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EUR/USD and the Double Crossover Method Trending System
Non-Farm Payrolls to Highlight Today’s Trading
EUR/CAD Consolidating towards 1.3700
EUR and GBP Boosted due to Higher Risk Appetite
ADP Foreshadows Sharper NFP Drop; USD Under Pressure
Gold Testing All-Time High, Again
Will Crude Oil Reach A 2-Month Low?
GBP/USD – Moving Average MACD Combo Trade

EUR/USD and the Double Crossover Method Trending System

Posted: 03 Sep 2010 12:12 AM PDT

The Euro is coming back versus the dollar with the EUR/USD ending a period of range trading. Bearish bets on the euro have eased, and this is apparent in the latest technical buy signal, the golden cross.

One of the easiest and most common trending systems to use is the Double Crossover Method. This simple system uses two moving averages. The most-used combinations are the 5 and 20 days, along with the 10 and 50 days. Some traders also prefer to use a different moving average. Some prefer the exponential moving average or the weighted moving average.

For the EUR/USD daily chart below, we will be using the 5 and 20 day simple moving averages.

A buy signal is given when the faster, 5 day moving average (green) line crosses above the slower, 20 day moving average line (red).

A sell signal is given when the faster, 5 day moving average line (green) crosses above the slower, 20 day moving average line (red).

Since the last signal (sell) in mid-August, the system underperformed with a loss close to 100 pips. The system works the best when the markets are in a trending phase. For traders who use the double crossover system, the last two weeks have been a range trading environment which is not preferred. The previous buy signal that was triggered in early June was much more profitable, netting somewhere around 640 pips.

Certainly other parameters must factor into the equation before a trader takes a position in the market. As the markets may only be in a trending phase 50% of the time, with the other half of the time spent in a range trading period, traders need to identify where the long term trend is and if indeed the market is showing signs of a trending environment.

One tool for identifying the trend is the ADX indicator. This discussion won't dive into the specifics of the ADX indicator, but it is used to identify a trending environment versus a range trading environment.

Looking to the far right edge of the chart below, traders can see the 5 day moving average line should cross above the 20 day moving average line by the end of today's trading. Once a cross is made, this is a signal for those traders who use the double cross over method to close out short positions and go long on the EUR/USD.

EURUSD

Non-Farm Payrolls to Highlight Today’s Trading

Posted: 02 Sep 2010 11:20 PM PDT

Central banks and investors around the world are worried about the outlook for the U.S. economy. Whether these fears are accurate or misplaced will hinge on tomorrow’s non-farm payrolls report. The outcome of the NFP release is important because it will not only affect the market’s appetite for U.S. dollars but also the Federal Reserve’s decision about monetary stimulus. If non-farm payrolls beat expectations, it would reduce the need for more monetary stimulus but if the labor market report disappoints, it could force the Federal Reserve into action.

Today's leading news events:

12:30 GMT: USD – Non-Farm Employment Change

We expect U.S. August Non-Farm payrolls to show a decline from 131k to 101k in August due in large part to dismissals among temporary Census workers. A drop in jobs in the private sector can sure happen now, after all of August's figures have been terrible. The unemployment rate is expected to edge up to 9.6% from 9.5%.

As usual, USD/JPY will have the cleanest reaction to the non-farm payrolls report while high beta currency pairs such as the EUR/USD, GBP/USD and AUD/USD will respond to risk appetite. Be forewarned however as Non-farm payrolls are a notoriously volatile piece of data to trade as revisions and expectations can also impact the market’s reaction.

14:00 GMT: USD – ISM Non-Manufacturing PMI

Complementing the manufacturing sector, the services sector has also performed well last month (54.3 points) and will probably dip this time to 53.6 points. If this figure shrinks once more today we could see some selling pressure on the greenback, with EUR/USD reaching as high as $1.2930

EUR/CAD Consolidating towards 1.3700

Posted: 01 Sep 2010 10:31 PM PDT

The euro has been regaining its composure against its smaller North American counterpart due to recently boosted risk appetite. The Canadian dollar, to the contrary, has been under pressure lately due to a decline in crude oil futures as well as concerns that growth in the Canadian economy may be stagnating. As a result, we can see the value of the EUR gaining against the loonie in a consolidating wedge formation.

- We can see on the daily chart below that the price has indeed been trading within a wedge formation which began in June. The price is currently finding support near 1.3400.

- The upper barrier of this consolidation point also rests at the 38.2% Fibonacci retracement line. The consolidation price target appears to be 1.3700 and there is nothing in our technical indicators which suggests this consolidation will not be met.

- We can also see an ascending pattern on both the Stochastic (slow) and MACD/OsMA, which support the continued upward movement in the direction of this consolidation level.

EUR/CAD – Daily Chart
EURCAD - Daily Chart

EUR and GBP Boosted due to Higher Risk Appetite

Posted: 01 Sep 2010 09:52 PM PDT

Upbeat US data gave riskier currencies a rare boost yesterday, as investor confidence in the global economic recovery went up. A batch of new data today will largely determine whether the currencies like the euro and UK pound will be able to extend their gains.

Here is a roundup of the day's main news events:

11:45 GMT: EUR Minimum Bid Rate

The Minimum Bid Rate is the euro zone's short term interest rate for refinancing operations. Interest rates are considered one of the more crucial indicators in any economy, and as such, continuously lead to market volatility. While a change from the existing 1.00% rate is not predicted, traders will want to also pay attention to any surprises from the ECB press conference, scheduled for 45 minutes after the rate is announced.

Should the ECB voice any optimism regarding the pace of the euro zone economic recovery, riskier currencies like the euro and sterling will likely extend their bullish trends throughout the day. At the same time, if the ECB voices pessimism regarding Europe's pace of recovery, safe haven currencies like the USD could make a comeback.

12:30 GMT: USD Unemployment Claims

The US weekly Unemployment Claims figure measures the number of people who filed for first-time unemployment insurance over the last 7 days. With the employment situation at the forefront of the US economic recovery, this figure has consistently led to market volatility.

Last week's unemployment figure came in slightly below expectations, resulting in a boost for riskier currencies. This week, analysts are predicting a slight increase in unemployment. If true, traders can expect the safe haven currencies to stage a slight comeback in afternoon trading. At the same time, this figure is notoriously difficult to predict. Anything below the forecasted number may lead to risk taking, and a boost for the euro.

ADP Foreshadows Sharper NFP Drop; USD Under Pressure

Posted: 01 Sep 2010 05:53 AM PDT

The US Non-Farm Employment Change report, or Non-Farm Payrolls (NFP) for short, is a strong indicator of market activity in one of the world’s largest economies. As such, this report carries a significant impact on the value of the US dollar (USD) through various channels, both direct and indirect.

These channels have very broad implications for analysts. For instance, if the number of employed people in the US is increasing, we can deduce that more jobs are being created and the US economy is on its way to recovery. A negative reading may be reflected with a sharp flight away from the greenback. A positive figure, however, could help the USD halt its latest decline against the other major currencies.

The US experienced a rapid rise in employment from January through June with the 10-year census hiring by the US federal government. However, those recently employed by the Census Bureau have now been counted, and we’ve seen US employment figures decrease just as rapidly over the past two months since those numbers are no longer included in the data.

With Wednesday's ADP report verifying the recent pause in employment growth across the US, a number of analysts are now expecting Friday's release to be a bit more ominous than previously thought. With private sector employment showing a cut of 10,000 jobs, the addition of the federal government's cuts from the Census Bureau should show nation-wide employment in a much worse position than ADP's private sector figures. We have seen the downward pressure building on the US dollar this entire week as a result.

At the moment, the NFP appears to be showing an expected 101,000 jobs lost in August. However, if today’s ADP figures are any sign of what to expect, a reading much lower than -101K may be developing. I wouldn’t be surprised to see the NFP forecast revised before Friday’s release to reflect this expectation. Tied in with this expectation is a pricing in of a weaker USD. We’ve seen the greenback dropping steadily against most of its currency rivals this week, likely due to a rise in risk appetite following positive news from China and Australia, but also from an expected slow-down in American economic recovery.

Gold Testing All-Time High, Again

Posted: 01 Sep 2010 03:41 AM PDT

Spot gold prices have surged and are closing in on their all-time high. Negative risk sentiment surrounding the recovery of the global economy and renewed inflation fears have caused traders to once again begin to bid the price of gold higher.

The price of spot gold yesterday up at $1,246.75, after opening the day at $1,236.75.

Spot gold prices have climbed off of their lows of $1,156. The rebound in the price comes as fears of a double dip recession and slowing global economic growth are weighing on the market, influencing traders to buy gold as a safe haven asset.

Negative fundamentals from the US housing sector may be influencing traders. A lack of confidence and spending has ensued since the US government ended the subsidies it enacted to support the lagging housing sector.

Yesterday's release of the Federal Reserve Open Market Committee (FOMC) meeting minutes provided an insight into the Fed's thought. The Fed voted 9-1 to keep the Fed's balance sheet at its current level by purchasing treasuries as the MBS that the Fed hold on its books expire. Dissent was voiced during the 2 days meeting as many FOMC members felt deflation was not an issue. However, they did express their views that higher inflation could return if the Fed did not drain the excess liquidity from the money supply.

Other factors that may be moving the price of spot gold higher are heavier trade volumes as traders return to their trading desks from the summer holidays. Also wedding season in India during the fall months typically spurs an uptick in the demand for gold.

Turning to the weekly chart, a rising trend line begins at the end of September of 2009 with the price making 3 points of contact with the trend line. This indicates this is a significant trend line. Momentum points to a price move higher as the Momentum (7) is sloping higher.

The all-time high of $1,265 looks to be in range with support appearing at $1,224, (S1) followed by $1,156 (S2).

Gold Weekly

Will Crude Oil Reach A 2-Month Low?

Posted: 01 Sep 2010 02:49 AM PDT

The sharpest trend that was observed during yesterday's trading is bearish crude oil. Crude oil has erased almost all of this week's gains, and has bottomed at $71.52 a barrel. Crude oil is dropping due to concerns that the U.S. economy, the world's largest oil consumer, is not recovering as fast as it should. Several leading economic publications from the U.S. have recently failed to reach expectations, and it is now commonly agreed that the recovery pace is slower than estimates.

However, this trend might reverse today, as a heavy news day, especially from the U.S. economy is expected.

Here are today's leading news events:

• 08:30 GMT, British Manufacturing Purchasing Managers' Price Index (PMI – It is a survey of about 600 purchasing managers who are asked to rate their current business conditions. If the end result will beat expectations for 57.1, the GBP might be supported.

• 12:15 GMT, U.S. ADP Non-Farm Employment Change – It is an estimation of the Non-Farm Payrolls release which is expected by Friday. The ADP forecast is considered to be very reliable, and thus tends to have a large impact on the market. If the end result will be positive, the dollar might be boosted as a result.

• 14:00 GMT, U.S. ISM Manufacturing Purchasing Managers' Index (PMI) – This indicator is similar to the British one. Analysts have forecasted that the result will be 53.2. A higher result might support the dollar.

GBP/USD – Moving Average MACD Combo Trade

Posted: 31 Aug 2010 12:39 PM PDT

The Cable continues to move lower and is setting up an opportunity to short the pair and enter into a trend at the beginning of the move.

Since the August high the price of the GBP/USD has fallen. The long term trend line has been broken and the trend has shifted to the downside. Now the GBP/USD is ripe for an entry short.

The trade setup uses the 50 and 100 day exponential moving averages (EMA) along with the MACD. The trade can also use a simple moving average, but the goal is to enter into a trend at the early stages in order to capture the most from the directional move. The exponential moving average adds more weight to the most recent close. This should help to get into the trade quicker.

Once the price falls below the farthest moving average by more than 10 pips, an entry short should be made. Currently the 100 day EMA is trading at 1.5335. Today the low for the GBP/USD was 1.5326, 1 pip shy of triggering our trade. It is apparent that the 100-day EMA is acting as a significant support level.

A filter for the trade is the MACD histogram. The MACD histogram is currently trading at -34. If the histogram had not moved into the negative territory, the trade would be rejected.

A stop can be placed at the 5-day high of 1.5600 to limit losses if the price goes against the trade.

Profits should be taken at 2x risk, or roughly the early June high at 1.4770.

GBPUSD Daily