Thursday, December 17, 2009

"Technical Analysis: Euro Faces More Weakness"

EUR/USD is at 1.4348.
Back in May '09 we posted "Paul Tudor Jones Interview at Institutional Investor". In a part of the interview that I excerpted Mr. Jones said:
...What’s so special about macro hedge fund managers?
I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

Is it possible to teach someone to be a tape reader — what some might call a trend follower or technical analyst?

Certain people have a greater proclivity for it because they don’t have the need to feel intellectually superior to the crowd....
I commented on Mr. Jones' global macro approach:
...The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.

It really helps to not take yourself too seriously, both to avoid the temptation to impose your will upon the market and to maintain enough perspective to spot opportunities ahead of the crowd.
Because global macro isn't easy the rewards can be tremendous.
Here's today's headline story from MarketBeat, more comments below:

The EUR/USD has fallen out of bed these past 2 weeks, and evidence is suggesting there is scope for further weakness into fresh 14-week lows towards 1.4275.

Having met the 1.4436 minimum downside target Thursday, to confirm the Nov. 25 high at 1.5145 as a significant medium-term/long-term peak, the outlook now is just as bleak as another wave of bear pressure is expected to limit corrective gains beneath the 1.4500 level. See the daily EUR/USD chart for details.

A break below 1.4355 would mean fresh 14-week lows for the pair, and create room for further weakness towards a support cluster in the 1.4275 area. A near-term projection at 1.4309 combines with a key long-term daily moving average and a 1.618 Fibonacci downside extension target, in an attempt to attract support and put an end to the severe impulsive 2-3 week decline.

Failure to keep bears at bay here would be beyond standard deviation measures, and therefore less sustainable weakness towards the September low at 1.4177 and the 38.2% retracement level at 1.4118....MORE

On the day of that Nov. 25 high your humble correspondent wrote, in "Dollar Sliding Into New Trading Range":

From MarketBeat:

The euro hit a fresh high for 2009 at $1.5144 as selloff in the greenback took another big jump in New York afternoon trading....
Making this pronouncement from a week ago look a bit silly:
I don't have anything concrete I can point to but 1.50 EUR/USD almost feels as if someone has drawn a line in the sand. As more and more money piles into the trade without movement past that line you start to lose the mo-mo traders and the psychology can shift fast.

If the buck were to turn and head back to say, 1.20, the results for equities and gold would be painful.
I'm just sayin'...
It's either one of those "I may be in error but never in doubt" statements a rookie would never refer back to or it's a Maxwell Smart moment: "Missed it by thissss much".
[or it's like spring '08 when you said $1.53 and we went to $1.59 in July -ed]
I'm leaning toward Humble Student of the Markets' interpretation:
As good market analysts know, when the public gets on board a story, chances are everyone is already in the trade and the trend is likely to reverse soon. So it is with interest that I got the following viral email entitled "What good is a Dollar?"...
That's global macro. Get the relationships right and you're halfway home.
Fooling yourself is the biggest danger, telling jokes helps keep you honest.
Nov. 18
Everybody's Dissing the Dollar
Nov. 19
Goldman On The Dollar Carry Trade: "A 20% Reversal In Either 3 Months Or 3 Days"
Dec. 9
Euro Faces ‘Bearish Setup’ Against Dollar: Technical Analysis