ATTENTION: This text is a word-for-word transcription of Mac’s daily forex trading video. That means the writing will reflect the way he speaks, if anything seems out of place, please refer to the forex video on the page.
All right, everyone. We’re looking at, actually, the euro right here. The reason I wanted to show you this was, really, to provide a little bit of insight into what’s going on with the dollar.
For those of you that don’t know, the US dollar is almost a mirror image of the euro, and it has been for quite some time. In fact, we’ve been looking at the US dollar, and it made a double top. You can see that the euro made a double bottom. And so we’ve got this flag, or pennant pattern, which has formed here on this tail end, with the euro. You can also see that we’re getting a similar thing here, although, again, it’s inverted with the US dollar.
And so, what I’m looking at here is that we’re getting confirmation, if you will, that the dollar is still tracking with the euro. Now, why would any of this be important? Well, if there were major problems with European countries — and by the way, what I’m talking about here are some of the rumors about how the euro is failing, and there are all these problems and difficulties with the European market. If that were the case, then, just like the Japanese yen, and just like the British pound, you would see the euro starting to trade differently than it has traded in the past.
And so, right now, you can see the euro is continuing to be a mirror image of the US dollar, and so the likelihood that there is some major thing brewing in the background is pretty remote at this point. And the reason why is these multi‑trillion‑dollar European companies are not going to sit around with assets in euros if there are problems with the euro. You know what I mean? If anyone is going to know, those guys are going to know. I’m not seeing anything really extreme with the euro, in particular.
Now, the British pound, on the other hand, this is a different story. Hopefully, you can see now the British pound. The look of the British pound is completely different from the euro. We’ve had a massive, deep correction with the British pound, unlike the euro. The euro’s correction was deep, but nothing to the extent of the British pound. And while we did have a double bottom here, there wasn’t as much buying as came into the euro. The euro came down, over the period of several months, into a very solid area.
Anyway, the pictures looked completely different. So, what I would suggest you do is take a look at the euro, take a look at the pound, and see the difference between a strong currency and a weak currency.
Now, this is nothing against all of my friends across the pond. The bottom line is there are issues going on in the UK economy that are very similar to what’s going on in the US economy. In fact, one of the members of Parliament recently was chastising Gordon Brown. He said, “Prime Minister, you have succeeded in the greatest of European‑politician endeavors, and that is to campaign on one platform and then do something completely different once you’ve been elected.” [laughs]
That’s kind of the story of the day over here in the States. What we’ve added to it is politicians will dip their hand in the cookie jar, and then, after the cookie jar is exposed as being empty, we’ll go on a rampage looking for everyone that managed to empty the cookie jar.
So, we’re continuing to see issues and problems with the US financial system. This long‑term bottoming process, which looks to be still underway with the British pound, has me believing, at the very least, that there aren’t major, major problems or major differences between the dollar and the British pound. And so, what that means is I’m continuing to expect this pattern to eventually resolve to the upside, but also remembering that until we break out of this overall area here, the British pound is just going to be in counter‑trend mode.
And so, for example, as we look at the daily bars here — let me zoom in — as we approach each one of these highs, what we’ve got to do is remember that we’re likely going to run into a false breakout. In other words, the market will come up here, it’ll just barely get above that high, and then it’ll come back down, and it’ll just barely get above this high, and then it’ll come back down.
And so this pattern, you can see, is repeating over and over. And in fact, I would even say that the important factor here is that the distance the market is managing to pop over the prior highs is getting less and less as we move up. And so what that’s telling me is that sellers are continuing to come into the market, for whatever reason. The reason isn’t important. We just need to recognize that those sellers are in place.
And so, if we do manage to get a final breakout over this area, that’s probably what will take the British pound back up to these other areas here: 5400 to 5800. Big resistance area up there.
So, coming into tomorrow, we had a very volatile, down day today. What I was hoping to talk about over Twitter is, any time I see a big, high‑volatility, high‑volume day, whether it’s on the downside like this or on the upside like this or like this, what I look for the next day is a small range. I look for small ranges for the next three sessions. So, over here, where we’ve got one big bar, we had another big bar, again, after I get the first big bar, I look for narrow ranges for the next three days is my point.
And so it really wasn’t a surprise that today did not follow through. And the reason why is very simple. When you have a fast move like this, it takes time for people to get used to prices. And so you’ll find traders who got caught long up here, who have to get out, they’ll push the market down. You might have a few people from this area that were long that got stopped out. They had their stops just below these lows, and the market comes down and triggers them out, causing the market to bounce back up.
But, the net effect is, on a short‑term basis, you soaked up all of the buyers and all of the sellers, most importantly the sellers. And so, because we’ve taken out the sellers, there’s nobody left but the buyers. So the market’s natural reaction is to bounce to the upside.
So, let’s take a look at the hourly bars here. You can see that today, coming into the New York session is where we had the biggest boost. We had a nice double top that the market broke out of on its way up, coming down here on the bottom.
Let’s go over here to the 15‑minute bars. On the 15‑minute bars over here, as the market was making the bottom, you can see very a nice, three‑bar reversal. So, if you were looking at the New York market just prior to the open, there was a very good setup, giving you a push to the upside.
We’re starting to see the beginnings of a pennant pattern, possibly a flag pattern. It really hasn’t resolved yet. And so what we’re going to need to see is that coming into the Asian session, the market’s going to need to stay between 46.55 and about 46.90. So, not a very wide range, if this pennant is going to stick around.
On the other hand, I think we’ve got a better shot for 47.08, coming into the London session tomorrow, for a nice reversal point on the upside. Now, because that’s coming in right in the thick of all of this resistance, it doesn’t really make a good point for an autopilot trade, because there’s just not enough room. In order for that to happen, we’d have to catch the market coming just above this high over here, which is 47.72. So keep that in mind.
On the short side, again, nothing really forming up until we break back below these lows at 44.90. And so, if the market does break below this 46.55, again, not the best autopilot trade, but we should see this vacuum area take effect, and we should get fast trading, down to about 45.95. So, still, a 55, 60‑point range. And that put together with this small range up here means you can probably get away with a nice two‑to‑one possibility here, with about a 30‑pip stop and about a 60‑point gain as the potential.
So, again, it fits the two‑to‑one comparison or two‑to‑one ratio that we look for to gauge our opportunity.
