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What a Trend Change Looks Like
Posted on April 30, 2008 in ()What a Trend Change Looks Like
The USD/CAD trend change of 2007 was a classic example of what the daily chart looks like when the market moves from a strong uptrend to a strong downtrend. First of all, we identify an uptrend as a series of higher highs and higher lows. The first part of the chart is a classic uptrend where the highs and lows look like a staircase moving up. With every pullback down to a support level, buyers were getting into long positions (buying) to ride the trend up for as long as possible. In March, we saw the change where the market moved down through the previous low for the first time and started to print lower highs and lower lows, which is a downtrend. But it is the point where the trend changes that causes confusion and this chart shows what that change looks like. When looking for a trade, the first step is to find the strongest uptrends and look for buying opportunities or to find the strongest downtrends and look for selling opportunities. With experience, you will eventually want to take advantage of these trend changes to enter into a trade with the new trend. This is how professional traders are able to get in early on a trend and ride the trend for a long period time of time, moving their protective stop with the market to protect any gains. This is a daily chart, but short-term traders will look for the same activity on hourly chart to take advantage of the shorter-term trends. The key for short-term traders is to trade in the direction of the daily trend to make sure they are trading with the momentum of the market and not against it.
Dollar Takes Heavy Blow From Drop in Consumer Confidence but Remains Standing
Posted on April 30, 2008 in ()Dollar Takes Heavy Blow From Drop in Consumer Confidence but Remains Standing
"The
Conference Board issued today one of its most alarming reports on
consumer confidence in 40 years of data, results certain to push
stocks, the dollar and Treasury yields lower. The results will also
complicate debate at the ongoing FOMC meeting, making it harder for
policy makers to assure the nation that the economy will soon improve
and that inflation pressures will cool.
The Conference Board's
index fell nearly 4 points in April to 62.3 -- the worst reading since
the early 90s. The present situation component, which makes up 40
percent of the headline index, fell more than 10 points to 80.7 for its
worst reading since 2003 when the unemployment rate had peaked at 6.3
percent. The present situation index matches closely with the
unemployment rate and today's reading points to an alarming shift
higher in next week's employment report. The report's component for
current job conditions also points to trouble next week, as more say
jobs are hard to get (27.9 percent April vs. 24.5 percent March) and
fewer say jobs are plentiful (16.6 percent vs. 19.2 percent). The jobs
question for six months shows an incredibly low 8 percent seeing more
jobs against an incredibly high 32.8 percent seeing fewer jobs.
But
the worst news in the report is a true spike in inflation expectations,
up 7 tenths in the month alone to 6.8 percent -- a record level matched
only after Hurricane Katrina in 2005. CPI data may not being showing
much pressure but consumers are saying clearly that inflation is on the
rise. The results even include a 30-year low for vacation plans, no
doubt reflecting the weak dollar, which raises the cost of foreign
travel, and high gas prices which of course raise the cost domestic
travel. Also, some consumers may be looking for work and can't spend
the money or time on travel. Buying plans for homes fell 1 full point
to 2.4 percent for the latest bad news on the housing sector."
-Econoday
Despite this news the dollar gave way to Euro only briefly after the report and settled back to pre-announcement levels. Considering the past six months performance, the greenback's ability to shrug-off this very negative report (seemingly with ease) is reason for alarm in itself. At the time of this report EUR/USD is now testing 1.5550 and seems like it will have the momentum to do so. Dollar bears have been frustrated in the past few sessions, the question is whether the other shoe is about to fall. ProSticks readers have been rewarded very handsomely for the Euro short position from 1.60. Last night's ProSticks report suggested that profit-taking ahead of the 1.5450 is an option, but taking that out , swiftly drifts down to daily kumo lower band which coincides with weekly ichikumo slow line at 15150.
This week will be the true test for the dollar as a virtual minefield of US data is set to be released starting tomorrow. Overnight German unemployment numbers are set to be released and while expected to remain unchanged will be closely watched, especially after the impact of the IFO survey last week. The dollar seems to be building a tolerance for negative US economic news while the Euro is experiencing growing sensitivity to poor EuroZone data. The direction of the dollar is surely going to get more clarity by Friday afternoon. Are we having fun yet?Euro Likely to Consolodate in Range. Dollar Surging Against Yen
Posted on April 30, 2008 in ()Euro Likely to Consolodate in Range. Dollar Surging Against Yen
After making an overnight record high, Euro will likely trade in choppy ranges and most traders I spoke with said that they expect very choppy price action with some analysts suggesting that Euro could retrace several big figures down in the next few weeks. In ForexTV's AM Forex New York, Brown Brothers Harriman Senior Currency Strategist Meg Brown says that while momentum is still in Euro and will likely test 1.60 again within the session, a failure to break that mark within a week could trigger a sharp correction of "2-3 big figures." However, as reported in last night's ProSticks technical report, it suggested a 1.65 level within weeks.
Inflation Woes Drive Market Direction
Posted on April 30, 2008 in ()Inflation Woes Drive Market Direction
"Overall producer price inflation in March came in red hot although the core rate remained moderate in the latest monthly number. The overall PPI jumped a sharp 1.1 percent, following a 0.3 percent gain in February. The March increase was far above the market projection for a 0.5 surge in the overall PPI. The core PPI rate eased to 0.2 percent, following a 0.5 percent spike the month before and matched consensus expectations…The March PPI report shows that the Fed still needs to worry about inflation and will bump up interest rates. A stronger-than-expected Empire State survey will also firm rates. Equities will still likely wait on key earnings reports,"
Meanwhile, TIC data show that net long-term inflows were up in February to a robust $72 billion vs. 57.1 billion in January. This is surprising considering the weakening dollar and low yield interest-rate environment. The data is a positive for Dollar bulls and presages that smart money is hedging a swing in momentum that may lift the US economy in the intermediate term.
On the negative side the PPI data coupled with little or negative growth supports the stagflation camp and spells trouble for the already beleaguered dollar. As I indicated in my April 1 post, I think the US economy is starting to make a move towards recovery. "Lehman Brothers Holdings Inc. Chief Executive Dick Fuld said on Tuesday the current market environment should remain challenging, but added that the "worst is behind us,"" according to Reuters. With a serious of stimulus packages yet to be factored into the equation I believe that dollar will be poised to recover to the 1.45 level by mid-summer. The EuroZone is showing clear signs of stress as I have predicted and today's ZEW report show deep concern on behalf of German Economists. French inflation figures were not good and will likely deepen with food and energy cost spiraling out of control.
Short-term this is a very volatile situation with many of the fundamentals showing conflicting signals, and the technicals also showing no clear trends.Price Action Brutal in Asian and Early European Session
Posted on April 30, 2008 in ()Price Action Brutal in Asian and Early European Session
As I left off my last post, "expect volatility" who could have imagined? USD/JPY broke strong resistance into the mid 103.50's and continues to strengthen into the North American session along with euro weakening on hopes that the credit debacle have reached its peak. Large European banks reversing positions in the Early European session pushing Euro well below recent highs and breaking below the 1.58 level. Expect the unexpected today.