October, 2010


31
Oct 10

EUR/USD Consolidation Continues

In the bigger picture, the EUR/USD still shows signs of further upside potential. The pair is currently trading in a well defined range with support at the 1.3690 area and resistance at the 1.4100 area. If you notice, the supports of this range are not being compromised and there is no progress being made on the bear side. This is a clear sign of strength. I would continue to look for long opportunities and expect this pair to break to new highs in the 1.4250 area possibly this week. The lowest risk prices are in the mid-to-low 1.3700′s. If you are looking to establish a swing trade at the present level, just keep in mind you are trading in the middle of the range which presents you with additional risk. In a clearly defined range, it is better to buy nearer the support and sell nearer the resistance until the range breaks which it will eventually. Remember the overall trend is up which makes it more possible for the resistances to break. In this situation shorting near the highs for a swing trade is much riskier than buying a support. Make sure you have lower expectations, scalp and/or use smaller stops, or simply avoid shorting all together until more bearish information presents itself.

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27
Oct 10

GBP/JPY Channel Swing Trade Setup

Today we look at a 4 hr GBP/JPY chart. This pair has been a very nice tight downward channel since mid-September. Again, we have reached the top of the channel and a bounce off that level coupled with divergence on both CCI and RSI, confirming our bearish view. With this trade setup, we can implement a very tight stop right above the channel and conservatively target 127.50 and 126.00 towards the bottom of the channel as potential targets.

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25
Oct 10

EUR/CHF Short Swing Trade Setup

Today we see a short opportunity in EUR/CHF. This is a pair in a long term downtrend and here is a chart on a Daily timeframe. As we see, back in early AUG it was rejected off a 50% fib level. Here we are again, revisiting the new 50% fib level from May high’s/Aug low’s. Coupled with divergence on both RSI and CCI, this give us a pretty good setup. I would look for a short here with a stop right above the 50 fib level (1.3750 area) with targets towards the AUG lows (1.2800 area). Based on price at the time of this post, that’s almost a 4:1 risk/reward ratio.

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24
Oct 10

EUR/USD Rangebound Conditions


The EUR/USD has proven that it no longer wants to make progress on the bigger picture. Since reaching the 1.4158 high, it has found resistance at lower levels which implies the bullish trend is now pausing. At the same time, it is not making significant progress when it tries to push lows. This puts the EUR/USD in a clear range with 1.4158 being the overall high and 1.3680 being the overall low. There are other notable support and resistance levels as well: 1.4020 area resistance and 1.3750 area support. When looking for swing trading opportunities in a range like this it is very important to remember that the overall trend is still bullish. This means when you are trading near supports, look to be more agressive on the long side. It is reasonable to have higher expectations from the support areas. When trying to short resistances, be more conservative, expect less. Being that the overall trend is up, these resistance areas should eventually break and price should make new highs. If the supports break first and the new lower prices are maintained, that will be a sign that the EUR/USD could be heading much lower and throws the bullish trend into question. This range can be identified as a symetrical triangle as well as a bull flag. These are continuation patterns which can mean further strength ahead. Play the range with an open mind and with the expectations outlined above until price chooses which way it wants to go from here.

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17
Oct 10

EUR/USD Watch Support Levels

This week the EUR/USD pushed new highs as far as the 1.4150 area. This implies that the trend is still up on the bigger picture. On the otherhand the upward momentum could be changing. Since that high was made, the pair sold off pretty hard and took out a swing low support at the 1.4000 area in the process. This is a change in short-term momentum. From the swing trading perspective, I will be watching the next set of support levels very closely for buying oppportunities. 1.3950, 1.3900 and 1.3790 are levels where I will be looking for price to bounce and retest the recent high. This requires patience as price can easily break the first two areas and hold the third one. Also this process can take days to play out so keep that in mind. If the EUR/USD pushes to a new high, the next target would be the 1.4260 – 1.4350 area. If price attempts to bounce and cannot push to a new high on the bigger picture, this would be a sign that we are either range bound or preparing to go significantly lower. If price breaks the above mentioned support levels with conviction, that will also let us know to step aside and no longer look for longs. In that scenario, it would be best to wait for price to give us a clearer picture before taking any new positions.

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10
Oct 10

EUR/USD Small Consolidation

The EUR/USD pair has made new highs this week in the 1.4030 area. This indicates that the pair is still strong. The trend is still bullish. On the otherhand, the momentum on the larger time-frame has changed. The price has become range-bound between 1.3830 and 1.3980. Based on the current price formation, a bull flag pattern is present. This means if price goes above 1.3980 we would be breaking to the upside which can take this pair to range of new highs being around the 1.4100 to 1.4140 area. As long as price stays above the 1.3830 bottom of this range, I would be looking to position myself on the long side. If price breaks below 1.3830 then forget longs and wait for price to stabilize before reevaluating the conditions. In these types of ranges, you want to pay close attention to how price behaves near the lows of the range because this is where the low risk opportunities are if you have the patience to wait.

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8
Oct 10

AUD/CAD Short Swing Trade Setup

Today we take a look at AUD/CAD which has been on a tear this summer from its lows and reached a new top the last 2 weeks. After getting rejected off the 1.0000 level 2 weeks ago, it has made a new run for it and retested it. However on this last leg up towards 1.0000 we started to see exhaustion and divergence suggesting this rally is near it’s end and suggest a short bias. Usually we don’t just jump short on these trades unless we have confirmation since the trend up is so strong, but because of the clear double top and the 1.0000 psychological barrier, we are able to take a short with a VERY tight stop. Any real breaks above would qualify our short trade as invalid. I guess could consider this trade a shot in the dark, but one with very good risk/reward ratio. On this trade, I’m shooting for the 38.2 fib retracement as a first target and the 50 fib as the 2nd. If your trading large size, 61.8 would even be possible as a final extended target. Currently at this post we are trading about 10 pips away from 1.0000. A 50-75pip stop loss should be sufficient for this trade. with a 3-400 pip reward vs 50-75 pip stop. we’re looking at around a 6:1 risk/reward ratio.

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3
Oct 10

EUR/USD Still Bullish

EUR/USD closed on its highs this week and has made major progress since the break of its trading range back at the 1.2930 area a few weeks ago. Yes it’s impressive and NO don’t short this thing yet. There are no signs of weakness at the present time on the larger time-frames. Does this mean you should buy it now on these highs? Not a good idea either because risk is too high. Once again, WAIT for a support level. There is a minor support at 1.3715 that I will be monitoring closely this week to see how buyers behave. If that level breaks, I will then look for buyers to react in the 1.3630-1.3550 range. By waiting to see how price reacts in these areas, I can better assess my risk when opening a long position. Remember when TREND and MOMENTUM are bullish, supports should hold and resistances should break. Look for the evidence before entering and make sure you can define your risk within the context of the market structure. The next resistance is the 1.3923 – 1.4020 area. This resistance range will serve as a good target for longs that you establish from this point on. Keep in mind, if price pulls back and breaks below the 1.3530 level, this would be a sign that the bullish momentum is losing its strength. At that point I will reevaluate to see how this new information relates to the bigger picture. This also means hold off on any new positions, long or short.

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