US Equities Get Smashed To Start Year – FX Analysis 1/5/15
Early in the session US Equity futures started to get smashed as Chinese equities tank to start the year. As if a miracle, Chinese equities rally to regain their losses. Late last year they were arresting “malicious short sellers”, I guess they will have to arrest “malicious sellers” in 2016:) As we have seen, when US Equities get smashed US Dollar strength comes into play. As a result you cannot stay isolated when risk aversion hits the broad market. Additionally for those of you trading the Yen. Historically the Yen tends to strengthen when US Stocks fall from broad risk aversion which is what we had today.
EUR/USD Stop Run Of Upper Range
The EUR/USD Provided a beautiful stop run of our second upper manipulation point from yesterday. The false push going into the start of the London session was a classic false move which is what gives us our window of opportunity. After creating a stop run of the second upper level it then satisfied the rules of the confirmation entry that we lay out in the online forex course.
I will continue to treat both of these pairs with an open directorial bias as I do not have a clear starting point for the possible downward cycle. Obviously the market is favoring a continued push to the downside but the rules of our forex trading strategy regarding market cycle have not been satisfied which means continuing to choose manipulation points on both sides of the price. The only negative with the Euro right now is the lack of levels to trade from according to the rules we use for selection of manipulation points. Although we may have a closer level forming as I talked about in the daily market preview video, at this point the only upper manipulation point I would consider a short from is at the previous stop run level from yesterday as illustrated in the chart. The current Asia highs could develop into a usable upper manipulation point but I need to see a further push down before it satisfies the rules of a newly created level. If we are going to see a short term market trend reversal to the upside then yesterday’s lows make a great lower manipulation point from which I would consider a stop run long.
Pound Breaks Fresh Lows
As I mentioned in yesterday’s FX market analysis, “often times these straight short moves often retrace to their starting point” which is exactly what happened. After antagonizing and shaking out all the weak shorts on the retrace the market then created a stop run from our upper manipulation point before making the move down. So often traders will fail not because they didn’t get the direction right, but because they didn’t get the timing right. How often has the market moved just enough for you to get you to doubt yourself or stop you out, only to then move in the direction you expected. While we will never avoid all losses, trading from only high probability manipulation points gives us far better odds and a very clear stopping point for when we are wrong.
Like I mentioned with the Euro, we may have a current cycle but the start of it would have been during the holiday market and therefore I will continue to trade with the open directional bias. At this point we have a great lower level because there is nothing else to choose from. That is the key decision point because it is the only lower level and therefore very likely to hold a mass of liquidity. Like the Euro, our first upper point is a long ways off and therefore we have a lower probability of getting a setup as the market may simply fall from here if further continuation is the direction. Keep in mind I would consider a backside continuation trade off the lower levels on both pairs if they were to break and then retest them from underneath.
Forex News For January 5th 2016
UK Construction PMI 4:30 AM Eastern: Big market mover on the spike with very inconsistent follow through after that. Overall this indicator is trending to the downside so this month will be interesting to see if we get another big miss. This month 56 is the expected number.
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