March, 2011


27
Mar 11

EUR/USD Retracement Area Buying Opportunity

The EUR/USD has retraced back into a possible support zone from pushing new highs recently. Since the bullish effort which was complete at the 1.4250 area, the EUR/USD has retraced to the 1.4050 to 1.4080 area early in the week and again into the close of the week. This is an important area to consider. The 1.4050 – 1.4000 is a significant support that can easily be observed on a larger time frame chart. As long as price can sustain itself in this area and not close significantly lower than 1.4000, I am looking to go long. The nice thing about this area is the risk is well defined by the low of the previous retracement to the 1.4051 level. So at this point, I am looking for some bullish confirmation, such as a hammer or buy trigger formation on the 4 hour time frame, or a higher low chart formation on a 1 hour time frame to confirm the support is holding. Once convinced, I will open the long and place my stop around the 1.3980 area. Depending on my entry, my risk should be somewhere between 50 and 80 pips. If this pair stays in this corrective formation and does not take out the lows, the price should head back up to atleast the 1.4200 resistance area and possibly up to challenge the previous highs around the 1.4250 area. In terms of classic chart patterns, we are in the middle of a pennant formation which is usually a continuation pattern, and that is the premise behind this trade. The alternate scenario that will cancel out my long premise is if price pushes below the 1.4000 area. In the alternate scenario, the correction may go further and test the upward sloping trendline around the 1.3950 area. If this scenario materializes, I will wait to see how the price action in the 1.3950 plays out before taking any positions.

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22
Mar 11

AUD/USD Swing Trade Setup

We’ve had some pretty choppy marketing conditions over the last couple of weeks which makes swing trading a bit tougher, but as implied volatilities of currencies continues to calm a bit we’ve starting to see some interesting opportunities arise. Today we’re looking at AUD/USD which has been pretty much range bound since December, and with 1 week and 1 month implied volatility of 10.3% and 10.9% respectively (which is fairly low for this pair) we will likely see this sideways action continue. Last week during the nuclear crisis of Japan, we saw this pair push towards the bottom of the range and failed to break through the support level, and since then made a very large rally back near the top of it’s range. However, note on that on that last push up, we’ve see exhaustion and divergence on both CCI and RSI indicators. Due to this condition we would be inclined to take a short here. HOWEVER, remember just because something is overbought even with divergence, doesn’t mean this cannot stay overbought, so we prefer to keep our stops tight in case this move back higher to test 1.0200 high’s. I would recommend a short here at market with stops around 1.0150 and a target in the .9850 area. At this time of this post that represents a 3.5:1 risk/reward ratio. To hear and share more trade ideas and setups like this, join us for our Daily Chatroom moderated by Professional Traders. 8AM- 10:30 AM. Sign up here

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20
Mar 11

EUR/USD New Highs

In the previous week, the EUR/USD has made significant bullish progress and closed on its highs. It is important to understand that when a price makes new highs, we have to keep two ideas in mind until the market proves otherwise. First, we have to expect that price will continue higher, and keep making new highs over time until a major support is taken out. Second we have to expect resistances to keep breaking and supports to hold as long as this pair maintains its important support levels. One problem that I notice, especially with short term traders is that they don’t pay any attention this these ideas and get too caught up on resistance areas on the smaller time frame charts, especially when there is a smaller counter-trend move in progress. In the upcoming week, I am looking for a healthy retracement back to the 1.4000 area support. I will view such a move as a buying opportunity and look to put on another long position. I will be watching how the price action unfolds on the smaller time frames in that area and wait for confirmation before taking the long position. I will place my stop somewhere below the lows of the unfolding market action, which I am anticipating to be in the 1.3940 area. There is an upward sloping trend line in the area and I am expecting price to atleast stay above this support. If price breaks the 1.3940 area and sustains lower prices, then I will hold off on any new longs until I get more bullish price action. Overall if 1.3850 area is taken out, it will imply a broader correction is taking place and I will re-evaluate the condtions for the possibities of a short position. If the market gives me my entry price, I will be expecting it to go to new highs, most likely the 1.4250 – 1.4300 area. This is a major resistance that if broken would be extremely bullish for this pair. I plan to take profit in the 1.4250 area. Remember this is a scenario that I would like to see play out in order for me to participate. If the criteria is not met, then there is no trade for me to enter.

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16
Mar 11

Forex Market Outlook after the Earthquake

We’ve spent most of the weekend scratching our heads trying to keep up with all the news and trying to grasp what we were going to see coming into this week. And after a volatile few trading sessions, we’re starting to get a better picture of what to expect. Coming out of the weekend, we saw a relatively small reaction from currencies, but the Asian equities markets fell sharply on risk aversion and the Japanese Nikkei 225 Index fell by over 15% in the first session and that set the tone for the FX markets. Over the next few session the main theme was risk aversion and we saw safe haven currencies rally sharply such as the Dollar, Swiss Franc and surprisingly the Yen. Yes, Despite all the tragedy the country is currently going through, it’s currency is still being bought as a safe haven in our current risk adverse environment! However as these currencies rallied, the Bank of Japan stepped in and intervened in hopes of propping up their equity and currency markets, as we saw spikes on USD/JPY over the last few trading sessions every time it dipped. And even as this post is written, we still expect BoJ it step in and provide unsterilized intervention around the 80.00-80.30 area if markets push to those low’s, which we are expecting as we hear that there are plenty of institutional sell orders in the 80.60 area. What does this mean going foward? We will continue to see the buying of safe haven currencies on windfall of news on the Nuclear reactor situation such as the Yen, Frank and Dollar, which we currently see record net shorts on speculate bets based on IMM and CFTC data, so a dollar short squeeze is possible. The Yen, despite breaking out of that Major Triangle we’ve been looking at for well over 3 months to the downside we do not expect to see much further bearishness because of the BoJ interventions. However, due to this risk adverse environment we do expect to see risk pairs especially ones tied to Asian growth such as AUD, CAD and including NZD to see some short term selling pressure on these pairs which we were fairly bullish on before the quake from a technical perspective. Looking at the Euro, which at this point we are still expecting a rate hike from the ECB during  their next meeting on April 7th, so we remain bullish on this pair for this reason in anticipation of a rate hike and the fact that the Eurozone is fairly sheltered from the impact of the quake. Also noted that the EUR/USD pair which we’ve followed heavily is clearly in a very bullish channel and we continue to see strong buying on pullbacks to the trend line and expect the next pullback into the 1.3880 area to bring in some buyers.  We still do not have a clear picture on the the BoE’s approach with raising rate, so we remain neutral on Sterling as it continues to trade range bound and see little reaction from the Japanese quake in this pair. Also note that volatilities on currencies have been very low before the quake and since seen a huge spike in volatilities across the board, but it’s interesting to note which pairs have jumped the most, namely the Yen 13.75% , AUD 13.65% , Yen cross-pairs 13.90-15%, and NZD 13.4% which we expect to see some large moves on the spot side. But also note there were a few that had little reaction and are the pairs that we would remain fairly neutral on, GBP 9.25%, CAD 10.6% and CHF 11.1%. Update: We’re doing a webinar tonight for Part-Time FX traders on How to Trade the Big Picture. 8PM Eastern Tonight. Click here to Register

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13
Mar 11

EUR/USD Look For Higher Prices

The week before, we watched the EUR/USD pair finally break the 1.3850 resistance and push to new highs to close out the week. In the week starting 3/6, the pair peaked at 1.4034 and has been in corrective mode until the close of the week. The correction throughout the week can clearly be seen on the 4H time frame (highlighted by the counter trend channel lines). This corrective action is now complete as the price has broken the bearish channel and has sustained these prices into the close of the week. The overall support that needed to be maintained in order to continue looking for longs was 1.3700 – 1.3750 and this important swing low is still in effect. At this point, I am still looking for price to offer a retracement so that I can go long. Ideally, the retracement lower should not break the dominant trend line that connects the 1.3750 low. That would put my entry range somewhere around 1.3790 – 1.3820 area. If price makes it back to this range, watch for bullish reversal patterns on your intraday time frames. The 1.3750 swing low becomes your reference point to define your risk and place your stop. I am looking for the EUR/USD to work its way back up through 1.4000 and possibly to a new high in the 1.4150 area over the next week. There is significant overhead resistance in the 1.4200 area so I would expect price to have a tougher time there. As traders you must be flexible. This long scenario has a higher probablility at this point. If price breaks below 1.3750 – 1.3700 and sustains these prices, this would cancel the long scenario. Wait for the market to provide new information before taking any new positions.

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6
Mar 11

EUR/USD Higher High Confirmation

Previously, the EUR/USD pair has been showing persistent signs of strength. Ever since the Bull Flag breakout in mid-February, price has finally taken out the 1.3850 resistance and has pushed up to and touched the 1.4000 closing out this week. Price could not sustain the 1.4000 level, but overall selling pressure has been minimal. For the upcoming week I am still looking for continued upside. There is very little arguement for the short side at this point. Remember in upward trending markets, resistance breaks and support holds. This means don’t get caught shorting resistances, especially on the larger time frames. The EUR/USD has 3 upward sloping trendlines that are still intact. The slope of the trendline 3 is the steepest and most likely to break. This is not a trend reversal signal, it just means momentum is slowing. Look for support at trendline 2 or 1. Also I will be watching the 1.3850 level carefully for price action reversals back to the long side upon any retracement back to that level. 1.3850 was a significan resistance and I now expect it to act as an important support level. If price holds up without closing below this level on the larger time frames, I will be looking to go long with stops around the 1.3750 area. The first upside target from here is in the 1.4190 area which is related to a level from the weekly chart. If price breaks the 1.3850 – 1.3700 support zone, I will hold off on longs and reevaluate the conditions from there.

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4
Mar 11

EUR/CHF Bearish Tone Continues

We’ve looked at EUR/CHF for quite some time and have been following this in our Tuesday night Swing Trade Chatroom. We’ve maintained a bearish view on this cross pair since it broke a major uptrend support in mid Feb and headed straight for the 61.8 fib level at 1.2725 area where we bounced and made some huge gains, but yesterday was not able to break above the 61.8 fib level on this move down. Since the fib level held, we maintain a bearish overall view on this pair and look for more downside towards the 1.2725 level as an initial target with an extended target of 1.2550 area. Stops should be placed around 1.3050, giving us about a 2:1 risk/reward ratio on our 1st target with a 4:1 on  our extended target. To hear and share more trade ideas and setups like this, join us for our Daily Chatroom moderated by Professional Traders. 8AM- 10:30 AM. Sign up here

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3
Mar 11

Dollar Index Update

Here’s another update on the dollar index again, and today we’re going to look at a chart of the March U.S. Dollar Index Futures. The one thing I want to point out is the Acc/Dist indicator which is a market breadth indicator and very useful in finding true support and resistance level’s that sometimes we can’t get from price action alone. Here we see going back the last few months, we’ve had lows in mid-Oct, early-Nov, and again at the end of January, all of which were confirmed at the same levels on Acc/Dist indicator. Notice how price wasn’t able to give us definitive support levels since each bottom was at different prices, but Acc/Dist gave us very clear support level. However, recently when the dollar index tested the 77.00 level as support, we saw that the acc/dist indicator had actually fallen below what we identified previously as support. This gives us a confirmation that this true break of that support level, since many indicators were giving us mixed signals, such as the CCI, which shows positive divergence on the moves down. With this, we continue to have a bearish view going forward on dollar which means this could send risk pairs, like EUR/USD, AUD/USD, NZD/USD higher. To hear and share more trade ideas and setups like this, join us for our Daily Chatroom moderated by Professional Traders. 8AM- 10:30 AM. Sign up here

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2
Mar 11

Continuing Divergence on Moves up in GBP/USD

We’ve had a pretty choppy trading week and some wild swings which gave us some good swing trades for cross pairs, but this is the first of the Major’s that we’re seeing a potential for a swing trade setup. We’ve seen a few unexpected waves of dollar selling this week and has sent the risk pairs higher, including GBP/USD which has already pumped substantially higher than other risk pairs due to an anticipation of a rate hike by the Bank of England. With recently wave of sterling buying coupled with already what we consider as overbought conditions for this pair, we see a higher probability of a pullback into the 1.6000 area in the short term. Also we’ve noticed the negative divergence we’ve gotten on these moves up confirmed by both CCI and RSI indicators. But, as we know, just because there is divergence and it is overbought, does not mean it cannot continue to stay overbought, so we are being very cautious with this trade and recommend a short at market rate, with stops right above 1.6350 level. We suggest taking profits off the table every 50-75 pips as this may just be a quick pop downwards if the negative divergence plays out and suggest taking profits often and quickly. To hear and share more trade ideas and setups like this, join us for our Daily Chatroom moderated by Professional Traders. 8AM- 10:30 AM. Sign up here

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