Short term update of the current price action in the Euro currency.

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The Euro is currently at a critical juncture. In today’s market update we will look at the long term outlook for the Eur/Usd pair.

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The Euro finally broke out of its triangular formation this week setting up for a test of the 14719 level. The question is, will this level be broken convincingly, or will the euro top out here marking the comeback of the dollar. To give further insight as to where we go from here let us examine some higher level charts.

The Euro finally broke out of its triangular formation this week setting up for a test of the 14719 level. The question is, will this level be broken convincingly, or will the euro top out here marking the comeback of the dollar. To give further insight as to where we go from here let us examine some higher level charts.

The Euro finally broke out of its triangular formation this week setting up for a test of the 14719 level. The question is, will this level be broken convincingly, or will the euro top out here marking the comeback of the dollar. To give further insight as to where we go from here let us examine some higher level charts.

The weekly chart shows that we had encountered past resistance at the 14719 level last December. This level is acting like a magnet attracting price action and it seems we will ultimately get a test. Chartist will recognize this pattern that is forming as a potential W bottom. A weekly close above the 14719 level could set us up for a probe in the 15100 area. This is the bullish scenario that some analysts are anticipating.
The bearish case sees the market reject 14719 level and we could see a longer term top that could mark a significant turning point for the dollar and the fate of the euro. For evidence of such a turn I would like to see a test of 14719 and a clear bearish rejection candle on a Weekly timeframe. Curiously, looking at the Commitment of Traders data, the commercial traders are long US dollars and short gold. Another thing to keep in mind is that we are in the timeframe that last year we saw a significant rise in the value of the US dollar.
As always we will let the charts be our guide. Check the newsletter for specific trade recommendations.

Let us depart a little from the traditional currency pairs and look at the gold market. We can trade gold via the FX market by trading the Xau/Usd which tracks the cash price of the metal in terms of US dollars. There has been much talk about gold in recent weeks and analysts are calling for a huge move northward in gold. Let’s take an in-depth look at the market.

The above chart is a weekly chart of the Xau/Usd showing the last five years of price action. As you can see we have a very large triangular formation that if we get a decisive break could mean a very significant price move. We did have a weekly close above the triangle but found resistance at the projected monthly pivot point number. After hitting the monthly number the market is finding support at the broken trendline as can be seen on the daily chart below.

The question is this the break that the gold bugs have been speaking about? Or will prices collapse down into the $750 area. Seasonally gold tends to advance throughout September into early October and then backs off in October and November. So the seasonal story is indicating that prices could remain strong.
An analysis of the Commitment of Traders data shows the commercial traders net short a whopping 270797 contracts. The commercials have been known to be early on a move so you can keep that in mind. Another thing to watch out for which gives me pause is that the US dollar cash index is coming up on huge support in the 7620 area. We could potentially see a huge advance out of this area which may not bode well for gold.
The point I am getting at is that the market signals are conflicting at the moment and caution is advised if you are holding onto long positions. My system, however, is still signaling a buy and we will continue to buy dips until we get our exit signals. Currently we are holding longs but a close below 970 on a daily basis would prompt me to exit all my longs. A weekly close beyond $1032 would be hugely bullish and we could see gold rally into the $1250 area.

The two great enemies that traders will have to constantly battle throughout their trading careers are fear and greed. Your ultimate success depends on how well you can overcome these two major obstacles.

Fear

Fear is a natural emotion we have that often times protect us from danger but can also impede our success.

The two great enemies that traders will have to constantly battle throughout their trading careers are fear and greed. Your ultimate success depends on how well you can overcome these two major obstacles.

Fear

Fear is a natural emotion we have that often times protect us from danger but can also impede our success. We all fear something, for example I have a fear of snakes and until recently would not go anywhere near them. Two common fears that many traders have is of the unknown and the fear of loss. These two fears go hand in hand and can play a major role in the failure of traders. A question I often get from my newsletter subscribers is how I know that a trade is going to work? My answer is I don’t. It is impossible for me or anyone to predict with 100% the outcome of all trades.

If I knew with 100% certainty the outcome of all trade signals I generate then I would be the richest man alive in short order. There would not be any need for money management rules. I would have a worry free trading career.

Things that can add to your fear are:

1. A recent string of losses
2. Risking too much in the market
3. Financial Stress
4. Family Stress

Before entering the market a self assessment has to be made to determine whether or not you are indeed mentally fit to trade. If you find yourself making a trading plan then when it is time to execute you cannot pull the trigger you are not yet fit to trade.

In order to overcome your fear of losing in the markets you have to do these 2 things immediately

1. Accept that losses will occur- you cannot be right on every trade
2. Reduce your trading contract size to an amount you can be comfortable losing. This may mean that you may even have to trade a micro account losing $1 per trade.

Re-focus your attention on trading your plan as opposed to whether you win or lose on a trade. You will find that if you can stick to a well designed plan you the odds are in your favour to begin making some serious money in the markets.

Greed

Greed creeps in when a trader becomes overconfident in his abilities. After a string of winning trades a trader may start to increase the risk they are putting per trade and overleveraging the account on a single idea. While fear will result in losses, greed often results in traders blowing their entire accounts. I have come across many professional traders with excellent trading systems that totally disregard money management principles that brought them to the top, became overconfident and lost millions.

Traders need to identify when greed is creeping into their thinking and resist it at all costs. The way how to combat greed is to stick to sound money management principles. It is even more important to stick to these principles after you have had success in the markets because more money is at risk. You may have started your trading career with $20,000 but if you now have $90,000 more money is now at stake.

The struggle against fear and greed will be a constant one; your ability to control them will ultimately determine if you will have a mediocre trading career or a superior one.