Oops...Euro Collapsed

ECB president Trichet:
"The present high probability which is given for an increase of rates in our next meeting does not correspond to the present sentiment of the governing council."


Here are the summary of the ECB press conference following the rate decision:

* Key interest rate left unchanged at 2.5%
* Not a high probability of rate hike in May
* No mentioned of "vigilance" on inflation
* Sounded less hawkish than the market had expected

So, after 66 hours of buying frenzy, the euro finally eases back. A potential short swing trade from here, I reckon.

64 Hours and Counting

Euro is currently trading above 1.2300 level ahead of the European Central Bank rate decision. The bounce off of Monday's low has evolved into a buying frenzy.



Looking at the above chart, I wish I was in the market 64 hours ago! More chart analysis here, here and here.

Euro Breakout

Comments from various parties as euro strikes two-month high against dollar:

"We've seen this breakout and it's not just a function of dollar weakness but it is also supported by genuine euro strength."

"We are near a point this month that could see the early arrival of the weak dollar trade."

"There's still appetite from central banks around the world to continue to diversify out of dollars."

"Probably there will be an expansion of the current range that we've had -- $1.19 to 1.22 -- we could probably trade as high as $1.23, but before the payrolls report on Friday, I don't think we'll see too many more gains in the euro."

"In the second half of the year when the Fed is done, we'll see some real pressure on the dollar. We're looking to sell more dollars.''

Forex Trading Contest

Just found out that there is a forex trading contest that you can enter for free. Although the contest is already into Week 4, there are still prizes to be won for the coming weeks. It would also be interesting to know how you fair against others at the end of each trading week.

Update on Sterling Position

Sterling continues to weaken this morning and a quick profit has been realised from yesterday's suggestions.



It appears from the above hourly chart that there was a chance to short the sterling before the price drop when it came close to the EMA of 13 (pink line) resistance level. So, I'll be looking to short again at the next resistance level which currently stands at 1.7410.

Watchlist for March 29, 2006

The dollar erases losses to trade higher after Fed raises rates and signals more to come. Some new arising opportunities:

Potential swing trades:

Short

• EUR vs USD (D1 resistance 1.2060; H4 resistance 1.2010) current 1.1998 (New - 2 hours ago!)
  

• GBP vs USD (D1 resistance 1.7450; H4 resistance 1.7445) current 1.7428 (New - 2 hours ago!)

Since the downward trend are confirmed on both H4 and D1 charts, I am looking to add the above mentioned currency pairs at price pullback. I'll be aiming to sell again at the resistance levels.

US Dollar's Destabilising Factors

The housing data released on Friday provides more evidence of a continuing slowdown in the housing market. The 10.5% drop in new-home sales was indeed the biggest since an identical slide in April 1997 and the overall level of demand was the lowest since May 2003. Some currency strategists wondered whether the dollar's negative reaction was one of the harbingers of a turning point lower for the currency, which rallied some 15 percent against the euro and yen in 2005.

In today's article, David J. Jonsson (the author of Clash of Ideologies - The Making of the Christian and Islamic Worlds) provides some further insights into other various ongoing fundamental issues that could structurally threaten the stability of the US dollar. He briefly touches on the following:

• Uniting of Islamic Interests for Economic Gain
• HRH Prince Alwaleed bin Talal on Economic Impact
• Structural Changes
• Factors Destabilizing the Dollar
• The Future of Oil Trading in Euro - Creation of the Iranian Oil Bourse
• Economic Indicators to Consider
• Anxieties on the Dollar - The Growing Burden of U.S. Financing
• The Role of Net Capital Inflows
• Increasing Exports and Reducing Imports The Real Estate Bubble?
• The China Impact
• Potential Conflict With Iran
• The China Issue
• Ideology Trumps Economics and Military Strength

Read the full article Structural Changes - Destruction Of The U.S. Dollar.

A Quick Assessment

Current outlook:

The dollar headed for its biggest weekly gain against the euro since November.

Bernanke signals additional rate hike. The USD has become dependent on a wide interest rate differential to sustain the US current account deficit.

Technical outlook:


Look familiar? Simple Momentum + Moving Average setup on your technical-chart screen will certainly help you to trade on the right side of the market for the current two weeks.

A longer time-frame chart such as 240-minute is always helpful in removing short-term false signals.

If you uncertain about the direction of the market, better wait till the indicators to develop and lead the way.

FX-Momentum Trading System

I have applied the simple Elder's System in 60- and 240-minute charts and put it on trial. The name of the game is to identify trend reversals in the market. Momentum indicator can warn of dormant strength or weakness in the price well ahead of the turning point. Along with the moving average analysis, I attempt to capture sizeable gains in 1 - 4 days, which is ideal for swing positions.

The result so far for this system, which has been named FX-Momentum, is +227 pips after two closed trades. I still have one open short position on EUR vs JPY.


I intend to pay the semi-annual listing fee for this trading system soon in order to enter more trades. I will price the service first at $50 with a free trial period of 30 days. You can cancel the subscription before you are charged if the system does not perform.

This should be a fun project, I hope.

Weekend Regrouping

Good winners:
13-Mar-06 USD vs CHF 14-Mar-06 1.3163 Sell 1.3026 +137
13-Mar-06 GBP vs USD 14-Mar-06 1.7266 Buy 1.7474 +208

Sore loser:
16-Mar-06 EUR vs USD 16-Mar-06 1.2121 Sell 1.2177 -56

Overall, it has been a good trading week. However, I've made a mistake by going against the market trend on Thursday. Given that my last opinion did suggest myself to at least stay neutral or, even better, to capitalise on the current underlying market strength, I chose to act opposite. This has put myself in a pretty downbeat mood for the rest of the week and not wanting to blog until I've cleared my mind of all this.

Now, i think it's time to regroup...