December, 2011


13
Dec 11

EUR/USD: Look for completion of Bearish momentum this week

REVIEW

At the time of last week’s analysis the EUR/USD was trading at 1.33898.  Our long term bullish outlook hadn’t changed as we were still anticipating a long term rally that would trade towards and potentially beyond the swing high of 1.51437.  Our bias called for the EUR/USD to retest its lower trendline as the lower timeframe momentum indicators had signaled that the bearish momentum may not have been completed.  The indicators were mixed and we anticipated the EURUSD may trade within the trading range of 1.35077 – 1.34560 & 1.32119 – 1.31456.  Our exit strategy called for a rally and close above the target zone of 1.34683 – 1.35077 as this would signal the potential start of a larger rally that could retest the 200 period moving average.  The EUR/USD rallied to a high of 1.34851 and then declined to a low of 1.32810.  The EURUSD closed the week at 1.33842 and came within 50 pips of retesting its lower trendline as we anticipated and its weekly high was also within our bullish target zone of 1.34683 – 1.35077.  In our timing analysis we’re anticipating a major swing between 12/17/11 - 12/19/11 (there’s a factor of +/- 2).  Our analysis of price and time allowed us to anticipate a decline of approximately 200 pips.

ANALYSIS

Our long term price analysis still remains bullish as the EUR/USD is still trading within its Bullish Pennant.  The manifestation of the waves within the pennant appears to be unfolding in a larger degree 5-wave corrective pattern.  This larger degree 5-wave corrective pattern is normal for a Bullish Pennant formation.  Our long term bullish outlook hasn’t changed and we’re still anticipating a rally that will trade towards and potentially beyond the swing high of 1.51437.  The manifestation of the rally from 1.31456 suggests that the decline from 1.49385 is more than likely a completed corrective decline.  Our bias calls for the EUR/USD to trade within a choppy (sideways) market over the next few trading days.  It appears the EUR/USD has begun to trade within a minor wedge / triangle.  With this minor wedge / triangle we’re anticipating a short term rally towards the bullish target zone of 1.35077 – 1.35470 and then a subsequent decline towards the bearish target zone of 1.31721 – 1.31448.  Our exit strategy calls for a rally and close above the target zone of 1.35470 – 1.36129 and continue towards the bullish target zone of 1.37932 – 1.38570.

The rally from 1.31456 still appears to be unfolding as the 4th leg of the pennant and the decline from 1.42463 is potentially the second leg of the corrective 4th leg.  We are still expecting a 4th leg that will rally towards the upper trendline.  The minor weekly momentum indicator is still bearish and signals the bearish momentum may be coming to an end.  We’ll be watching the indicators much more closely looking for additional clues and potential signals of a failed Bullish Pennant during this week’s chat room sessions.

Trading pennants can sometimes become very tricky and somewhat difficult.  A suggestion would be to focus on the lower timeframe charts and look for a completion of a bearish pullback or retracement.  The completion of the bearish pullback or retracement will be a signal that the higher timeframe bullish momentum may be resuming.

TIMING

With the EUR/USD trading within a Bullish Pennant, our long term timing projections allow us to anticipate a potential breakout of its Bullish Pennant may occur between 3/4/12 & 3/18/12 (there’s a factor of +/- 2).  Our short term timing projections allow us to anticipate a minor swing (turning point) between 12/17/11 - 12/19/11 (there’s a factor of +/- 2).  Timing projections allow us to be prepared for and to anticipate potential turning points in the marketplace.


7
Dec 11

Eurozone to Possibly Write a New Treaty

It seems that the endgame for the Euro is rapidly approaching.  A new treaty only including 17 of the 27 Eurozone members seems to be the current solution to saving the multinational currency.  Countries that are not including in the new treaty will have to revert to their former currency.  It’s likely that Italy, Greece, and possibly Spain will fall back to using their Pre-Euro currency.  This is an interesting twist when it comes to Forex trading.  The practical solution is of course the reduction of debt which can only come through bailouts and austerity measures.

Recently, Greek citizens began withdrawing money from their accounts which in reality furthers Greece’s problems by pulling out liquidity that enables banks to create loans.  This action by Greek citizens further weakens Greece and put an increasing strain on any economic growth that could come out of the ability for the banks to lend to new and existing small banks.  Speaking of the common European, no German citizen will accept a bailout of the broader Eurozone.  Feelings like this are causing small flare ups in Nationalism.  Parallels to WWII are not so few and far between but the possibility of war is still quite slim.

We will continue to monitor the situation in Europe as it develops.  We will be keeping a close eye on the ECP and the upcoming EU Summit.


1
Dec 11

Market Ends Up on the best day In two years…but beware.

The top story of yesterdays news was that stocks soared over 12,000 ending the best day in two years. Talk of a Fed sponsored bailout for the Eurozone sent stocks high but this is only a temporary solution.

Our expert take on this is a sharp rise in the price of gold due to inflation by the release of more money into the banks to prop them up just a little longer. Gold prices rise on the falling dollar and yesterday was no exception. It’s looking like this is a good time for first time investors to buy into Gold. As for the Eurozone, things are not looking so great.

Dollar swaps seem to be the way to go but a permanent solution to prevent the collapse of the Euro have not been put into place nor decided on. Recently, Poland’s Foreign Minister has called upon Germany to take the reigns and protect the Eurozone from an apocalyptic failure. Germany seems to be the only Country able to bailout faltering Eurozone members but Merkel is reluctant to do so.

So what exactly does this all mean? The simple answer is that a whatever solution Eurozone members create will only be a band aide. The Euro is on a slow bleed but don’t pull out just yet. The Euro is still a fair investment but confidence in any future yields are slowly eroding. The ECB is reluctant to make any substantial moves now that the Fed is willing to step in.

Stay tuned as Cashmechanics studies the situation for Forex exchange rates.