What can i say about Trichet other than it is breath of fresh air to have at least one central banker in the world who is both not afraid to speak his mind and does it very clearly too boot!  Trichet has told us exactly what he intends to do in the near future which is NOTHING!  So he is telling us that he is done moving rates in any direction in the near term.  What a wise man!  This will effectively put a bottom in on the EURO for the near term.  In my recent posts I mentioned that we are looking for the Dollar to begin weakening again and this is the Fundamental catalyst that will facilitate this next wave down in the Dollar.  This will not be a one way street of course, it never is, but overall we expect that the Euro will hold above the 1.25 level.  We continue to buy major dips in most of the majors against the Dollar.  Even though the US has rates at zero we can still go lower!  How you ask?  The same way we got here in the first place…simply by printing more money!  While rate will not actually go below zero the effective rate can and as it does we will see the Euro continue to appreciate against the Dollar.   

So this week we have the FOMC meeting which should set the tone for the rest of the year.  Everyone expects them to cut rates down to .50%.  This is really not the main story.  The main story will be what new “tricks” they try and create now that they have run out of their traditional “ammo”.  This foolishness should continue until at least the inauguration.  Once Obama takes over and begins opening up all the “books” the game is likely to shift dramatically again.  This week we are expecting a counter intuitive rally in the Dollar after the FOMC cuts rates.  This flies in the face of Econ. 101 but has been the case in all other major rate cuts.  Look at how far the Euro has rallied since the ECB cut for example.  We are expecting something similar to come out of the FOMC meeting though we expect it to be short lived and basically a sucker rally in the Dollar.  Look to continue to sell Dollars on rallies as we have consistently said in this post these last few weeks.   

Right now this pair is just below 1.5900 and it is Friday afternoon.  If it closes below the blue trend line then I am shorting this pair down to the green trend line. 

Can I get in earlier?  Sure.  Why not?  Just go down to a lower time frame and draw another line.

If the pair closes below the red trend line…that is an earlier entry.  The trade might trigger because if the pair goes sideways because the red trend line is so steep.

Stop loss is above the highs at 1.5956.  Profit target is at the green trend line which is currently at 1.5727.

I think that if it goes that far it can go even lower….we will see.

-Dave

The EUR/CHF breakout that we were planning for, has happened.  The first profit target, and most reliable profit target, is the first red Winnipeg line above the channel.  It should get there sometime today, unless this trade is so ridiculous that it never can even get to its first profit target.

Be on the lookout for a close above the top of the channel.  It’s hanging around a lot up there, like it intends to make a move. 

I was unhappy with our old channel, so I’ve redrawn it and show some smelly perfume to go along with the channel, for good luck.

I’d like to see, in this descending channel, a close below the red trendline in the channel.  The profit target would be the middle fibble.

Yesterday we looked at the 4 hour chart and it created a buy trade on a break above the top of the channel.  Then the pair dropped and closed back inside the channel.  This means the trade stopped out.

The EURCHF created a descending channel.  Our preference was for sell trades, as you already know.  You also already probably know that we never sell on a break outside the bottom of the channel — that is bad news and we don’t do it.  By the time it breaks below the bottom of a descending channel (or above the top of an ascending channel), the pair is tired and exhausted and the break is likely to be totally fake.

That’s why I shaded the bottom break in pinkish red.  That is a no-no trade.

On the other hand, we are willing to buy the pair if it can close above the top of the channel.  That is what it did at far right.  Once it closed above the top of the channel, we could buy.  We could also wait for the pair to fall back, and hit the top of the channel all over again before buying.

Our buy trade on the EUR/GBP triggered and it made us happy. 

It’s just brilliant to notice that the stopping point for the move upward was the top of the channel.  It has a memory!

The EUR/USD nearly got to the bottom of the channel, and then reversed.  It had gone about 30 pips before the reversal.  Then it rose up 25 pips or so, and closed above the top of the channel.  This stops out our first sell trade with a loss of 16, and opened a buy trade and the Winnipeg lines on the outside of the channel worked nicely for the profit target.