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Some of the most important events this week have yet to arrive, namely the ECB rate decision on Thursday and non-farm payrolls on Friday. Although it has been working for me on the FTSE I caution against selling into hourly overbought studies in the Dax and S&P around these events.

For a start the ECB is widely expected to cut rates and the language is likely to be accommodative. It would not be a good idea to be short the Dax going into that. Secondly and within 24 hours we could easily get a non-farm payrolls print of around 250K beating expectations and trapping the shorts in a market climbing ever higher.

Personally I will also be looking closely at the Euro and expect a move towards 1.3470 in the coming sessions. Beware however that daily studies are not far off oversold and we are vulnerable to rallies which in any event I see as being well capped by 1.3715. Right now EURUSD feels like a crowded trade even if I am liable to join the crowd. I’ve gone ahead and sold it short along with every other guy from here to New York however I have put my stop at break even.

I think there is a fairly good chance that I get stopped out in the coming hours but let’s see how it goes. Look for a breach of 1.3585 as the low of May’s monthly outside and bearish candle. A lower low than May would put in place 1.40 as the latest lower top on a monthly time frame. If we break that level I will move my stop down a little in order to get something out of it should the situation reverse itself tomorrow. The next 48 hours could be volatile but as Warrant Buffett said “If markets were rational, I’d be waiting tables for a living”.

Guest post by Gary Corney of www.fxlight.co