Forecast for 11.04.2011

Asian Open / European Preview

11.03.2011 11:22 PM EDT

Good morning traders! USDX was bought into London Open only to reverse direction within a couple of hours. In yesterday’s Asian Open/European preview we cautioned traders that Risk off cycle was coming to an end and a rebound was expected. That is exactly what happened. We expected Risk to find a low during NY session but it happened a little earlier than we expected and commodity currencies found a significant low / high during London Session and rebounded sharply. We saw some wild swings in the market today due to Greece Referendum News hitting the wires and ECB rate cut but despite all the noise, market followed our forecasted path. Today was another very good example that news is just noise and cannot start new trends. One would have expected EURUSD to end the day lower after an ECB rate cut but we warned traders in last night’s preview that though we are presenting both scenarios in EURUSD, we favour the decline to be a B wave and would expect C leg up soon and that’s what happened. EURGBP has been acting as a good proxy for EURUSD and the rest of Euro group as it is showing a clear 5 waves down from 8828 high. It is correcting the sharp decline and correction has not even reached 38.2 fib and we suspect it’s either completing wave w of the correction or w.1 of c and should trade higher to minimum 8689 (50%) area. We recommend waiting for EURGBP to get to those levels before initiating swing short positions in EURUSD for the next leg down. USDX move from the lows looks sharp and impulsive, we are counting it as a 5 wave move but we did not get RSI divergence between w.3 and w.5 and therefore, we would like to point out that it could have been a 3 wave move as well. Having said that, reaction from the highs is also corrective and therefore, we believe another leg up in USDX will happen, which means another round of risk aversion. The whole market is a bit tricky at the moment and can be counted as impulsive or corrective but looking at the structure in USDSGD, USDX and Copper which is also showing clear 5 swings down from its recent high, we believe minimum 1 more round of risk aversion will take place in the markets. In commodity currencies, NZD is showing a very nice 5 wave move down from the high. AUD, there is some debate whether the move down is impulsive or a double zig-zag, we are counting it as a 5 wave move down for now. We are labelling a nest (a series of 1,2’s) in USDCAD as we did not get the new high today that we were expecting. So it’s either a nest or a 3 wave move. Again, downside reaction in USDCAD also looks corrective, so we believe minimum 1 more leg up will happen. SP500 did 5 waves down and has now retraced 61.8% of the entire decline in a corrective fashion. Oil structure from the most recent high, looks corrective to the downside and it appears to be in a flat correction when w.C (in 5 waves) down is still to come. If that’s the case, that w.C will complete a flat X wave and then Oil will trade higher once again in 3 waves to complete the entire correction on the daily chart. Same can be said about Copper (more strength after 1 more leg down). That’s why we advise traders not to think what’s going to happen in distant future and only focus on the short term price action and keep in mind that after some consolidation and weakness, USDX should get strong at least 1 more time. Thanks for reading and as always trade safe!

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