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Newsletter 04

th
July 2014

Somewhat of a shortened week this week with the USA celebrating the 4
th
July this meant
that not only were the majority of the markets a lot quieter on Friday, but it also meant that
Thursday the 3
rd
July was more exciting than normal.
Any news which was released earlier in the week paled in comparison to the economic
releases which took place on the last trading day this week:
US Non-Farm Employment Change came in at +288,000 new jobs when only +214,000
were expected.
The US Trade Balance came in at -$44.4B, against a prediction of -$45.1B.
The Unemployment Rate unexpectedly dropped from 6.3% to 6.1%.
It was only the Unemployment Claims number which failed to exceed expectations. These
rose to 315,000, when 314,000 was forecast.
All the above news created a huge amount of tradable opportunities for traders who were
light on their fingers, and perhaps we can now look back to see if there were any clues
provided earlier in the week anything which would have swayed a traders opinion on the
potential price action within USD related markets.
Firstly we can see that the US Pending Home Sales (which came out on Tuesday) really
surprised the market. There was a gain of 6.1% when an improvement of a mere 1.4%
was predicted. This possibly provided an initial clue that the US economy was in sturdy
shape.
Secondly, we had the ADP Non-Farm Employment Change on Wednesday, which again took
the market by surprise. This resulted in an addition of 281,000 to the workforce again a
significant improvement on the 207,000 number from the economic analysts.
Hindsight is 20/20 vision and we can now see that there were two clear signals which
would have swayed traders into more optimistically bullish trades on Thursday. All that was
needed was a gentle push in the required direction and profits would almost be guaranteed.
So to our Trade of the Week. In a week where the US Team put up an heroic performance
against Belgium in the World Cup, and which also co-incidentally happened to celebrate the
US Independence Day, it is only fitting that the Dow Jones is the market which scores the
goal and finds itself at the top of the table.
A week which saw it tack on a tasty 200 points, while also closing at its all time record
highs, cannot be ignored. Even a small trade on this market would have yielded a great
return.



EURUSD


The EURUSD is still wandering not far from its major breakdown area.
As highlighted last week, this market appears to be working on a minor bearish flag pattern
at present. It has just this week broken down once more from this minor uptrend (red
channel) and is possibly trying to resolve itself with traders looking towards the $1.35 area
as a potential target.
With the obvious correlation between the EURUSD and the US equity markets and precious
metal markets, if this market exhibits the weakness which traders seem to be expecting, it
should also provide clues to the potential direction of both the Dow Jones and Gold which
we will discuss next.








Gold



Next we turn to the yellow metal. Again, we have seen a week where Gold traded in a tight
range between $1,310 and $1,330.
Traders seem to have accepted this inverse Head & Shoulder pattern which continues to
play out. We say this because of the fact that sellers seem to be exhausted as the price
moves to the lower end of the range and buyers appear to be exhausted at the upper end
of the range.
It goes without saying that this cannot continue forever. Sooner or later, this market will
either drop towards the $1,280 level and perhaps attempt to resolve this pattern there
after or it will simply break the overhead resistance level and start seeking our the next
level of resistance to the upside the previous high close to $1,400 being a logical target for
traders.






Dow Jones



Finally as always we look to the Dow Jones.
Great excitement as the 17,000 level was breached for the first time to be completely
honest, if you had read our Newsletter for the past few weeks, you would have seen that
this was almost expected if the market continued to obey the rising wedge which we have
been watching.
The market simply had to get above this level if it was to test the upper resistance line. The
big question will be what now?
Traders might legitimately be thinking that the price will once more turn around and start
retracing back towards the lower supportive line, but with the market exhibiting such
unbridled optimism at present, there might be a real fear that the resistance line will be
broken and who knows where the market will head to next? Are we to see 17,500 or
18,000?
As always, only time will tell!




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