
Here's the daily chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
Thursday, March 3, 2011
No posts today
I have some personal business to attend to. Be careful prior to ADP and then tomorrow's NFP. See you Friday.
Wednesday, March 2, 2011
USD Index—Monthly
Clearly, the index is at the bottom of a triangle. Although the situation looks dire, the next move should be up.
If I interpret the triangle as an Elliott Wave triangle, it hasn't completed. The next move should be leg E up. However, using the same Elliott lens for interpretation, then one should expect the price action to be down after that point. E should end around 87.73 but the last waves of EW triangles often fall short. If this happens, I'd look for it to be about 83.65 or 85.00. The latter is about the point the long-term downtrend line enters the picture. This assumes you buy into EW theory. While I do find it sometimes useful, it's not a guaranty of anything and it can be useless.
One can look at this price behavior as basing behavior. Long downtrends don't turn around on a dime as it were. Notice that it is an upward trend line from the lows.
What about the lackluster performance of RSI? Given the overwhelming sentiment against the USD, this isn't surprising. However, from a technical point of view it's negative. Offsetting that, though, is the fact that RSI is also not plunging to oversold levels below 30 on each dip.
Until the index drops below 75.62, I believe there's going to be upwards movement in price. If it does begin to slide, watch if it moves below 74.16 because that would be the confirmation point for a double top and the hint that there will be new, heart stopping lows.
Here's the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
If I interpret the triangle as an Elliott Wave triangle, it hasn't completed. The next move should be leg E up. However, using the same Elliott lens for interpretation, then one should expect the price action to be down after that point. E should end around 87.73 but the last waves of EW triangles often fall short. If this happens, I'd look for it to be about 83.65 or 85.00. The latter is about the point the long-term downtrend line enters the picture. This assumes you buy into EW theory. While I do find it sometimes useful, it's not a guaranty of anything and it can be useless.
One can look at this price behavior as basing behavior. Long downtrends don't turn around on a dime as it were. Notice that it is an upward trend line from the lows.
What about the lackluster performance of RSI? Given the overwhelming sentiment against the USD, this isn't surprising. However, from a technical point of view it's negative. Offsetting that, though, is the fact that RSI is also not plunging to oversold levels below 30 on each dip.
Until the index drops below 75.62, I believe there's going to be upwards movement in price. If it does begin to slide, watch if it moves below 74.16 because that would be the confirmation point for a double top and the hint that there will be new, heart stopping lows.
Here's the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
GBPUSD—Monthly
Cable is nudging up against a long-term downtrend line from the end of 2007. It also appears to have broken above a triangle but this looks premature to me—it may be a fake-out.
I'm leaning towards regarding the monthly price action as an ABC correction. The C wave would be .618 of the A wave at 1.6324. The pair achieved 1.6330 yesterday so we'll see. The C wave would equal A at 1.7619 so there's plenty of time to get in on that train if indeed it looks as though it's going to happen.
Monthly support is at 1.6142, 1.5963, 1.5898, 1.5764, 1.5527, 1.5405, and 1.5345. Monthly resistance is at 1.6386, 1.6496, 1.6879, and 1.7045.
Here's the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
I'm leaning towards regarding the monthly price action as an ABC correction. The C wave would be .618 of the A wave at 1.6324. The pair achieved 1.6330 yesterday so we'll see. The C wave would equal A at 1.7619 so there's plenty of time to get in on that train if indeed it looks as though it's going to happen.
Monthly support is at 1.6142, 1.5963, 1.5898, 1.5764, 1.5527, 1.5405, and 1.5345. Monthly resistance is at 1.6386, 1.6496, 1.6879, and 1.7045.
Here's the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
AUDUSD—Monthly
Looking at the monthly chart, obviously the uptrend is intact. As long as this is true, there are potential price targets up to the 1.03 zone as well as beyond. For example, the double bottom on the daily chart (.9804 and .9833 from January) had a target of 1.0350. A bull flag on a daily chart had a target of 1.0378. There were other daily patterns with additional price targets above 1.03.
Just as obviously, the rate of ascent since June of last year is very steep. It's unlikely the pair can maintain this angle. If you look back on the chart, I've drawn lines where ascents were sharp and one can see the resulting correction. The pair has been stalling since the December high of 1.0257. A .382 retracement from the rise from .8065 to 1.0257 would be .9420; a 50% retracement would be .9162. Those numbers seem rather far away right now but are certainly within the realm of possibility. It was only in December that there was a low of .9537. It's notable that all through the rise from .6007, momentum as represented by RSI has never risen above 70, which would be overbought. In fact, RSI has not been above 70 since October 2007 when the high was .9347.
One could look at this as an expanded flat with the A to B leg ending at 1.0257. That would certainly make for a jolly set of bears as C began but there needs to be more evidence for this. Frankly, at this point, I don't see Elliott Wave Theory as being particularly useful on this chart.
Monthly support is at 1.0095, .9916 (Feb. low), .9804, .9710 (monthly 10 EMA), .9537, .9420 and .9162. Monthly resistance is, yes, you guessed it, 1.0257. After that is 1.0300, 1.0350, 1.0435/79, and 1.0500.
Here’s the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
Just as obviously, the rate of ascent since June of last year is very steep. It's unlikely the pair can maintain this angle. If you look back on the chart, I've drawn lines where ascents were sharp and one can see the resulting correction. The pair has been stalling since the December high of 1.0257. A .382 retracement from the rise from .8065 to 1.0257 would be .9420; a 50% retracement would be .9162. Those numbers seem rather far away right now but are certainly within the realm of possibility. It was only in December that there was a low of .9537. It's notable that all through the rise from .6007, momentum as represented by RSI has never risen above 70, which would be overbought. In fact, RSI has not been above 70 since October 2007 when the high was .9347.
One could look at this as an expanded flat with the A to B leg ending at 1.0257. That would certainly make for a jolly set of bears as C began but there needs to be more evidence for this. Frankly, at this point, I don't see Elliott Wave Theory as being particularly useful on this chart.
Monthly support is at 1.0095, .9916 (Feb. low), .9804, .9710 (monthly 10 EMA), .9537, .9420 and .9162. Monthly resistance is, yes, you guessed it, 1.0257. After that is 1.0300, 1.0350, 1.0435/79, and 1.0500.
Here’s the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
Tuesday, March 1, 2011
EURJPY—Monthly
There are some notable features on this chart. One is the fact that the pair broke above a long-term trend line. This is positive. It's also worth noting that 105.23 could have been the completion of an ABC pattern and the pair is beginning an impulsive move upwards. Lovely, if true.
Other notable features, though, are darker. RSI is sluggish. The 10-EMA (currently 113.32) seems intent on holding the pair down. February formed a doji candle that could become part of an evening star pattern if March turns out to be a bearish candle that closes well into January's bullish candle. It's likely these three are signaling a correction of some degree. It's also possible the pair is in a bear flag with the upper boundary at 116.14 and the lower one at 107.79).
Monthly support is at 112.25, 110.77, 108.28, 107.79, 106.83 and 105.23. Monthly resistance is at 113.32, 114.24, 115.69 (Oct. high), and 116.14 (the upper boundary of the bear flag).
Here's the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
Other notable features, though, are darker. RSI is sluggish. The 10-EMA (currently 113.32) seems intent on holding the pair down. February formed a doji candle that could become part of an evening star pattern if March turns out to be a bearish candle that closes well into January's bullish candle. It's likely these three are signaling a correction of some degree. It's also possible the pair is in a bear flag with the upper boundary at 116.14 and the lower one at 107.79).
Monthly support is at 112.25, 110.77, 108.28, 107.79, 106.83 and 105.23. Monthly resistance is at 113.32, 114.24, 115.69 (Oct. high), and 116.14 (the upper boundary of the bear flag).
Here's the monthly chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
EURUSD—going nowhere for now
Euro has traded in a tight band from 1.3855 to 1.3781 in the last 24 hours. Many times when pairs keep trading in a narrow range under resistance they do break above it. It's as though they're accumulating energy for the charge. I did make a small buy at the lower level of the range with a very tight stop. Now it's a matter of waiting to wait to see what happens.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
Fundamental Factors and Currency Exchange Rates
People often try to explain changes in the short-term currency rates because of fundamental factors, i.e. the dollar is dead, everyone wants a new reserve currency. Most explanations have little to do with reality. It's not that fundamental factors don't play a role in currency exchange rates. They most certainly do. But this is over the longer term and has almost nothing to do with most currency traders who are in and out of the market on any given trade in less than a week in most cases and less than a day or so in many. And let's not even discuss intraday scalpers who work off five-minute or less charts.
Yesterday, I ran across a post where someone was attempting to explain the failure of the USD to rally in light of the recent unrest in the middle east countries. Their explanation was that first, "It is over for the US Dollar," and second, the possibility of future military action by the US in the mid east would stretch the US to the breaking point and cause the printing of more dollars which weakens the dollar and therefore it's over for the US dollar. Which was "argument" one. Talk about circular reasoning. The evidence for the first argument was primarily from Rupert Murdoch's rag, the Wall Street Journal. They cited an article talking about how something known as purchasing power parity (PPP) indicated that China was surpassing the US.
I did respond. I'm posting my response here for a couple of reasons.
First, one can get distracted by discussions that sound reasonable and use economic jargon such as purchasing power parity. But one has to ask, what does this do for one's trading? Does it improve it?
In addition, as much as the field of economics is subject to ridicule, it is a field with an identifiable body of study and to understand it takes much study. There are contrary opinions from educated people who have studied and earned advanced degrees in the subject. So what do you make of that? What it says is that it's not a hard science and that the best one can do is offer hypothesis in many cases. But hypothesis is not truth and often has subtleties not apparent to the average person. While the writer of the post may have understood the nuances of what he wrote, it's not likely many of his readers did.
Finally, as regular readers know, this blog is about trading. Psychology plays a big part in trading. I've written on this before. You read the dollar is dead and the next thing you know you're shorting the dollar even though the chart may tell you otherwise.
Now I'm not saying that US policy will do anything that will be good for the dollar in the short term. Or maybe even in the long term. I am not sure the US administration cares about the dollar. That's not a slap at Obama. I like Obama. I don't like that he used the same goons from the Bush administration to determine our economic policies.
What I am saying is that getting caught up in the fundamental factors is irrelevant since trading should be done on a technical basis. Personally, I do look at fundamental factors but only in the broadest sense. Those things that impact a currency, i.e. interest rates, need to be kept in mind. But as a direct relationship in the short-term even that can break down.
Most currency traders I run across are struggling with how to make money trading. Stay focused on the charts. Turn off the noise. In the short-term it's all noise.
Here's my response that I posted:
As a recovering fundamental trader, I usually stay away from discussions based on fundamental factors for what's happening in the short term. (I agree that fundamental factors dominate in the long term but that's not usually how FX is traded and in any case technical analysis still should govern entries and exits). But because PPP raises its head here and because I wrote a long paper in university once upon a time on this topic, I'll comment.
First, PPP is not one thing. It can have to do with the law of one price, the absolute parity, or relative parity. Both of the first two seem to have problems depending on what studies one reviews; the latter can be useful for long term exchange rate trends. However, PPP doesn't hold up well in short-term studies as to impact on exchange rates. This, though, is true of most fundamental factors--they're not useful for the short term and the statements in the WSJ article you cite appear geared to the short term.
Second, PPP is controversial. It can be difficult to find baskets of goods that are comparable to compare across economies. The quality of those goods is also problematic. This is why people like the Big Mac Index. But even this can be skewed depending on market to which it's being compared and the demographics of the purchasers. Besides which, the index is an absolute PPP. All that said, again, over the longer term, it can play a role in fundamental analysis.
Fundamentally, I do agree that it's probably some long-term interaction of a monetary approach with relative PPP that has to do with exchange rates. But not in the short-term and this failure of the USD to move up, while interesting, can still be classified as a short-term aberation. Or maybe it's just the stars as the financial astrologers will tell you, LOL.
The fear of further military involvement is interesting but I'm not going to take it on because first, it's already discounted in, and second, this is what happens with fundamental arguments--one gets consumed by them and meanwhile, luscious trade opportunities are floating by based on technical analysis.
Dianne Fecteau, CMT
Read my Forex blog at http://www.forexreflections.blogspot.com
Yesterday, I ran across a post where someone was attempting to explain the failure of the USD to rally in light of the recent unrest in the middle east countries. Their explanation was that first, "It is over for the US Dollar," and second, the possibility of future military action by the US in the mid east would stretch the US to the breaking point and cause the printing of more dollars which weakens the dollar and therefore it's over for the US dollar. Which was "argument" one. Talk about circular reasoning. The evidence for the first argument was primarily from Rupert Murdoch's rag, the Wall Street Journal. They cited an article talking about how something known as purchasing power parity (PPP) indicated that China was surpassing the US.
I did respond. I'm posting my response here for a couple of reasons.
First, one can get distracted by discussions that sound reasonable and use economic jargon such as purchasing power parity. But one has to ask, what does this do for one's trading? Does it improve it?
In addition, as much as the field of economics is subject to ridicule, it is a field with an identifiable body of study and to understand it takes much study. There are contrary opinions from educated people who have studied and earned advanced degrees in the subject. So what do you make of that? What it says is that it's not a hard science and that the best one can do is offer hypothesis in many cases. But hypothesis is not truth and often has subtleties not apparent to the average person. While the writer of the post may have understood the nuances of what he wrote, it's not likely many of his readers did.
Finally, as regular readers know, this blog is about trading. Psychology plays a big part in trading. I've written on this before. You read the dollar is dead and the next thing you know you're shorting the dollar even though the chart may tell you otherwise.
Now I'm not saying that US policy will do anything that will be good for the dollar in the short term. Or maybe even in the long term. I am not sure the US administration cares about the dollar. That's not a slap at Obama. I like Obama. I don't like that he used the same goons from the Bush administration to determine our economic policies.
What I am saying is that getting caught up in the fundamental factors is irrelevant since trading should be done on a technical basis. Personally, I do look at fundamental factors but only in the broadest sense. Those things that impact a currency, i.e. interest rates, need to be kept in mind. But as a direct relationship in the short-term even that can break down.
Most currency traders I run across are struggling with how to make money trading. Stay focused on the charts. Turn off the noise. In the short-term it's all noise.
Here's my response that I posted:
As a recovering fundamental trader, I usually stay away from discussions based on fundamental factors for what's happening in the short term. (I agree that fundamental factors dominate in the long term but that's not usually how FX is traded and in any case technical analysis still should govern entries and exits). But because PPP raises its head here and because I wrote a long paper in university once upon a time on this topic, I'll comment.
First, PPP is not one thing. It can have to do with the law of one price, the absolute parity, or relative parity. Both of the first two seem to have problems depending on what studies one reviews; the latter can be useful for long term exchange rate trends. However, PPP doesn't hold up well in short-term studies as to impact on exchange rates. This, though, is true of most fundamental factors--they're not useful for the short term and the statements in the WSJ article you cite appear geared to the short term.
Second, PPP is controversial. It can be difficult to find baskets of goods that are comparable to compare across economies. The quality of those goods is also problematic. This is why people like the Big Mac Index. But even this can be skewed depending on market to which it's being compared and the demographics of the purchasers. Besides which, the index is an absolute PPP. All that said, again, over the longer term, it can play a role in fundamental analysis.
Fundamentally, I do agree that it's probably some long-term interaction of a monetary approach with relative PPP that has to do with exchange rates. But not in the short-term and this failure of the USD to move up, while interesting, can still be classified as a short-term aberation. Or maybe it's just the stars as the financial astrologers will tell you, LOL.
The fear of further military involvement is interesting but I'm not going to take it on because first, it's already discounted in, and second, this is what happens with fundamental arguments--one gets consumed by them and meanwhile, luscious trade opportunities are floating by based on technical analysis.
Dianne Fecteau, CMT
Read my Forex blog at http://www.forexreflections.blogspot.com
Month to Month Change
Here are the changes from February's close compared to January's close for the currency pairs. Cable followed by GBPUSD and then AUDUSD were the biggest gainers. USDCAD lost the most, trailed quite a bit by USDCHF. I'll let people draw their own conclusions as to why but short term rates are not significantly affected by fundamental factors.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
Monday, February 28, 2011
EURUSD—update
I don’t trade much on the last day of the month anymore as I try to use my time to get ready for the coming month by analyzing monthly charts, etc. I also don’t feel like giving back any of my monthly profits.
However, I just noticed that EURUSD dropped to a weekly pivot resistance level of 1.3791 before stalling. I don't use pivots by themselves and because it didn't correlate with much else in the way of support this morning I didn't consider it particularly relevant. But the stalling at that price is interesting. It's also just below the .382 retracement of the most recent move up from 1.3712. I might risk buying at the .5 level of 1.3782, maybe a bit higher, if momentum looked favorable on the short-term chart. However, a stronger retracement would be more appealing.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
However, I just noticed that EURUSD dropped to a weekly pivot resistance level of 1.3791 before stalling. I don't use pivots by themselves and because it didn't correlate with much else in the way of support this morning I didn't consider it particularly relevant. But the stalling at that price is interesting. It's also just below the .382 retracement of the most recent move up from 1.3712. I might risk buying at the .5 level of 1.3782, maybe a bit higher, if momentum looked favorable on the short-term chart. However, a stronger retracement would be more appealing.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
EURUSD—aiming high
EURUSD has continued to climb, reaching a high of 1.3848 so far this morning. Eyes are on the the February 1st high of 1.3862. It's too close to not get there so let's look at some resistance levels.
1.3881 is the first one. It's .618 of the entire move from 1.5144 down to 1.1892 and also the target of the daily flagpole that formed between the 10th and 16th of January. It's also the location of a speedline from from the 1.2874 low and obviously close to the prior high but just enough beyond it to lure in long breakout buyers.
The second possible resistance is a zone between 1.3993 and 1.4042. This is comprised of an uptrend line from the 10th of January and the downtrend line from November 2009. There's also a speed line coming in here from the 1.1902 low.
Finally, if you assume an upward march the next few weeks, Euro will hit the downtrend line from the 1.6041, 2008 high around 1.4317. If you further assume that the price action on the weekly chart is an ABC wave with the C wave currently in progress, then .618 of the A wave would bring price to 1.4347.
So that's three resistance levels, all of which will probably engender some selling so bulls can get in on a retracement and bears can suspect it's the beginning of a wave five down on the weekly chart. An interesting point if it is wave five is that it cannot be longer than 3,276 pips because if it was it would exceed the length of wave three. Since wave one was 3,712 pips and the Elliott hard and fast rule is that wave three cannot be the shortest, you can do some interesting calculations with the golden section to gather probabilities of where the current weekly wave four is going to end. I'll let you do them if you're interested rather than just provide them.
By the way, if it doesn't make it past 1.3862/81 and significant selling comes in, it's bearish. The pair stalled below 1.3862 last week and didn't manage to close over 1.38 which the bulls would have preferred to see. This would most likely result in a failure swing for RSI on the hourly chart.
Support is at 1.3705, 1.3685 (fib confluence), 1.3640, 1.3594, 1.3524, and 1.3429, the low for February.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
1.3881 is the first one. It's .618 of the entire move from 1.5144 down to 1.1892 and also the target of the daily flagpole that formed between the 10th and 16th of January. It's also the location of a speedline from from the 1.2874 low and obviously close to the prior high but just enough beyond it to lure in long breakout buyers.
The second possible resistance is a zone between 1.3993 and 1.4042. This is comprised of an uptrend line from the 10th of January and the downtrend line from November 2009. There's also a speed line coming in here from the 1.1902 low.
Finally, if you assume an upward march the next few weeks, Euro will hit the downtrend line from the 1.6041, 2008 high around 1.4317. If you further assume that the price action on the weekly chart is an ABC wave with the C wave currently in progress, then .618 of the A wave would bring price to 1.4347.
So that's three resistance levels, all of which will probably engender some selling so bulls can get in on a retracement and bears can suspect it's the beginning of a wave five down on the weekly chart. An interesting point if it is wave five is that it cannot be longer than 3,276 pips because if it was it would exceed the length of wave three. Since wave one was 3,712 pips and the Elliott hard and fast rule is that wave three cannot be the shortest, you can do some interesting calculations with the golden section to gather probabilities of where the current weekly wave four is going to end. I'll let you do them if you're interested rather than just provide them.
By the way, if it doesn't make it past 1.3862/81 and significant selling comes in, it's bearish. The pair stalled below 1.3862 last week and didn't manage to close over 1.38 which the bulls would have preferred to see. This would most likely result in a failure swing for RSI on the hourly chart.
Support is at 1.3705, 1.3685 (fib confluence), 1.3640, 1.3594, 1.3524, and 1.3429, the low for February.
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.
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