Skelton Shift: Going into London Hours - October 11, 2010

Sentiment
And I quote:

"ECB QUADEN: Global slowdown is risk to euro-area growth outlook; Excessive FX volatility must be avoided."

"SOUTH KOREA: The president has been on the wires saying countries need to reach an agreement on ccy's or global economy will be in trouble."

"$EURUSD: ECB Mersch & Nowotny along with Roubini have all commented that euro looks too strong and unlikely to cross 1.40 level."


The big question is sentiment gonna lead the trend today? The hangover from NFP, the IMF annual meeting, and economist in the headlines are all making for interesting dynamics in the EUR/USD trade today. When sentiment is so high and been driving the trend does one trade with it  and Short the EUR/USD or does one go contrarian (especially against economist comments).

Early morning hourly short term charts are showing a failure to reach the 1.402 - 1.403 range highs from pre NFP.  The Hourly is trading down at 1.396 and has been range bound between 1.39 and 1.40 since Friday's trading. The tone will be set by London traders but New York traders will really push the direction.

The weekend should have given traders enough time to process the data. Asian traders provided very light volume in early Sunday trading. The real action starts in a few minutes.

Daily Technicals:

The first 1.40 touch had highly abnormal volume (300,000+  vs a daily average around 90,000-100,000+) followed by two days of doji candles. for sure the uncertainty is high in the pair at these levels. This mornings touch on the daily in the 1.40 needs to be supported with more abnormally high volume if we are to see a sustained trading above 1.40. However, if volume peaks out from here we can see a long sustained dollar correction to 1.35 (a retracement to the 50% FIB), a mimicry of the June to August EUR/USD rally and correction.

However, it will be foolish to call a tops on the daily chart as timing is very hard as we humans don't feel time in terms of days but more in minutes and hours. The chart can get extended to as far as 1.41 - 1.42 before the day of reckoning.


Take Away:

Set entries wide to catch some limited upside, and if the chart gets too extended in a short period of time I would completely opt out of the trade until large downside (1 - 2 Daily ATR's to the downside ~200 - 300 pips from the 1.40+ range), and possibly set trades in the low 1.38 range or lower to catch an extended down trend.

-A. Lê