US Equity Futures Begin Selling Off – October 8th 2015 FX Market Commentary
After making a second attempt at the highs we are seeing equity futures once again get slammed to the downside. Right now we are smack in the middle of the previous decision point I have been talking about for the last month. This short term sell off really doesn’t mean much and we could be breaking fresh highs by the time the market opens tomorrow. The reason I bring this up is because of one additional factor that I have given very little attention too ever since this latest scare in the market. During the 2008 market crash the USD/JPY was a great leading indicator to the future drop that had yet to come in US equities. If you look back at 2007 and 2008 you will see that the USD/JPY led the drop by over a month. Why is that important for us today?
A few weeks back I talked about the short term ascending triangle chart pattern we were forming on the S&P. That pattern eventually broke to the downside as we expected and pointed out but failed to show strong continuation. Why? I went back and started looking at the USD/JPY and it hit me. While equities had broken lower, the USD/JPY had stayed within the much larger symmetrical triangle range that is still holding today.
The bottom line is the drop in equities was pre-mature and unless the USD/JPY is following it then further downside isn’t going to happen. I don’t know why I didn’t spot this sooner but it makes perfect sense as to why equities have made this deep retracement after looking like further downside was imminent. Here is the bottom line….I wouldn’t start being aggressively bearish in equities until the USD/JPY has CLEARLY closed below the current chart pattern. The safest option would be to wait for the break and the retest of the backside of the breakout point as illustrated in the chart.
EUR/USD Remains Range Bound
Nothing changes for me today with the EUR/USD. Overall the Euro had a very boring day. The only possible trade that I would have considered was the stop run that we created during the NY session on the European session lows. The reason I was not in this trade was the pullback candle missed the required entry point by 2 pips before continuing to the upside. Like I said in the video preview for members….in a range like this your lowest reward to risk ratio comes from trades near the middle. In my opinion reward to risk ratios are the most important factor for trading forex successfully and as such I would rather stick with the manipulation points near the current range extremes. Once again my directional bias remains open and I will take any valid setup from either of the listed manipulation points.
Pound Gives Expected Push Up
Yesterday we were looking for the continued push to the upside in the GBP/USD and that is exactly what we got. Unfortunately there was no pullback into the lower manipulation point to provide a stop run for entry. Additionally we did not have a clean breakout point from which to take a backside of the level trade and therefore I would not have caught the move up. We did however have one trade setup on the Pound which was a NY reversal trade setup. In this type of setup the key to the trade entry is the same as any other trade. First I need a valid manipulation point to trade from, and second I need a stop run of that level. NY reversal trades are counter cycle or counter short term trend and therefore they need one other criteria to be satisfied in order to be valid. In order to take this type of setup the ADR (Average Daily Range) must be hit. Once the ADR is hit this insures that we are increasing the odds of the short term market trend reversing.
After the trade was taken the market pretty much died out and our exit was at the 5 PM session change yielding between 5-10 pips depending on exact entry and spread. Normally I would look for the third and final push to the upside today in the GBP/USD. The reason I’m not is because the start of this market cycle was unclear and may in fact be finished as I discussed in the video preview. As a result I will keep directional bias open today and take any valid stop run from the listed manipulation points. The Pound also has reduced levels to trade from which is common when the previous day creates a straight move in one direction.
Forex News For October 8th 2015
MPC Official Bank Rate Vote 7:00 AM Eastern: This month 1-0-8 is the expected vote. Remember the first number is the number of those who voted for a rate hike. The second number is those who voted for a rate cut. Finally, the third is the number of those who voted to keep rates unchanged. A 0-0-9 vote would send the Pound down hard and a 2-0-7 vote would create a major rally in the Pound.
FOMC Meeting Minutes & BOE’s Carney Speaks 2:00 PM Eastern: Obviously two very big market movers. The Meeting Minutes out of the Fed will be very important as the future of rates in the US is the current hot topic.
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