Profit Mongers @ 1:42 AM, Monday October 18 2010
Hey folks,
As I've been discussing recently, the EUR/USD is setting up for a very major top. It was in a topping process a few weeks earlier, but reports of potential QE from the US overextended this rally much further. The Euro and the USD are so stretched out now, that US bond yields and the USD have already more than priced in the actual effect of the QE... probably by a factor of 2. This overreaction ahead of the actual action will set us up for a nice long term short on EUR/USD. It is prototypical buy the rumor sell the news type behavior.
Sometime in the next week or two, we will likely top out and reverse lower, likely once concrete details of the plan are announced. If the plan is very ambitious, it will likely lead to one last blowoff EUR/USD rally before a reversal. If the QE plans are somewhat tentative or measured, the market could violently reverse lower for 100's or even 1000+ pip rather quickly.
As far as more specifically timing the top, it's likely going to be difficult to pinpoint early. Because of that, I would only start building a short position at this point if you can trade long term with very little leverage and leg in on rallies with no SL or a very wide SL. Hopefully though our anticipation of the change in sentiment will help us act decisively on it in the somewhat early stages. Other than that, the current market condition should lead to very nice momentum trades in both directions day in and day out in the 15 minute chart world. If you don't really know how to trade momentum, I plan to lead a momentum trading webinar next week in the Profit Mongers trading room I work with just as an FYI.
On Friday, we saw a large basket of US data at the same time come out mixed but all pretty close to expected. This created a bit of a whipsaw initially, but led to a strong USD rally afterwards. It appears there are some early signs here that the market is caught very short USD, and while there are still some huge players continuing to load up short USD, with the market so overbought we should see a bit more two way action this week than in the past few weeks. There's no news releases set for Monday, but there are a few reports due out Tuesday, and every other day this week, so stay tuned.
That's all for today's update. If you'd like to learn more about trading or trade along with myself and my collegues, come join us at Profit Mongers. Our subscription is very reasonable at $179 per month, and right now you can sign up for a 2 week trial to get started for only $29. This offer is for new customers only. Feel free to email me with any questions at sirpipsalot@profitmongers.com
To our success!
Sir Pipsalot
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