Hello dear readers and traders,
following up on an article I had published on October 16th entitle ‘This time is not like 2009 and 2010 for the Euro FX!‘ last Sunday I have published a follow up in my free newsletter I send out to subscribers. Both articles focus on the differences between this year 2012 bounce off the powerful, long-term 1.20 support area (watch my last week’s video-review of the Euro-Dollar cross to understand what I am talking about), and similar bounces we had in 2009 and 2010. Hereunder is the original text of the follow-up article:
‘In the first part of last week’s EUR/USD forex pair review, I have anticipated the Euro trading into the 1.2620 area before the next intermediate leg higher would start. I supported this statement with the observation that the last 2 times the Euro came off the bottom of the huge sideways move (that can be seen on the 20-year weekly chart), respectively in 2009 and 2010, price always retraced all the way half way back of the first burst higher from lows. This is also a typical rule followed by program trading after the failure of the trend in the opposite direction.
I defended this point with an observation: in that area there was the largest interest on the upside from professional traders and program trading. The presence of the 200-days SMA and, most importantly, a well-formed and valid long extension on the weekly chart, had us baffled. The recent turn in the Euro on the daily chart is now putting the old scenario back where it belongs. Take a look at the picture below: if you consider the information provided in this weekend video review, we can now consider the 1.2620-30 level again for trading. That possibility will only open up, however, if price will be able to break the 1.2820 support area. Otherwise we will again need to consider that the leg higher in the Euro is destined to start from the 1.2820 level. We will let price tell us.
The move lower in the Euro seems in synch with the move lower in the US indices (and we know that all the other stock indices in the world are highly correlated to the US indices). Thus world indices moving lower will probably drag the Euro lower and that’s what I anticipate for next week. But at some point the Euro and US indices will need to diverge. Will that happen? Or maybe the question should be put as follows: will divergence take place this year around the beginning of November as it has happened in the last 4 years? The other question is: how the Dollar Index will behave given the introduction of the new so called ‘QE infinity’ (40 billion per month open ended) and what traders I respect are saying about it? I will dwell more on these two important questions in next week’s Newsletter.’
I closed the above article with two important questions I am going to dwell on in this weekend’s newsletter. I will also discuss a trading plan for the Euro as a reference going forward in the coming days and weeks. This weekend I will also publish the second part of the article ‘How HFT and program trading are relevant to my trading method and can be in yours‘.
I send my free Newsletter on Sundays along with other information, typically including: a weekly review for the Euro-Dollar cross and other Forex pairs, indices or commodities futures, articles on my trading method, market commentaries and HFT/Program Trading articles like the one you can read above. Please, register here to receive the free weekly newsletter, to read the following parts of this article.
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