Orange lines= Fibonacci levels
Green lines= Channel lines
Purple line= 72EMA
Vertical white lines= 24hrs period seperator
The low of Monday is where the hammer candle is on 4h chart. Price loss volume on its way up. On the second attemp on tuesday, there where cluster of resistant lines stopped the bull, falling back down to the 61.8 fibo.
It was a choppy market for the past 2 days. No gains and no loss on both manage accounts. For a short term trade, the 2 fibo should be the levels to watch, break of the 50 fibo is a uptrend and assertive downtrend if it breaks below 61.8 fibo.
For the fundamental side. Subprime mortgage concerns is still there, the ailing Bear Sterns top wallstreet rival refuse to give aid, according to bloomberg yesterday. China stocks decline for 2 consecutive days. The expectations of US Fed holding their interest rate this week might push the dollar lower. Risk aversion to safer bonds continues. All this support the carrys unwind view.
Erratic & Choppy 48hrs
6.25 analysis
6/25 10:30am EST- This is a EUR/CHF 4hr chart. Price drop lower to the 61.8 fibo and make a stop there. Looking at the chart, a hammer candle is about to form (2nd candle from the right), Stoch and CCI just crossed above buy signal levels. And not to mention the strong 61.8 fibo support. It is also a support level of a long term trendline drawn from March 5 lowest low connect to June 6 lowest low. So there is a 99% good change of a reverse.
This might be a good resersal point. Still no specific TP (target profit) set for this trade, but the original plan of price breaching above friday's highest high is a long term bullish bias is still considered.
I personally not gonna open a position though it's a good entry point, since I still have 9% margin positions opened previously and a long hedge position at the 50 fibo.
Pay attention to the current candle, only 1 hour left before it close. If it closed above/higher than the previous candle close, a hammer candle or inverted pinbar will be confirmed. Go for a long hedge position. Make an independent judgement, trade at your own risk. Use this blog only as a guide, not a recommendation to trade.
Personal notes
My personal notes to Norman a.k.a. gr8collector. You know buddy, it's hard to explain to a person with deaf ear or pretending to be blind. I have already explained the situation. Please don't throw punches on every opportunities you can get and cause extreme damage and prejudice to me out of sheer hatred and spite.
It's hard for someone with such a deep alliance to his own trading strategy (more like a religion!) to even consider alternative views. Perhaps they think they are being unfaithful if they do.
And with regards to the "mental stop loss" on my directional trading. We all know that MT4 platform is code programmed. It is easy for a retail broker to set some algorithm to let the price repel from a TP and attract to SL. That theory has been discussed a lot in some forum sites. And it is also the reason why some EA coder code their EAs to hide stop loss from the brokers. Though there's no concrete evidence to that theory (kaya nga theory), its pays to be vigilant. ....and its not 80% risked on a single position, check back the statement.
I'm not saying you're wrong and I'm right. We are just looking at the same object in a different angle. Your way of trading might be good for a specific period but not all the time, so are mine.
Contagion of Thoughts
The sentiment of carrys unwinding is still building up as of this moment. This has been the topic of all the information sites that I know of.
The Bear Sterns situation That I mentioned last friday, the undervalued Yen, expectations of another rate hike from BOJ, SNB pushes the repo higher last week. All this scares the shit out of me. This is the time I wish I'm not in the market.
What caught my attention is the rise of the bonds price last friday. This indicates that big players are pulling their funds out of the equities and diverting to a more safe investment-bonds. This kind of risk-avert move if continued will cause the carrys to unwind.
Carry trades will inevitably be a very important market focus for this week. Traders will need to be on high alert for comments from G8 finance officials.
Though EUR/CHF is at oversold zone right now, we might see some corrections later. Breaching above friday's highest high of 1.6638 means safe to hedge long. Bounce of the middle channel(pls. refer to the previous post chart) or 38.2 fibo means a continuation of the bear moves.
To focus away from EUR/CHF. Part of my analysis shows a good sign of going long for EUR/USD pair. A hammer candle has just formed on the weekly chart. This is not a recommendation to trade, it is just my observation. Trade it at your own risk.
A recap of today's move. End of 2nd week trade
This is the continues chart (zoom in) I posted earlier. Remember those significant levels I've said earlier? Price roam all of it in a span of 16 hours.
Here's what I did. When the price touched the upper channel and the Stoch, CCI indis crossed down; I open a short (sell) hedge. At 4am EST, there were 2 EUR news announcements followed by ECB President Trichet dovish speech. Both news was negative bias to the Euro, German Ifo Business Climate Index came out 107.0 with expectations of 108.4 and the German Ifo Business Expectations Index came out 102.8 from 104.8 expectations. The news gave eur/chf a whipsaw then fall straight down to the 38.2 fibo. Then afterward drop to the lower channel... made a small correction back to the 38.2 fibo before continues its down move to the 50 fibo. The bear lost steam from there 'til market close of the week. I closed the positions on the third bounce of the lower channel.
To make it short. It was another perfect call.
PMTFC end the week with a total of $3420 equity, and $7357 for TN's account. I know the results this week is not something to hoot and holler, but it is better to end the week with small profits than small lose.
Here are the reasons of the small gained:
- If eur/chf is trending downward, I will only trade with small margin. It is because short hedge position/s is risky with a uptrending carry trade pairs.
- The Fed is pressuring the Chinese government to slow down their fast rising currency. If the yuan makes an impulsive drop, we will see a snowball effect to the global market, just like last Feb-Mar. Related topic here> forex factory
- There is also the subprime mortgage problem going on in the States. Like what happened last February. More of the story here> CNBC
- More of current negative news of EUR. Related topic here> bloomberg
- Japan's possible of a .25bp rate increase, which will tighten the interest rate gaps of major pairs. Related topic here> forex factory
All this will affect the carrys. You can read the CNBC news article yesterday, here CNBC
6.22
Friday 22:45 EST- Pay attention to the pitch fork (3 green lines)or the channel, 23.6, 38.2 and the 50 fibo levels.
Price is on consolidation right now, wedge triangle will be sight if you zoom in the chart, Breach of 23.6 fibo, we will see 50 fibo level or lower channel soon. On the 4hr chart, we see a down trend is forming. On 1hr chart, hanging man candle formed 3 days ago.
Overall, it is a pretty good indication of a down move. Not an intraday trade, it might take days... .I'll report some updates later.
Carry Trades at boiling point
Carry trades have continued to soar higher over the past week. There may still be room for the upside, but the overall dangers are now running at extreme levels.
The overall liquidity conditions are tightening. As central banks raise interest rates, it will gradually slow global liquidity growth. Global lending standards being gradually tightened will cause an important impact on currency market.
There are now very clear warning signs that carry trades are being caught up in the craze for wider asset-price inflation. It shows a sign that markets are ignoring the fundamentals and gaining ground simply because they have been rising.
As credit conditions tighten, there will be an outflow of longer-term capital which will leave asset prices increasingly dependent on more unstable flows to maintain current levels. High-yield currencies and carry trades will also be even more reliant on unstable flows to make further progress.
Given these conditions, there is now an increasing threat that only a small shock will trigger a huge adjustment in global markets and a rapid reversal in carry trades. One possible trigger reminds the collapse of a prominent hedge fund.
So use your margin accordingly when you long a hedge position. EUR/CHF is on a possible reversal righ now and GBP/JPY is at its extreme.
