The ShadowTraderPro FX Trader is your daily companion to the foreign exchange markets. Each issue contains a look at an emerging currency trade setup from a technical perspective, along with selected news on the four major pairs and a full economic calendar specifically tailored to the Forex trader. The report also contains potential FX trade setups which are listed with defined entry, defined target and defined stop. Subscribers receive email confirmations and updates on these trades so that they can follow along.
If you have any questions or comments regarding commentary or plays in this newsletter, please email to fxtrader@shadowtrader.net.
To get the most out of your subscription, read our FX Trader User's Guide.
Dollars & Sense
Good evening, Forex Traders. Often, the day before a major announcement, the forex market will be met with wide ranges without direction bias as positions are taken ahead of the announcement. Today was no different. Tomorrow's non-farm payroll (employment data) could stimulate the equities and commodity markets into a boom or a bust. If the equity markets fall and the commodity markets fall, watch for a rush to the dollar and the yen. If the equity markets fall and commodities rise, watch for money to be moved to the commodity currencies such as the CAD, AUD and NZD. The price action around the employment data should be very active. This can lend to some great scalp trades but the newsletter format does not lend itself to quick scalp trades so we will not be participating in scalping tomorrow.
The EUR/USD ran up and fell back over 170 pips from the high only to climb back and settle in where we started the day near 1.4180. As we won't be scalping, we are going to look for confirmation of the head and shoulders pattern that has been established on the hourly charts. It took 4 days for the pattern to form which means it can take 4 days for the price to reach the target. The distance from the top of the head to the neck line is about 250 pips. We will watch for a 10% of the target break of the neck line and a target for the remaining 225 pips. This puts our entry at 1.4045 and a target of 1.3820. Notice how the neck line, 50% Fib and the longer term trend line are going to intersect early in the morning tomorrow at our entry point and how the target matches the 100% retracement level.(see EUR/USD below)
After an initial pull back, the GBP/USD continued it's descent. When a trend is broken, the correction will often run the same distance from the high to the break of the trend. This expectation puts the GBP/USD target in line with the strong resistance near 1.60. Though the drop is 111 pips, we are not going to chase this. We are going to watch for a test of 1.60 and then a break of the short term resistance line before trading this long again.(below).
The AUD/JPY looks a lot like the EUR/USD, lots of activity but no commitment to direction. Though similar in price action, the price pattern looks different. A symmetrical wedge has formed around the 38% Fib level. We love wedges and their unbiased nature but the current base of 150 pips is a little tight for a trade for us to set up the day before a big announcement. So, if you want to look for some scalps here, we think there could be some good, quick money. As stated above, it is a little quick for the newsletter format, so we will sit this dance out. (see below).
Major Pair Scoop
(Reuters) - The euro edged higher against the U.S. dollar on Thursday as the European Central Bank signaled it will keep interest rates steady for some time, reinforcing the market's belief that the global recession was easing.
Actions by the Bank of England and Bank of Canada, which kept interest rates unchanged, also affirmed the view that economic recovery was in view, analysts said, undermining the yen. The Japanese currency, which tends to fall when economic optimism rises, weakened broadly, posting sharp losses against the dollar and euro.
"The tone of the markets is changing as investors are bracing for a recovery," said Kathy Lien, director of FX strategy, at GFT in New York.
"Central banks from around world now expect positive growth in 2010 and despite the concern about the safety of the U.S. dollar, equities are trading at (multi-month) highs."
In late afternoon trading, the euro was last up 0.2 percent against the dollar at $1.4180
The euro rose across the board on what markets believed to be euro-bullish comments by Trichet.
Despite the European central bank's expectations for a much sharper recession in the euro zone this year than previous forecasts, Trichet said the ECB's current interest rates are appropriate for now.
"The ECB's reluctance to ease policy further opens the way for further euro strengthening," said Marco Annunziata, chief economist at Unicredit Group in London.
The ECB also reiterated plans to buy 60 billion euros in covered bonds, spread across the euro zone, in both primary and secondary markets, moves that analysts said seemed to bolster expectations that the bank won't cut interest rates anymore.
The euro posted sharp gains versus the yen, up 1.0 percent at 137.08
STRONG DOLLAR
A comment by Trichet at the news conference after the bank's policy meeting, that it was important Washington had expressed support for a strong dollar, briefly trimmed losses in the greenback. But that did not change sentiment on the dollar overall
Commodity-linked currencies such as the Canadian and Australian dollars, meanwhile, benefited from the rise in oil and gold prices. Higher oil prices also boosted energy shares, lifting the U.S. stock market and boosting risk sentiment in the market.
The British pound was lower against the U.S. dollar as the Bank of England also left its benchmark rate unchanged at 0.5 percent. It last traded down 0.6 percent at $1.6194
The focus shifted to politics as the pound fell sharply on speculation British Prime Minister Gordon Brown would resign, which was quickly dismissed by his office as "absolute nonsense."
The Canadian dollar, meanwhile, initially dropped against the U.S. currency after the Bank of Canada kept rates unchanged, as expected. By late afternoon trading, however, the U.S. dollar fell 1.5 percent to C$1.0963
With central bank decisions out of the way, markets are now focused on the U.S. non-farm payrolls report for May. A Reuters poll showed markets are expecting U.S. job losses of 520,000.
Dan Cook, a market analyst at IG Markets in Chicago after the ADP private sector jobs report came out weaker than expected, many are concerned that expectations that the economic slump was easing "may have been way off target."
"If the (jobs) number comes out worse than expected I will look for strength in the dollar versus sterling and euro...as traders move to a risk averse stance."
FX Economic Calendar
Up and coming economic data relative to FX markets that may move markets this week.
| Date | Time (GMT) | Currency | Description | Importance | Forecast | Previous |
| 6/5/2009 | 7:15 AM | CHF | Consumer Price Index (MoM) (MAY) | Medium | 0.20% | 0.90% |
| 6/5/2009 | 7:15 AM | CHF | Consumer Price Index (YoY) (MAY) | Medium | -0.90% | -0.30% |
| 6/5/2009 | 8:30 AM | GBP | Producer Price Index Output n.s.a. (MoM) (MAY) | Medium | 0.40% | 0.60% |
| 6/5/2009 | 8:30 AM | GBP | Producer Price Index Output n.s.a. (YoY) (MAY) | Medium | -0.40% | 1.20% |
| 6/5/2009 | 8:30 AM | GBP | Producer Price Index Output Core n.s.a. (MoM) (MAY) | Medium | 0.30% | 0.40% |
| 6/5/2009 | 8:30 AM | GBP | Producer Price Index Output Core n.s.a. (YoY) (MAY) | Medium | 1.20% | 2.40% |
| 6/5/2009 | 11:00 AM | CAD | Unemployment Rate (MAY) | Medium | 8.20% | 8.00% |
| 6/5/2009 | 11:00 AM | CAD | Net Change in Employment (MAY) | High | -36.5K | 35.9K |
| 6/5/2009 | 12:30 PM | USD | Change in Non-farm Payrolls (MAY) | High | -521K | -539K |
| 6/5/2009 | 12:30 PM | USD | Unemployment Rate (MAY) | Medium | 9.20% | 8.90% |
| 6/5/2009 | 12:30 PM | USD | Change in Manufacturing Payrolls (MAY) | Medium | -150K | -149K |
| 6/5/2009 | 7:00 PM | USD | Consumer Credit (APR) | Medium | -$6.0B | -$11.1B |
FX Trader Live Calls
Note: As currency markets are open around the clock, some action in plays can and will occur outside of U.S. trading hours. Please note that emails are only sent to clients between the hours of 9:00am EST to 5:00pm EST, Monday through Friday. Any trade action happening outside of these hours will be confirmed in an email the following morning.
Long Ideas
| Symbol | Trigger Price | Stop Price | Target Price | Notes |
|---|---|---|---|---|
| none |
| Symbol | Trigger Price | Stop Price | Target Price | Notes |
|---|---|---|---|---|
| EUR/USD | 1.4045 | 1.4195 | 1.3820 | This is a sell stop based on a head and shoulders pattern. We are targetting a 225 pip move. |
FX Trader Portfolio
| pair | dir | size | date entered | entry price | date closed | exit price | target | stop | status | mark to market | p&l pips | p&l capital | capital commit | OPEN POSITIONS - week of 06/01 - 06/05 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| none | |||||||||||||
 | |||||||||||||
| CLOSED POSITIONS - week of 06/01 - 06/05 | |||||||||||||
| EUR/USD | short | 1 | 06/02/09 | 1.4205 | 06/02/09 | 1.4285 | n/a | n/a | closed | n/a | (80) | ($80) | $142 |
| | Another dollar sell off shot the pair higher, stopping us out. | ||||||||||||
| GBP/USD | short | 1 | 06/02/09 | 1.6395 | 06/02/09 | 1.6565 | n/a | n/a | closed | n/a | (170) | ($170) | $165 |
| | Another dollar sell off shot the pair higher, stopping us out. | ||||||||||||
| AUD/JPY | short | 1 | 06/02/09 | 77.60 | 06/02/09 | 78.80 | n/a | n/a | closed | n/a | (120) | ($125) | $100 |
| | Commodities rallied today boosting the AUD higher and the yen lower, stopping us out. | ||||||||||||
| GBP/USD | short | 1 | 06/03/09 | 1.6480 | 06/03/09 | 1.6250 | n/a | n/a | closed | n/a | 230 | $230 | $165 |
| | The dollar rallied as we had hoped and hit our target quickly. We will watch for a trend trade now that the correction has occured. | ||||||||||||
| AUD/JPY | short | 1 | 06/03/09 | 77.95 | 06/03/09 | 76.50 | n/a | n/a | closed | n/a | 145 | $153 | $100 |
| | Commodities tumbled and volatility climbed, making our trade trigger and hit the target in a matter of a few hours. We will watch for a good base and trend confirmation. | ||||||||||||
| EUR/USD | short | 1 | 06/03/09 | 1.4185 | 06/03/09 | 1.4170 | n/a | n/a | closed | n/a | 15 | $15 | $100 |
| | The pair coudn't reach it's target like the GBP/USD so we tightened our stop and got stopped back on a pull back. | ||||||||||||
Click here for FX Trader Performance - 2008