Day Traders Prepare for a Busy Climax to the Week

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Today’s Global Overview (what you don’t need to know)

 – EU Summit agreement on Greece could still provoke a selective default

– Risk aversion sentiment picks up momentum as the session wore on in Europe

– Major European PMI readings disappoint

– China HSBC Manufacturing PMI falls below the 50 level for the first time in a year

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Talking Heads Overnight: (what they think they know)

– Germany Chancellor Merkel and French President Sarkozy are said to have decided against a bank tax in a second Greek bailout. Decision followed the Franco-German discussions held on Wed, July 20th

 – EU’s Juncker commented that it was useful that Germany and France had reached a common understanding on Greece. He also noted that it was unlikely the summit would agree on banking tax. He reiterated the view that Euro was not in danger and observed that the markets expected a comprehensive agreement at today’s EU Summit. He did not expect a eurobond agreement today and the summit was doing everything possible to avoid selective default but could not rule out such an event.

 – EU draft statement notes that public sector support for Greece extended for at least 15 years and be collateralized. Eurozone working group is trying to find a way to avoid selective default and avoiding selective default in Greek bond swap would be difficult. The draft EU statement outlined options for private sector involvement and that the EFSF lending rate for Greece to be lowered to 3.5% and encompasses expanded role for ESFS to include offering precautionary lines of credit.

 – German Chancellor Merkel: commented at her arrival at the EU Summit that she informed ECB chief Trichet about details of new Greek plan with Sarkozy

– German govt and banking report that the ECB would accept selective Greek default

 – Netherlands Fin Min de Jager commented Merkel-Sarkozy discussions focused on how to avoid contamination if there was private sector involvement for Greece. More flexible EFSF could help contain risks if private sector contributed. He also conceded that Germany and France agreed that selective default on Greek debt was a possibility allowing for private sector involvement

 – IEA Chief Tanaka commented that additional release of oil stockpile by the IEA was unlikely but will release statement shortly addressing whether or not to release additional oil from stockpile. No additional members proposed additional stockpile release but the agency was flexible and prepared to release from stockpile if required. Tanaka reiterated that Saudi Arabia expected to increase output to 10Mbpd in July

 – Norway Central Bank released its Q2 lending survey which noted that both Household and corporate credit demand increased slightly in the quarter. Banks expected unchanged household credit demands and rather higher corporate credit demand. Lending margins on household and corporate loans declined further in Q2

 – Netherlands Fin Min: Merkel-Sarkozy discussions focused on how to avoid contamination if there is private sector involvement for Greece

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Currencies:

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 – The European session began with positive feelings regarding the EU Summit with earlier reports that Germany and France had agreed a joint position on a debt bailout for Greece.  However, comments from EU Juncker tempered expectations of a happy ending after he conceded that selective default for Greece was a possibility. Thus risk aversion flows picked up pace from the mid-morning period. The EUR/USD had tested stops above 1.4280 level and traded as high as 1.4295 before plunging over 100 pips to test below 1.4170 attributed to the Juncker comments. The EUR/CHF cross was over 100 pips from the Asian open and traded at 1.1630 by mid- European morning. And this was complemented by a reversal in the peripheral spreads which widened compared to earlier levels.

 – Better UK retail sales data initially helped the GBP/USD inch towards 1.62 area before succumbing to concerns over the EU Summit outcome on Greece and approached 1.6130.

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In The Papers:

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– The ratings agency Fitch noted that upgrades to the sovereign rating of Turkey were unlikely due to their current account. Back on Jun 13th Fitch stated that Turkey’s economy was showing hints of overheating, constitutional reform might generate political uncertainty. The country’s ratings may also be weighed down by the history of political instability, including some extreme events as recently as 2007 and 2008.

 – According to press releases, EU officials discussed the topic of lowering Greek interest rates as part of the ‘Sarkozy-Merkel deal’. The new bailout package for Greece will be similar in size to the first rescue package (implies around €110 billion). The report adds that the agreement could include a way to lower Greece’s debt and cut interest rates for the country.

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Use this to make our cash today… (what day traders need to know today)

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We have a busy day ahead of us today in the markets we trade, and we always watch the news for opportunities to learn more about market personality.

 We begin with 830am Jobless Claims which have been on our radar for the past few weeks even more than usual mostly because all eyes on the jobs in the US to spur the recovery.  Look at the chart below and you can see how we have a strong trend down in jobless claims over 6 months, however, I can assume Washington was a little worried when the trend almost was broken a month ago when we tested the trend line.  Bailout monies and debt ceilings are on our minds, and the JOBS in this country are the way we view the improvement.  Today we will see if this news is bullish again for the dollar.

We finish up the day with a minor news report on Natural Gas (it only moves the Nat Gas Markets) before we head into the 1100am est hour and we lose volume ahead of the summer lunch session in the US.  Under normal conditions we would expect the Golden Lunch today, but keep an eye on volume for that after 1130am European close.

Today will likely be the climax of volume for the week, so we will be watching closely to the news coming out today as traders prepare for a summertime weekend away from the markets.

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Looking at Charts today… (in this great future, you can’t forget your past)

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The US Dollar Index is trending down, making new lower lows along the way.  We use two charts today, the slower 89range and the faster 13range.  The 89Range shows me the big picture, and we can see the 89BMT has been broken and the lows of the range at 74.590 are clearly going to be tested, and possibly the lows of this bear price channel.  The 13range chart confirms this assumption when we see the short term trend is down with this strong bear trend channel.  The big question…will the US Dollar hold support at 74.590 and go back up to the BMT or will we see new lows and then try and test the lows of the channel at 74.00 area.  Remember to use the US dollar Index correlation today when trading other markets.

Crude Oil Futures are confirming sideways ranges on all timeframes today, giving us easy clues for trading opportunities.  First the 89range chart shows me the big picture and we can easily see crude oil with swing highs above and swing lows below, creating major resistance overhead and support below it.  The first thing that comes to mind when I see this is….SELL those highs and BUY those lows! 

As price rises I’m selling first at resistance (98.83, 99.00, 99.35, 99.50, 100.75) and I will buy pullbacks with new higher highs if these resistance levels cannot hold.  Bullish trend channel(s) tell me the long side is the higher % side for the long term.  On the short side, if price falls today im avoiding the 98.15 sloppy area around the trend line, and buying support levels (97.20, 96.63, 95.00, 94.85, 93.85) on the way down.  The bullish price channel tells me that buying at support as price falls is another high percentage way to trade this price structure.

Look closer at the 34range chart and you can see a very interesting situation.  We can see a sideways range formed, inside day, price wedge, and a big price magnet at 100.00.  First, the inside day is important, so sell these highs and buy the lows trading inside the range first.  If we break new highs then we are ‘outside’ so you’re looking for a fake-out breakout first above 99.37 but if it goes higher we then buy pullbacks because of the ‘outside day’ that forms, and we have the price magnet of 100.00.  Don’t discount the sloppiness of that yellow trend line around 98.15-98.30 because that is why this price is trading sideways right now, so be careful in the middle of that range from PHOD down to PLOD, trade the highs, lows, but not the middle.  If price fails at the highs we know the price wedge in green trend lines are in play, so sell the highs of the wedge 99.37 and buy the wedge lows 96.00

 Gold Futures in a classic case of…’Which way do we go Boss?’  We all know what’s going on right now.  Fear has caused people to take shelter in Gold, driving prices to new highs, but now at these highs some investors are taking profits wisely, and some traders still see potential for upside moves higher later this summer (even though gold seasonally drops this time of year).

We call this a transitional area because traders, investors, money managers are all waiting for the next news release, the next poor sentiment indicator, or the next hidden glimmer of hope, and then they will react by either pushing new highs again or pulling price down into the range we were trading in before (below 1578.1).

The most effective way to trade this type of market is simple, treat it like an inside day.  Buy the lows at support as price drops to 81.0, 78.1, 76.2, and sell the highs at resistance levels of 05.1, 10.8 being very careful at those all-time highs.  Avoid the middle of the range around 1600.00 and also beware the fake-out breakout.  Im always looking for the price reversal trades at the highs and lows of ranges like these.  I can also buy pullbacks if we make strong new highs, and sell retracements if we make strong new lows.  I want to look for the FAILURE first.