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Risk Off amid Disappointing US GDP, Eurozone Downgrades

Financial markets retreated in Asia Monday as driven by disappointing US GDP and Fitch’s downgrades of credit ratings of several Eurozone countries including Italy and Spain. The situation in Greece remained uncertain. The EU/IMF/ECB troika was unsatisfied with Greece’s progress in budget reduction and warned that further funding might be withheld should the country fail to improve efficiency. A FT report stated that Germany required Greece to give up control over its fiscal decision. Instead, a budget commissioner would be appointed to take care of the issue. The idea was criticized by the Greek government.

After delivering pleasant surprising for several weeks, the US economic data showed fatigue last Friday. GDP grew +2.8% in 4Q10. While accelerating from +1.8% in the prior quarter, it missed consensus of +3.0%. Look at the breakdown, growth was driven by rapid inventory accumulation while final sales only gained +0.8% during the quarter, compared with +3.2% in 3Q11. Moreover, government spending reduced GDP growth by almost -1% percentage point during the quarter. The impact of lowering government expense would be more significant this year as the government is required to work hard of fiscal consolidation.

In the Eurozone, Fitch lowered the sovereign credit ratings of Italy, Spain, Belgium, Slovenia and Cyprus. Italy’s credit rating was reduced by 2 notches to A- from A+ while that of Spain was lowered to A from AA-. Ireland’s rating of BBB-plus was affirmed. According to the rating agency, the “rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB’s three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures’.

There were news headlines stating that an agreement between Greece and its private sector bondholders (PSI) was close to resolution. It’s reported that bondholders agreed to a deal that includes a coupon considerably lower than 4%. It’s expected that an agreement will be finalized by this week. Meanwhile, the ECB reiterated that it won’t be participating in Greek bond haircuts as “PSI stands for private sector involvement, ECB is not private’. On the other hand, the Financial Times reported that Germany suggested that a budget commissioner should be appointed to manage key budget decisions in Greece. The appointee will be responsible for “all major blocks of expenditure’ and would have the power to “veto decisions not in line with the budgetary targets set by the Troika’. The reported indicated that the proposal might be set as a condition for a further 130B bailout for Greece.

Commitments of Traders:

With the exception of heating oil, speculators were bullish towards the energy complex in the week ended January 24. Net length for crude oil futures increased +6 619 contracts to 177 845. Net length for heating oil slipped -928 contracts to 18 874 while that for gasoline rose +5 873 contracts to 77 683. Net short for natural gas futures dipped 13 577 contracts to 141 196.

Speculators were bullish on precious metals. Net length for gold futures added +6 194 contracts to 142 223 while that for silver soared +2 724 contracts to 16 117. For PGMs, net length for platinumgained +1 023 contracts to 22 084 while that for palladium gained +2 482 contracts to 7 671.

 

EURUSD: Confirmed Gartley Bullish Reversal

Price has properly left PRZ and left the gartley bullish reversal pattern valid. Do you have this indicator yet? Download it here.

Immediate profit targets would be the “B” point in the XABCD chart pattern, and this is marked out by the horizontal line at 1.3159, which is a touch below a 50% retracement from the top of the pattern.

The next profit target for a sell at the 1.3210-1.3240 area would be the 78.6% retracement, at 1.31237.

Next, we are looking for price to dive below the entire butterfly diagram altogether. (That would being much relief for Tom’s EA traders hanging on to EURUSD trades).

 

Help for Tom’s EA Basket Trades + Technical Review Chart

Financial markets retreated in Asia Monday as driven by disappointing US GDP and Fitch’s downgrades of credit ratings of several Eurozone countries including Italy and Spain. The situation in Greece remained uncertain. The EU/IMF/ECB troika was unsatisfied with Greece’s progress in budget reduction and warned that further funding might be withheld should the country fail to improve efficiency. A FT report stated that Germany required Greece to give up control over its fiscal decision. Instead, a budget commissioner would be appointed to take care of the issue. The idea was criticized by the Greek government.
After delivering pleasant surprising for several weeks, the US economic data showed fatigue last Friday. GDP grew +2.8% in 4Q10. While accelerating from +1.8% in the prior quarter, it missed consensus of +3.0%. Look at the breakdown, growth was driven by rapid inventory accumulation while final sales only gained +0.8% during the quarter, compared with +3.2% in 3Q11. Moreover, government spending reduced GDP growth by almost -1% percentage point during the quarter. The impact of lowering government expense would be more significant this year as the government is required to work hard of fiscal consolidation.

In the Eurozone, Fitch lowered the sovereign credit ratings of Italy, Spain, Belgium, Slovenia and Cyprus. Italy’s credit rating was reduced by 2 notches to A- from A+ while that of Spain was lowered to A from AA-. Ireland’s rating of BBB-plus was affirmed. According to the rating agency, the “rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB’s three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures’.

There were news headlines stating that an agreement between Greece and its private sector bondholders (PSI) was close to resolution. It’s reported that bondholders agreed to a deal that includes a coupon considerably lower than 4%. It’s expected that an agreement will be finalized by this week. Meanwhile, the ECB reiterated that it won’t be participating in Greek bond haircuts as “PSI stands for private sector involvement, ECB is not private’. On the other hand, the Financial Times reported that Germany suggested that a budget commissioner should be appointed to manage key budget decisions in Greece. The appointee will be responsible for “all major blocks of expenditure’ and would have the power to “veto decisions not in line with the budgetary targets set by the Troika’. The reported indicated that the proposal might be set as a condition for a further 130B bailout for Greece.

Commitments of Traders:
With the exception of heating oil, speculators were bullish towards the energy complex in the week ended January 24. Net length for crude oil futures increased +6 619 contracts to 177 845. Net length for heating oil slipped -928 contracts to 18 874 while that for gasoline rose +5 873 contracts to 77 683. Net short for natural gas futures dipped 13 577 contracts to 141 196.
Speculators were bullish on precious metals. Net length for gold futures added +6 194 contracts to 142 223 while that for silver soared +2 724 contracts to 16 117. For PGMs, net length for platinumgained +1 023 contracts to 22 084 while that for palladium gained +2 482 contracts to 7 671.

EURUSD: Confirmed Gartley Bullish Reversal
Price has properly left PRZ and left the gartley bullish reversal pattern valid. Do you have this indicator yet? Download it here.
Immediate profit targets would be the “B” point in the XABCD chart pattern, and this is marked out by the horizontal line at 1.3159, which is a touch below a 50% retracement from the top of the pattern.
The next profit target for a sell at the 1.3210-1.3240 area would be the 78.6% retracement, at 1.31237.
Next, we are looking for price to dive below the entire butterfly diagram altogether. (That would being much relief for Tom’s EA traders hanging on to EURUSD trades).

Help for Tom’s EA Basket Trades + Technical Review Chart As several on my forex newsletter list are using Tom’s EA, I felt it’s necessary to write this post especially for the benefit of those who started trading using a minimum balance. The guideline for Risk Level 1 is US$1000-4499. Those who are running EURUSD RL1 on accounts $2000 or more are in no immediate risk, but those running on less will be in heavy DD. Please update to v1.89 if you have not. 1.89 contains an equity protection feature which will liquidate all trades when account floating loss has hit a predefined number. The recommended setting by Dustin’s team is 40%. If you are currently in heavy drawdown, here was a post that  wrote on a forum: “Personally, what I did with the bigger negative lots is i  removed the EA from the charts, and added a 15 pip Trailing Stop on the 0.12, 0.15 and 0.21 lots. This way, I was able to lock in profits on the last two before they swung up again. However, you’re right. If i did not remove from the chart, Tom’s
EA will just cancel your manual stop losses. Alternatively, press the “EA” button in MT4. that should stop
things as well. Regarding the present situation, 1.32 is a strong resistance, and 78.6% retracement from Friday’s high to yesterday’s low. If it remains below here, and see 2 or more H1 bearish bars to confirm a H&S pattern, we shall be momentarily safe-ER. I’m running Tom’s EA on 3 accounts of different sizes and brokers- all at RL1. I think the typical TPs for most people at this point would be 1.2967, 1.2999 or 1.3033. If Head and Shoulders pattern is invalidated, we ARE in trouble. If it remains valid, which i greatly hope, we should see price busting down 1.3050 and heading toward 1.29.”

In addition:

• Yesterday’s low of 1.3074 was the result of reduced confidence in the Greece, affecting the Euro.
• Today’s rebound is due to Greek Govt pledging to cooperate and improve debt management.

We are supported by an implied USD rally from recent lows andweakening in the recent Gold rally. At present moment in writing, EURUSD seems to be troubled in taking price past 1.32. Let’s all hope the H&S pattern completes. Technical Review:
This is the H1 chart. Price stands at 78.6% retracement from Fridays high of 1.3246 to yesterday’s low of 1.3074. 2 bars ago there was a reverse pin formation. On M30, you would have also seen a reverse hammer formation. These point at further move down.
If price moves above 78.6, our next safety net is 86.6%. Failing which, things can get messy, as up-move may continue.

However, let’s look at the downward possibility.
• Stochastics has been in the oversold region for some time.
• Price action actually closed above upper Bollinger Band and has been hugging to it and seems to be running out of steam
• EMAs in the Damiani Volatmeter are in the wrong order (faster line is above slower line), though both are headed down, showing downward bias.
• However, the red underline spells a “Do Not Trade” as present market shows no clear trend yet.

 

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