The buyers are still in charge regarding SPX and as I write this, the sellers are in charge of the USD. So the all important USD and equity relationship is still in play. It has been coming and going, but when it is in play, it makes for a very nice trading oppportunity. Again, sometimes the relationship isn't in play and it takes a trader who is paying attention to market fundamentals and technicals to understand this, create a trading plan with correct risk to reward and be prepared to manage the trade and even take a loss if the trade doesn't work out.
My point here is there are no guarantees, but trading "edges" is what we are looking for and patience, discipline and trading plans allow us to enter the markets with confidence regardless of the outcome.
I don't think that there is a holy grail to do this for you. I think that having a knowledge of the inner workings of the markets and these all important "inter-market relationships" can make you a more successful trader and a more knowledgeable trader.
Fundamenally, as long as international events stay quiet, we should have markets testing upside resistance. Regarding data, we have our first look at manufacturing data (Philly Fed) and the usual slate of claims. We also have inflation data (if you have been living under a rock, the Fed has told us there is no inlfation and that even if there was, we created it and don't care about it). In addition, we have earnings data, so be on the lookout if you own stocks/use options to trade and protect your stock investments.
Technically, let's look at the SPX and some nearby trendlines:
Past performance is not indicative of future results
Next up, we have my most recent favorite equity market hedge, USO. Can you spot resistance?
Past performance is not indicative of future results
And as a result, you have the "inter-market relationship". If you can spot resistance in USO, you can spot support in the USD/CAD. If you think USO is overvalued, what does that mean for the CAD? It probably is too rich and the USD finds support:
Past performance is not indicative of future results
And now to the EUR/USD. Everyone loves to hate the EUR these days. Last week I mentioned that if the equity markets hang in, will EUR find some support. Well, check out the EUR/USD at the "line of death":
Past performance is not indicative of future results
And looking closer at it, look at the little double bottom it is making and it has been good for a small upmove if you have very specific entries using Fibonacci's, "inter-market relationships" and general market knowledge.
Past performance is not indicative of future results
This trade is a very good indicator of how a short term trader and a long term trader can use the same entry.
Let me explain:
1. if the short term trader thinks 76.4 will hold, they use that as support, put there stop below it and put their target 50-100 pips above (they are going against the downtrend, so they are happy with a very small gain (not that 50-100 pips is a small gain))
2. the long term trader may feel that the 76.4 is a longer term support. They risk the same amount of pips or just a bit more than the short term trader and put there target 100-300 pips higher.
Again, these are all "theories" and regardless of the trade duration, each trader needs to have the plan set in place before the entry and then set there stop price for a loss BEFORE (or at the same time) that the entry trade is made to buy the EUR/USD.
Folks, remember, the trend is your friend and the trend is down. If you take a trade like this, you are going against the trend, so first off, have reasonable expectations and secondly, be prepared for the trend to continue and exit at a reasonable, pre-set loss!
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Happy Trading and Be Environmentally Cool
Coach Brian
Forex is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
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