Massive Stop Run In US Dollar Index – Market Forecast December 4th 2015
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US Dollar Index Tanks After Stop Run Of Yearly Highs
We have a massive daily chart stop run of the previous 2015 yearly highs. Yesterday setup today’s move beautifully in that it had already created the initial stop run. Today we again ran above the previous highs but followed that stop run with an ultra aggressive move down. This move was on the back of Euro strength as the European QE was not expanded as expected and rates were not cut other than the deposit rate which was already priced in. Its strange when no bad news is taken as extremely good news. That right there should tell you just how screwed up things truly are in the Euro zone lol. Although this is a large daily stop run on the dollar index, I don’t expect this to start a trending move to the downside. In fact, I think by the start of the new year new highs are possible. This is heavily dependent on what comes out of the Fed later this month. If they again stall a rate hike then dollar direction has less incentive to rally. If however they hike as many are now expecting, then we could be in for another strong US Dollar run. Either way December is going to close out the month with fireworks.
IMPORTANT: I will be on vacation next week and therefore I will not be doing a daily market commentary next week. For those of you who are members, no need to fear….I will still be doing a daily market preview so you will have the listed manipulation points and trade plan for the following day.
Euro Rallies On “Good News”????
The deposit rate was cut by 10 basis points while the main rates remained unchanged which was taken as extremely bullish as some talk of a rate cut had gotten out. Not long before the release though, there was a no rate cut confirmation on leaked news which created the start of the move. When no rate cut was confirmed the Euro rallied even further showing this move had some true teeth behind it. The move was fueled for a third time when the comments of QE being ‘continued’ were made rather than ‘expanded’. Overall the EUR/USD remained me a classic short squeeze like you often see when day trading stocks. Its not often that the most liquid currency pair in the world makes that type of move.
For today I will obviously keep bias open with today’s move. As I discussed earlier in the week when the GBP/USD moved down with a move that was just twice the current average daily range (ADR), moves that are 2 times the ADR do not fit our cycle criteria. As the move it outside the norm we keep directional bias open and simply take any valid stop run from a pre-selected manipulation point. With a move this size we are really left with very few levels I would even consider a trade from. On the EUR/USD, I only have one official level which is an upper manipulation point. Other than that it will have to be a newly created level during the day. If your a member be sure to watch tonight’s video preview as I talk about what we need to see to create a new level when the market is creating such a wide range.
GBP/USD Benefits From US Dollar Weakness
Overall the Pound just simply tagged along to the move that the Euro really fueled. As the Dollar began to tank the GBP/USD took off to the upside as is essentially in the same position as the comments I made on the Euro. For today I do not have a directional bias on the GBP/USD because of the size of the move. Also we have very limited levels from which I would even consider a trade setup from. When you get this type of move you are clearing out so many valid previous levels that it leaves you with limit points for the following day. That is a good thing when you have a new level form because there is nothing else in the area. Therefore the last high and the last low take on a great deal of importance than they otherwise would and thus become strong potential manipulation points.
At this time however, I do not have a valid upper or lower manipulation point from which I would consider a trade. I would consider the current Asian lows but I need to see at least a 50 pip bounce off the current lows to even consider it. I might also consider the late NY Session highs as my first upper point but I would need to see a push down to around the 1.5100 level before I would consider a stop run on a retest of the highs. At this point it is a waiting game to see what new levels form based on the rules of the forex bank trading strategy.
Forex News For December 4th 2015
US Non-Farm Payroll 8:30 AM Eastern: This month 200K is the expected number. As of recent history, any deviation of 60K +/- from the expected number is enough to get a move that holds. If however, you have a 40K deviation +/- from the expected number and then either Average Earnings or the Unemployment Rate conflicts in a strong way you are likely to see the initial move completely retraced and discarded.
At this point in the history of NFP I don’t think there is any way to capitalize on the initial move if you get a 60K deviation +/- from the expected number. The market will simply spike and that blows the reward to risk ratio out of the water. At that point, while a chasing trade would probably be profitable based on historic price action, you would be chasing a low reward to risk trade which is not how you become a successful forex trader.
The best trade as of late is when NFP gives about a 30-40K deviation +/- from the expected number and then both the Average Earning and the Unemployment Rate deviate in the opposite direction. As soon as the market stalls you have a very high probability and high reward to risk reversal day trade setup occurring.