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The European Central Bank (ECB) signaled that it would expand its SMP (Securities Markets Programme) to include the bonds of Spain and Italy. The ECB said in a statement that it “welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.” The Bank then said: “the ECB will actively implement its Securities Markets Programme.” in effect acknowledging that the two countries had met the criteria for support by committing to fiscal reform.
On the SMP the ECB said: “This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.” The ECB also said that it “considers fundamental that governments stand ready to activate the European Financial Stability Facility (EFSF) in the secondary market, on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability, once the EFSF is operational.” The SMP and EFSF mechanisms are designed to get the Euro through the crisis so that fiscal reform can take place in a more orderly fashion.
EUR/USD
An opening gap higher on Monday morning took the pair above its current downward sloping channel that contained the EUR/USD since late July. Selling into EUR/USD gains may be the right play as the pair has been unable to hold a bid above the 1.45 level. Initial resistance comes in at 1.4540 though a break above the June high of 1.4700 would likely reverse the negative technical tone. To the downside support comes in initially at last Friday’s low of 1.4050 followed by the 200-day moving average at 1.3940 and the rising trend line from June 2010 which comes in at 1.3840.
GBP/USD
Cable looks to be supported after moving lower and receiving a bounce at 1.6220. This level holds the 55-day moving average and a 38% retracement from the mid- July low to the late July high. Resistance is found at 1.6475 followed by 1.6550. A break here and sterling could test the April high of 1.6750. 1.6220 is initial support followed by the 200-day moving average at 1.6085, 1.6000, and the July low of 1.5780.
USD/JPY
The spike higher in the value of the USD/JPY due to Japanese government intervention was short lived as the 80 yen level was eagerly sold into. The pair has retraced 68% of its move from the August low to the post intervention high and may continue to move lower. A previously broken trend line from the late July move lower may be supportive but most likely only a short term pit stop on the way back to the all-time low at 76.25. Resistance is found at 79.50 and the post intervention high of 80.22. An additional round of FX intervention could take the pair to the long term trend line off of the 2007 high which comes in at 82.00.
USD/CHF
Even measures undertaken by the Swiss National Bank to weaken the Swiss franc have failed to give the USD/CHF a bid. On Monday morning the pair gapped lower to a new all-time low. Momentum is steadily falling and traders may want to continue to hold their shorts. Initial resistance stands at 0.7800 followed by 0.8080 and the downward sloping trend line from the February low at 0.8270.
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The American jobs market, as revealed by reports today and over the past few weeks, appears to be in a period of stellar growth. Despite the pessimism running rampant throughout global markets, and despite the severe downturn in US stocks this week, jobs appear to be returning in larger numbers.
The results from today’s Non-Farm Payrolls (NFP) data highlighted a significant uptick in US job growth. Expectations were for the creation of approximately 89,000 new jobs. The report stated, in fact, that around 117,000 new jobs were formed over the past month instead. On top of the NFP report, Wednesday’s ADP data on the private sector also showed similar growth, and Thursday’s unemployment claims grew less than forecast.
The unemployment rate also declined from 9.2% to 9.1% alongside a 0.4% bump in average hourly earnings, month-on-month. Though many investors appear to be anticipating a return to recession, the summer employment reports don’t seem to confirm this view. One of these outlooks is lagging behind the other; which one it is will be the question everyone asks at the start of next week.
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A fear arising this week from the European Central Bank’s (ECB) rate statement, and concurrent speculation over an Italian default, has been that regional growth is becoming stagnant. Today’s industrial production figures out of Germany appear to confirm this view.
The agency Destatis released its report on German Industrial Production Friday at 11:00 GMT revealing a 1.1% contraction in the industrial sector of the German economy. Economists had forecast a meager 0.1% growth, anticipating a slow-down. But today’s contraction signals a far worse scenario than some had anticipated. The value of the regional currency, the EUR, appears hit by the news as it enters a price slump ahead of the week’s closing.
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Data on the housing markets in Great Britain and Canada today continued to provide ample evidence of a rebound in the fragile global housing market. The Halifax Bank of Scotland published its house price index (HPI) this morning, revealing a 0.3% growth in home values and beating out expectations for only a 0.1% climb. Canada also witnessed a hike in demand for new construction, as signaled by its Building Permits release.
Statistics Canada published at 13:30 GMT today a building permits report which contradicted market forecasts with surprise growth. Analysts were anticipating a decline in demand for new buildings by approximately 4.8%. The actual results showed a jump in demand by 2.1% instead. Both figures taken together, and in conjunction with similar reports from both countries and the United States over the past few weeks, underline the growing strength of the housing market while all other markets appear to be in decline.
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We follow a statistically proven edge. It really does not matter how many trades you lose. What matters is how many winning trades you let run. Any system that relies on higher %age win will eventually fail. That is because the probability of any Technical Study, Setup in the “long run” is only 50%. When we trade any setup we have 50% chance of Success. So how do we make money?
We make money by minimizing our negative trades and milking the winning trades. But unfortunately the human nature of “Survival Mechanism” back fires in trading environment. It is responsible for keeping us safe and alive on this planet or the universe but sadly in trading it does the opposite.
Thoughts/Feelings of Hope Mechanism:
When we trade a setup and market moves the opposite way, our mind starts using a Feeling that is very useful and vital to our “Psychological and Emotional Health”. The “Hoping Mechanism” activates thoughts of Staying Positive, Expect the Best, Its all going to be fine, Its going to turn around,”. These thoughts and feelings are not required at this stage.
The Fear Mechanism:
This is mechanism is in our left brain. We undergo this phase just before getting in to a trade. It activates when we sense there is an opportunity. The mind interprets this as a danger. It does so by retrieving information from its database matching it with similar “past occurrences”.
It activates thoughts of, “What if it’s a loser?, I don’t want to have another loser, I’ve had too many losers, Is it going to work? The system is not working and don’t know what to do? The last time I traded around 3pm it went the other way? I don’t know what’s going to happen?
The left brain is the conscious part of our brain. Unfortunately it hates “unpredictability”. It cannot deal with situations where the outcome is uncertain or low probability. Since 50% is not a high probability occurrence we feel this uneasy, unpleasant situation.
When in Profit it activates, ” Protect your gains before they vanish” , “What if it turns around and you end up losing and give back all this profit”, “best to take the most out of it” ” have enough profit now lets bail”.
This list is just the beginning. it comes in many forms and manifestations.
If we let the human survival mechanism take charge and let it run on Auto we are going to end up where the rest of the 95% traders end up. This is counter productive in trading.
What do we do? How do we get rid or at least press the “Pause” button for our Survival Mechanism while we trade.
We certainly cannot afford to get rid of this system entirely. Because our ordinary life depends on this but not so much in this modern world. This discussion is beyond the scope of this post.
The answer is to do exactly the opposite.
When in a trade that goes the other way, we exit quick and when in a trade that makes profit let it run.
How to achieve this:
We would use our minds internal mechanism by learning to activate responses manually. Don’t let your mind;/brain run on Auto. Take charge. This is what Stephen R Covey calls Habit 1″Be Proactive.”.
Choose your response. He also puts it nicely like this,
“Between Stimulus and Response is your Freedom to Choose” Stephen R Covey.
How do we do that?
When in a trade and price does not breakout properly and is approaching your exit point, reject the hoping and pampering thoughts. You cannot reject a feeling without replacing it with another. Remember you must have at least one feeling/thought at a given moment. So we accept Fear. Use fear to your advantage. Get scared and exit according to your exit signal. The predefined exit point you chose before entry or if it has changed during the progression of the trade then follow that exit spot.
Brave people do not have fear? Absolutely wrong. They know how to deal with Fear. Its like saying that a black smith is not scared of Fire. Or a soldier is not scared of death or a bullet. Oh yes he is. He is, more than we are. Because he knows a lot more about it than us. But he knows how to deal with it.
So learn to deal with your fear. and then use it to your advantage. So DO NOT BE BRAVE when price says EXIT HERE with LOSS. Be Brave to Accept Fear and get out.
On the contrary when price goes your way Reject the Fear and in place of Fear Activate/Accept the Hope Mechanism. Let it run and hope for the best. and when the system generates an exit signal that means Exit with Profit then Exit immediately.
Here is another treat for you.
As soon as you are about to exit with profit the left brain does its final “what it thinks is a favour to you” Trick. It does that by presenting to you the “Hope Mechanism” one more time. It says stay in a bit longer its going fine. Remember last time, you exited to soon. What if it continues. Reject that and accept the system generated exit signal. By not following this profit taking exit signal your actions are motivated with “Greed”.
It is evident that we cannot get rid of feelings of “Fear, Greed, Fearlessness or Bravado, and Hope”. These are parts of our structure. These things are a Fact and they will not cease to exist as long as the human mind exist. Our job is to learn to use them appropriately, not to get rid of them.
The best way to achieve the following is to exercise the power of “Staying in the Now”. More on this later.
Trade what you See not what you Think.
Want What the Market Wants
Imran Yousafzai
Learn More Visit www.iTradeAIMS.com
By CountingPips.com
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators cut their long positions of the euro against the US dollar last week to the lowest level since January while bets on the Japanese yen continued to rise. Non-commercial futures positions, those taken by hedge funds and large speculators, added to their positions in favor of the Japanese yen, Swiss franc, British pound sterling, Canadian dollar and the New Zealand dollar directly against the US dollar while decreasing their bets for the euro, Australian dollar and the Mexican peso, according to data on August 2nd.
This week’s notable changes were Japanese yen positions rising for a fifth straight week to the highest level in over a year while New Zealand dollar positions also continued to rise and increased to their highest level in over a year.
EuroFX: Currency speculators decreased their net long positions for the euro against the U.S. dollar to the lowest level since January. Euro positions fell as of August 2nd to a total of 1,753 net long contracts from the previous week’s total of 17,038 contracts on July 26th. Euro positions are at their lowest point since January 11th when net contracts were on the short side at -45,182.
The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.
GBP: British pound sterling positions increased higher for a fourth consecutive week after touching the lowest level in over a year on July 5th at -31,660. British pound contracts rose to a net long total of 5,139 contracts on August 2nd following a net long position of 1,222 contracts reported on July 26th.
JPY: The Japanese yen net contracts advanced for the fifth straight week as yen positions rose to the highest position in over a year. Yen net long positions increased to a total of 58,833 net long contracts reported on August 2nd following a total of 51,302 net long contracts reported on July 26th.
CHF: Swiss franc long positions rose to the highest level since June as speculators increased bets on Swiss currency futures. Franc positions advanced to a total of 12,341 net long contracts as of August 2nd following a net total of 7,877 long contracts on July 26th.
CAD: The Canadian dollar positions rose higher for a fifth consecutive week to a total of 41,037 contracts as of August 2nd. CAD net contracts had advanced to a total of 36,141 net long contracts on July 26th as Canadian dollar positions continue to rebound after decreasing over to a net short total position on June 11th and are now at the highest level since May 3rd.
AUD: The Australian dollar long positions declined after increasing for four straight weeks. AUD futures positions fell to a total net amount of 75,598 long contracts as of August 2nd following a total of 81,438 net long contracts reported as of July 26th.
NZD: New Zealand dollar futures positions continued to rise higher for a fifth consecutive week and leveled at their highest level in over a year. NZD contracts increased to a total of 24,126 net long positions as of August 2nd from a total of 23,291 long contracts on July 26th.
MXN: Mexican peso long contracts dipped lower as of August 2nd. Peso positions declined to a total of 88,484 net long speculative positions as of August 2nd following a total of 91,913 contracts that were reported as of July 26th.
COT Data Summary as of August 2, 2011
Large Speculators Net Positions vs. the US Dollar
EUR +1763
GBP +5139
JPY +58833
CHF +12341
CAD +41037
AUD +75598
NZD +24126
MXN +88484
The coming trading sessions could easily see a continuation of the previous weeks volatility. The primary news on traders minds is S&P’s cutting the long-term credit rating of the United States from AAA to AA-plus. Market speculators are well advised to keep an ear to the ground regarding risk trends as the S&P update came out late in the week after the market close.
EURUSD descending channel chart.
Who knows how the markets will deal with this this kind of scenario?
China – which holds massive quantities of the U.S. debt – had the official Xinhua news agency as vocal critics of the U.S. and asking whether the greenback should continue be the worlds reserve currency. This is dollar negative news and the market should react accordingly. Nothing is guaranteed though.
The Aussie Prime Minister urged the markets to be calm over the cut, saying that only one of the three ratings agencies had made the cut. Moody’s and Fitch have so far left the US AAA rating be.
PA heading into the coming week can potentially be utilised to trade the S&R zones after the market has picked the direction. On this note we we will look at EURUSD pair.
EURUSD is consolidating in the descending channel shown on the 4 hour candle chart. The currency pair is near to reaching the high of this trend channel and a break higher could foreseably have a build of momentum threatening 1.4500 figure.
See further Forex news
By Robert Folsom, EWI
Hello,
This brief message is all about you. To start with, however, I have to say something “about me.” I’ve been with Elliott Wave International since 1992: That’s a good long time, long enough to have seen lots of days when our staff did all it could to deliver forecasts that prepared subscribers for what’s next.
Yet today stands above virtually all those others. I can scarcely recall a day when we’ve been able to offer 1) So much, 2) So immediately, that is 3) So urgent.
Here is where it’s all about you. Earlier this year, The Elliott Wave Financial Forecast (EWFF) specifically forecast the juncture we’ve arrived at now — it said most people believe the markets and economy are recovered and growing. But there were TWO parts to that forecast; the time has come for the second part to unfold. You’re a few keystrokes away from what EWFF is saying now for free (new issue posts tomorrow, Aug. 5).
What’s more, you’re a few keystrokes from reading Robert Prechter’s current commentary in The Elliott Wave Theorist, again, for free. He provides you with a context to understand the events of the past week and month, which you simply cannot find elsewhere (you won’t need to wonder why the blue chips are now down on the year for 2011 — you’ll know why).
Finally there’s the forecast in The Short Term Update: Earlier this week we alerted subscribers to action in the S&P 500 and Dow Industrials which broke below critical price levels. Perhaps you’ve heard some of the chatter on news and financial websites in the past 48 hours about a “head and shoulders” pattern. Yet Short Term Update subscribers got THAT news two weeks ago, back on July 20 — along with a specific price level that would confirm the forecast.
This is a wealth of forecasting; you can have it immediately; and the moment is indeed urgent. I’ve never seen a day quite like it.
My colleagues here at EWI have put together a two-week free trial to all three of the services I mention above. Together, they we call them the Financial Forecast Service and they deliver the most comprehensive coverage of the US markets available anywhere. Now, if you are already familiar with EWI, you know that we NEVER offer free trials to these services. But you must act now as this offer ends Wednesday, August 10.
Find out what’s next for the US markets.
Thanks for reading,
Robert Folsom
Elliott Wave International
About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private around the world.
