The big event today of course is Non-Farm payrolls, this either has the ability to accelerate the speed of that train, or to slow it down slightly, but I doubt on its own its gonna stop it. Also I am keeping half an eye on the European Sovereign Debt issue, this is bubbling under again, particularly in relation to Ireland, much like it was in April this year. Already this morning the EUR is well off yesterday's highs, I can not rule out the possibility that the EURUSD slips back to last week's lows, or even lower. It may even be possible that the high for this move is in for now with regard to the EURUSD at least. The chart below shows the EURUSD with 2 day candles, note how the RSI and MACD are showing very strong Bearish Divergence, in a similar way to the early 2008 peak and late 2009 peaks. Finally I have re-posted the EURUSD chart I produced a couple of weeks ago (See lower chart), back then I hinted that price action suggested an extended consolidation is possible, this seems to fit in with a failure in the Euro in the low to mid-1.4000s and further consolidation in the the upper 1.3000s to low 1.4000s..
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Some more on trader psychology: I was recently writing an article for someone on the characteristics and traits of successful traders. One of the major traits all successful traders have is their ability to think independently and when necessary stand back from the crowd. - I used an example from my younger trading days working at an Investment Bank in the City to emphasise this.
It occurred at the start of the 1994 bond bear market. - Bonds had soared over the previous 12 months, I was part of a trading group of 12 traders. Early in that year all the talk had been about further Federal Reserve rate cuts. - Bolstered by a strong trend, and a favourable economic scenario, all the traders loaded up on the same position (long of bonds) to take advantage of the suspected rate cut. - I had a slightly different view, I was somewhat anxious about the state of the market; furthermore our ‘Technical Analyst’ was recommending a short position; her view was that the market was dangerously overbought and ripe for a (severe) correction,and possibly a full trend change. Most the traders were, like me, fairly young and relatively new to the game, most of them had jumped on this trade largely because the two most senior traders were on the trade. - Close to the end of pre-meeting day, I had actually wanted to go the other way, but found myself compromised, however I cut my long position and went flat.
As expected the Fed cut rates by 50 basis point that night, however after a momentary jump in bonds, the market turned around and started dropping and just continued to drop, by the end of the next day bond prices had made a serious and dramatic turn lower. Although the Fed had cut as expected, they also indicated that the economic cycle may be turning and that this could be the last rate cut. Some traders cut quickly, but most hung on in the hope that this would turn, eventually suffering heavy losses and being forced to cut.
This highlights the danger of a lack of independent thinking. Some of the younger traders learnt a harsh but valuable lesson from this, those that heeded this lesson went on to become highly successful traders.
For the record the Technical Analyst at the bank at the time was Carol Harmer. She was the best tech analyst I have had the pleasure to work with. She still provides daily technical analysis for intraday traders across a wide spectrum of markets from her base in Gibraltar. - Her link is Charmer Charts which can be seen by clicking here. - She offers potential new customers a free trial of her service, I would recommend giving her service a try.
On that note, I will bid you a good weekend. However before I go, 'Something for the Weekend' : In honour of US equity markets- Soul Asylum and 'Runaway Train'.
Have a great weekend.
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