5:14a GMT - Welcome back for another week! I hope everyone had a nice, relaxing weekend. As mentioned on Friday I stayed on the sidelines for the day, however anyone who entered at the 1.4930 resistance did hit their first target, but since then we have seen further EURUSD gains that pulled the pair into the 1.4970 area. I'm going to change it up a little this week and start with a weekly outlook (with the regular daily signal underneath).
Weekly Outlook: As I frequently mention larger timeframe charts yield more reliable signals to enter trades. Too often (and I am as guilty of this as anyone) we become comfortable in our home timeframe of 4h, 1h, 30m (or less for some traders) and forget that our timeframe is just a part of the larger forces driving the market. Hopefully with this weekly outlook we can take a step back from our home timeframes and view the larger currents under the EUR/USD.
Most noticeably on the chart below (daily) we can see that the EUR/USD has been in a clear uptrend channel for months now. In fact, you can continue backing out and see that the pair has really been in an uptrend since October of 2008 (though we did see dramatic volatility around that period as well). If you back out to the monthly chart we see that the uptrend has actually been going strong since 2001! What does that mean for us, the lonely day traders of the markets? Basically if we had entered longs instead of shorts on almost any trade we had a higher chance of success - it is the difference between swimming with the current and swimming against the current. And in the past 6 months especially the bull-current has been STRONG.
Where is the pair going? Well if the trend holds, then ‘up' is the easy answer. However we did see some selling pressure last week and last week's candlestick even resembles a weak shooting star on the charts - meaning we could see more weakness heading into this week. I say it is a weak candlestick though because it doesn't appear at the very top of the uptrend (so it is not an extinction candle) - in fact the peak of the star doesn't even pierce resistance above 1.5060. The reason the dollar has been so weak (and subsequently the EUR/USD so bullish) is because of the carry trade - US interest rates are at historic lows and the Fed has made it clear that it intends to keep them that way. Because most of the economic news coming out is generally positive big money (banks, hedge funds, etc.) have shorted the dollar to collect the interest they get with it against higher yielding pairs such as the Euro. Until we see a fundamental change in either a) interest rate outlook, b) economic outlook, or c) major profit taking then there is no solid reason for me to call a top yet. Therefore, as much as I would like to be bearish in the pair I remain bullish and think that any losses will be capped by the blue trend support currently around 1.4750.
On a side note on the chart below we can see that volatility in the pair is actually down quite a bit to an average true range of 100 pips per day (from 200 pips per day range in April 2009). Usually when there is a strong trend like this volatility does decrease, but this could also set us up for a major breakout.
Daily Outlook: So I'm bullish on the week. But where does that leave us today? We saw some profit-taking last week - but EUR/USD losses were limited late Friday as the pair rallied back up above 1.4900. In the short-term I am looking for a drop to the trend support around 1.4800, and I am a bit bearish below last week's top of 1.5050. Therefore I will look to sell on a rally below 1.5050, preferably around 1.5015.
Trading Idea: Look for shorts below 1.5050 with targets (from 1.5015) at 1.4980, 1.4950, 1.4915 and 1.4880. Above 1.5015 look for a re-challenge of 1.5050.
Site Update: Quick site update for you. I mentioned that I was looking to launch something exciting for you this week and while I did get it completed and ready to go I have not had time to write an article on the best way to use it. Basically you probably recall I've had quite a few people ask for a candlestick article, which I've been putting off a little because there are a lot of decent candlestick articles already existing out there. So I wanted to do something different. Something more useful for you besides just another article. More news on what exactly that is tomorrow...
Also there has been quite a lot of interest in economic news recently. Thanks to Ed for periodically posting economic news for everyone to read, but I've gone a step further and added an economic calendar to PipHut. You find that here. There are a lot of great features on the calendar including if you click any event you can see more details about that event, you can see the forecast and previous results and you can see the general importance of the news. Check it out!