September 1, 2011 Forex Signals Report

This week’s break in the Euro makes traders wonder whether this move represents the beginning of a long-term decline or another test of the mid-point of the two-month range.

The week started out bullish with an attempted break out to the upside. This rally was thwarted by reports the ECB was considering ending its tight money policy by either leaving interest rates unchanged or actually implementing a rate cut.

The pound remained on the back foot for much of yesterday. After recovering back to 1.6330 in the morning GBP/USD fell back to a low of 1.6230 due to month end USD demand. It opens close to these levels this morning at 1.6235. US ADP employment data, a forerunner to non-farm payrolls on Friday was released yesterday. It showed that non-farm private business employment rose 91,000 from July to August on a seasonally adjusted basis, slightly below expectations for 109,000. It turned out that it had little impact on the direction of GBP/USD, but UK house price data released overnight did. According to Nationwide prices declined by 0.6% in August vs. expectations for a rise of 0.1% and it was the biggest monthly fall since October 2010. Also, it was announced yesterday that the British Chamber of Commerce lowered its UK growth projection, cutting the forecast for growth in 2011 to 1.1% from 1.3%. Both this and the house price data are weighing on the pound this morning as investors await the release of more important economic data by way of UK manufacturing PMI and US ISM manufacturing PMI.

Further weakness was triggered by a weak consumer confidence report on Tuesday and this morning’s worse than expected Purchasing Managers Index report.

Although the EUR USD is showing weakness, it is occurring inside of a wide range. With the market trading rangebound, traders are likely to exploit this range by buying support and selling resistance until the market breaks out of the range. Evidence is beginning to mount that the Euro Zone economy may slip into a recession, but all it is going to take to turn the Euro around is a bearish U.S. Non-Farm Payrolls report on Friday.

With bearish evidence mounting against the EUR USD, it is tempting to try to sell weakness, however, the fact that the currency pair remains rangebound, makes it difficult to sell as such low levels especially since the market started out on a high note on Monday. I’d like to see the Euro confirm the top then short the ensuing retracement. Shorting at current levels ahead of the U.S. Non-Farm Payrolls report on Friday puts a trader in a position to get caught in a bear trap.

Now, on to our open positions and new trades. Lets take a look at the specifics: