Forex Analysis – 24th July 2012

• Mighty Euro On The Brink Of Collapse…
• What a Dud!…
• AUD/USD short and long oppurtunities and plenty more…

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New data perks up risk appetite

Earlier today data was released that shows that China’s
Manufacturing output in July had grown at its fastest
pace in nine months. This came as a relief at a time
that concerns are rising that the Euro zone’s fourth
largest economy, Spain, may need to seek a sovereign
bailout.

Be aware though, that even the relatively positive Chinese data could prove to be negative for the Euro should investors continue to use it to fund carry trades. In that event investors effectively borrow low-yielding currencies to invest in higher-yielding currencies and assets.

The Euro earlier steadied against the Yen and the U.S. Dollar however, the Euro’s gains were limited after Moody’s Investors Service’s cut its outlook on Germany to negative. Moody’s didn’t stop there though, it also turned negative on the Netherlands having warned that Europe’s top rated nations may have to bolster their support for indebted states such as Spain and Italy.

Markets still fear that Spain will be next to need a full bailout, following media reports that have suggested that half a dozen regional authorities were ready to follow Valencia in seeking financial support from Madrid.

As a result, Spanish bond yields jumped to Euro era highs yesterday. Italian yields also rose.

Spain will auction bills today maturing in 84 days and 175 days, followed by Italian offerings of zero-coupon debt on the 26th of July and bills on July 27th.

The Netherlands will sell debt maturing in 2014 and 2028 today, while Germany is scheduled to sell inflation linked securities and 30 year bonds tomorrow.

Today, as regards Greece, inspectors from its international lenders return to Athens to re-launch its stalled economic plan. They are to decide whether to keep the nation hooked up to a 130 billion Euro lifeline.

At the moment I don’t think that any of this news comes as a great surprise and it certainly doesn’t show any new problems, rather it’s a case of existing problems worsening. Certainly I expect that speculation will be reignited that Greece will exit the Euro zone.

The Euro was at $1.2125 though it remained not far from Monday’s two year low of $1.2067. Against the Yen, the Euro stood at 94.88 Yen, holding above Monday’s low of 94.23 Yen, its lowest level in nearly 12 years.

Carry trades had continued to push the Euro lower against the Australian dollar. The Aussie benefitted from the more positive manufacturing outlook of its key trading partner, China.

Earlier the Aussie was up 0.4% to the Dollar at $1.0296, and at A$1.1770 per Euro.

The Dollar eased down against a basket of major currencies, from the high of 83.999 hit on Monday to 83.695. The Dollar bought 78.25 Yen, above a seven week low of 77.94 Yen yesterday.

Gains in the Dollar could be limited ahead of U.S. data due out during the week, that many economists say will show that the world’s largest economy is losing steam. This is fanning speculation that the Federal Reserve will ease monetary policy further, thereby debasing the currency.

The Fed will hold a two day policy meeting starting on July 31st.

All the best!

Adrian Jones

Euro Tumbles For A Second Day, Yen Remains Strong

The Euro tumbled against the US Dollar in trading on Tuesday after weak German manufacturing data meant worries continued to mount over slowing growth in the German economy.

This also did little to alleviate fears that Spain may need a full bailout. And to add more fuel to the fire, Moody’s changed its outlook for Germany, Holland and Luxembourg to negative, adding that Europe’s top-rated countries may have to increase financial support for more troubled regions like Spain and Italy.

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News Watch For EURJPY

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There are no more High Impact news releases scheduled for the EURJPY today, but look out for more German data due out tomorrow morning:

08:00am GMT EUR German Ifo Business Climate

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EURJPY Analysis

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The EURJPY threw a curveball our way late yesterday but if you were careful and looked to your indicators you would have been in the clear. Let’s take a look at what happened on the chart below:

Click on Image to Enlargen

As you can see, price bolted upwards and closed above our Buy trigger level at 95.000. Now, for the average trader, this would have been a signal to enter with a Buy order and if you did enter, you’d be nursing your wounds by this time.

One swallow does not make a summer!

Ever heard this saying before? It means that just because there is one signal on our charts, it’s no reason to throw everything on the line. This is a mistake that many traders make time and time again.

If you have been following my column for a while now you would know that once we get a breakout and a close above a trigger level, there is one vital step left before any trades can be placed.

Always check the indicators for further confirmation!

It does not matter what indicators you use. If you had checked them when the breakout candle had closed, you would find that most of them would have remained in bearish formation and this would have saved you from entering a bad trade.

I cannot stress this enough, the trigger levels give us an idea of where we can find potential entries but these entries need supporting evidence in the form of confirmation from our indicators before we consider opening any orders.

So, since the breakout yesterday proved to be false, it means that our trigger levels remain in tact. At the moment we are waiting for a close either above the 95.000 level for a Buy trade or below the 94.250 level for a Sell trade.

Once we have a breakout in either direction, turn to your indicators and look for evidence to support the move in the direction of the breakout. If there is no supporting evidence, do not trade.

It’s all about discipline. You will find that the best traders are never the smartest or the ones with the most qualifications. The best traders are the ones that are the most disciplined! If you look for overwhelming evidence before entering all trades you results will improve drastically. Try it and see for yourself.

Take care and all the best for the week ahead!

Wesley
Senior Trader for MTChamps

Click on Image to Enlargen

One of the things I find very effective is drawing these support and resistance lines on the higher time frames such as the 4h and daily charts then dropping down to the 1h and even 15 minute to time my entry. Here’s what the above chart looks like on the 15 minute.

Click on Image to Enlargen

You can see we’ve had some movement but we are just going sideways. Now what we can do is draw our range to contain price.

Now we can trade small trend line breaks in either direction up to the top of the range or down to the bottom of the range. Once we get a breakout and some nice movement in either direction we’ll be in and ready to rock!

Click on Image to Enlargen

In the news today we have no high impact news releases set for today so good luck and safe trading!

Josh
Forex Profit Model

Yesterday the pair broke downwards through the1.03183 and 1.02692 levels, went down to 1.02426 but then reversed and closed the day almost at the 1.02692 level and the Daily Middle Bollinger Band. This move was confirmed by the Daily MACD and the Daily Stochastic, as the both were crossed down their Signal lines.

Today price is oscillating around the Daily Middle Bollinger Band and the 1.02692 pivot level in very narrow range (Pic1, point A).

The Daily MACD is above the zero level but below its Signal line ( Pic1, point B).

The Stochastic here is clearly below its Signal line moving downward but currently on its mid 50 level (Pic1, point C).

Click on Image to Enlargen

From The Daily chart readings today – the price is oscillating around the pivot level at 1.02692 at the Middle Bollinger Band, and the Stochastic is at its middle 50 level, we can assume that there is good chance for some upside movement and an up trend continuation. On the other hand, as the MACD and the Stochastic are both below their Signal lines and moving downward, and if Yesterday’s low at 1.02426 is broken downwards, we could see more downside movement to the support level at 1.01788.

On the H4 chart the situation looks as follows:

Price here is oscillating between the 1.03183 and 1.02692 levels, in between the Middle and the Lower Bollinger Bands (Pic2, point A).

The MACD is below the zero level however has already crossed upwards of its Signal line (Pic2, point B).

The Stochastic has crossed its Signal line and 20 level upwards a couple of bars ago (Pic2, point C).

Click on Image to Enlargen

The H4 chart readings – the MACD crossed above its Signal line and the Stochastic, crossed upwards of its 20 level and Signal line both moving to the upside, are in favor of some upwards movement today.

My analysis for today is to look for some possible long entries around the 1.02692 level with possible targets at the 1.03183 level and the H4 Middle Bollinger Band. From that point (the H4 Middle Bollinger Band) look for some possible shorts with targets around 1.03183 or below. Don’t forget to confirm all entries with the signals from your indicators.

Today we don’t have any High Impact News releases that could affect the AUD/USD pair, but still have to keep an eye on less important news related to all USD pairs, as there are few of them on the cards.

Happy Trading

Toshko Raychev