Friday, September 24, 2010

The Skeleton Shift: Update - Sept 24, 2010

The overnight shift here we go!


Technical Issues:

One thing we've been grappling with is trading the 8 hour to daily trends. Most of the time you know you are right on the trade but entry is almost never nearly perfect entry on the 60 minute charts. Hindsight 20/20 is that on the daily charts entry looks flawless.

The problem with this is how to set up appropriate stops if one is trying to capture daily trends. Often 2 ATR ends up being too tight of a stop, though perhaps if trading on 60 minute charts a 2 ATR stop is way to wide. As follows, if one wishes to widen the stop to be able to capture the right move, naturally the risk/reward increases. Obviously this is the age old problem of risk/reward.

Due to the dynamic nature of forex, each trade technically requires specific tailoring. Ideally, we are slowly working out a solution to this problem to maximize the upside while having reasonable risk management.

FX movements:

The dollar strength forming slow and steady. The past 24 hours on the USD/CHF show up ticks with the latest 8 hours trading down (temporary weakness)

The USD/CAD in the past 24 hours saw a very large up tick on the price squeeze and has been trading down since then.

The GBP is still lagging the euro in performance. Don't be surprised to see large upticks on the GBP/USD with down ticks on the EUR/USD. On the whole the pairs remain correlated, with slight divergences easily seen on the 60 minutes. On a fundamental level, in the region we may see flight to quality to the GBP if the Eurozone economic data weakness further.

Currently the US/JPY is leading the majors and found support 84.26 and currently trading on the down tick. For picky traders I would wait for around 50 RSI on the 60 for those bearish on the YEN long term. I would maintain a small position now and scale in on the way up.

The AUD/USD has since been trading down since its 1.96 highs from 9/22/2010. These levels are pre-crises levels, I believe if I am not mistaken the AUSSIE is the only pair (besides the yen) to reach is pre-crises levels of the majors. I think the RBA decision to hold rates will fuel the short selling of the AUD. The rest of the major pairs need time to close the gap


Essentially though in the past 24 hours we saw slight dollar strength the majority of the pairs are showing short term dollar weakness. This in turn is fueling crude on later DEC contracts higher. With prices in contango on the front months we expect a trend of later contracts to have upward price pressure with  nearer term contracts with downside price pressure.

On the day to day movements though, the dollar strength we expect should push crude prices lower leaving room for entries for those who are long crude into the winter season. This will also leave opportunities to explore re-entry for weak dollar strategies in the following months.

Alexander T. LĂȘ

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