“There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills.”
Henry Hazlitt.

Economics in One Lesson

Last week, we were fortunate enough to have called the euro top within only a few pips. I recommended selling a short term counter trend move which could have paid off as much as 130 pips. I also recommended buying dips in the euro off of fib retracements for a continued move higher. Not a bad play!

This week, I want to take a bit of a fundamental approach to looking at the euro. On a short term basis, currency markets often focus on one or two things at a time. So, let’s talk about what’s in the news. We have all the standard first week of the month stuff coming out. As it always does, this will drive short term volatility. But absent any shocking revelations about the unemployment rate, or an unexpected change in some other red tagged event, or the FED promising QE whatever-we’re-up-to-now, the bigger news items will likely drive the currency markets.

These bigger news items are: the fiscal cliff negotiations in the U.S.; whatever unrest is currently hitting the headlines in the Middle East; and… are we still talking about Greece? I’ve stopped paying attention.
We ask ourselves which of these will likely drive the currency markets. My money is on the fiscal cliff negotiations. So far, uncertainty in this arena hasn’t played well for the dollar. Considering the dollar is generally a “risk off” currency, this does not bode well for long term dollar strength. I’ll talk about this a little more next week.

For now, let’s look at the trading opportunities:

The euro/dollar is in a short term daily uptrend. Unless we get some fundamental news to change this, we should probably go along. On the upside, I would look for resistance at prior daily resistance, near current levels around 1.303, then up towards 1.309, 1.312 and 1.316 if we get there. Now, I don’t plan on buying the tops especially on a Monday, so look for support on Fibonacci retracements of the most recent h4 swing move higher from 1.288 to wherever we decide to take a breather. In case you haven’t noticed a pattern yet, selling the dominant day trend to catch pips in late Monday morning consolidation is a favorite and often profitable play of mine.

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More trading ideas here.