USDJPY Update

The last time I wrote about USDJPY I pointed out that the price was in a sideways consolidation and we would need a break of that before knowing how to trade it. Well, the break happened yesterday and I’m now looking at this as a signal to go short.

A daily time frame chart showing US Dollar versus Japanese Yen

USDJPY Daily Chart: Break of consolidation and an inside bar.

The market gapped up on Sunday night’s opening but the gap closed throughout the Monday session, pulling back to test support at a confluence of the Daily and Weekly pivot points (not shown). That support gave way quickly and we ended the day with a large bear bar which broke our channel support line, shown in yellow above.

Today price retested our channel but failed to close back above, forming an inside doji bar instead as indecision swamped the market. A break below this inside bar tomorrow could bring the bears to the table and is the entry signal I’m looking for. I am however feeling a bit more cautious than normal because this is, well, the Yen, and we have history, which is why I’m placing my entry below the low of Monday’s bar, just in case of a fakeout.

So, we’ve several reasons to get into this trade (historical level at 94.60 giving an expected turning point, a break and retest of our sideways channel, a conservative entry, SSI favours short trades) with relatively few points of concern (possible support with the monthly pivot and 50EMA being just below this level. It’s the Yen) so with luck and a fair wind we could be just in time to ride this one south for a decent profit.

Happy trading!

GBPUSD at Multi-Year Low

We’ve been waiting for GBPUSD to do something interesting for a while now, and today it has finally delivered. Well, in part, anyway.

With disappointing news out today for Claimant Count Change (-12.5k as opposed to -5.3k expected) the pound dropped 75 pips in few minutes and the same again over the following two hours, taking price down to a level not breached since July 2010.

A weekly chart of GB Pound verus US Dollar.

GBPUSD Weekly Chart. Hitting big support.

Was this news worthy of a 150pip drop? I doubt it. I think this drop was in part fuelled by the market wanting GBPUSD to hit it’s 1.53 major support level so that it’s forced to choose its bias for the next few weeks or months.

So should we take Cable long now? Well, I think yes but with a caveat.

This move came from nowhere as far as the lower timeframes are concerned so there’s no correlation to back up a reversal. A safer trade would be to wait for higher lows on the 240m chart, particularly as the market has been in the mood for breaking major levels this year so far.

If you’re aggressive you can get in now, if not then wait for some comforting signals on the lower timeframes. In any case, be prepared to reverse your outlook and go short instead should it break 1.5300 and retest this level from below.

It’s decision time for GBPUSD – one to watch closely.

Happy trading!

Trading Opportunities Abound!

Tonight is one of those nights when you look at the market and see opportunity after opportunity! I don’t have time to take screen shots of them all, but here’s a heads up of what I’m looking at:

A chart showing US dollar versus Swiss Franc

USDCHF Descending Channel

USDCHF: Could be in a descending channel, price currently bouncing at the top which is also a resistance line which used to be support. It’s also the .618 retracement level of the previous swing high / low. I’ve put in an order to take this short.

USDJPY: Oh, I love the Yen! I’ve never called the top on this pair and made a profit, but I’m going to try again now because it’s testing a high that we haven’t seen since May 2010. The last week has seen it go into a consolidation as indecision has set it, which means I need a break of 92.00 before taking it short, but I really do like the look of it.

AUDNZD: Testing strong support at 1.2150 and a reversal on the 60m. I liked this when I spotted it on Friday, but I like it even better now that the guys over at The Lazy Trader agree it’s long all the way and have sent out a cracking way to play this tonight. I’ve taken their entry long.

XAUUSD (Gold):  Nothing to add since my last post, other than that it did what we expected but we now need a retest of the old support level before taking it short.

There are other opportunities out there tonight too, but where would be the fun be in me pointing all of them out to you?

Happy trading!

Gold Short Trade Idea

The first few weeks of the year have favoured break-out traders over bounce traders which you’ll certainly have noticed if you followed my last post which predicted the top of both FTSE and USDJPY…. we’re still waiting for those tops, but such is life.

So here’s an idea that takes in the best of both worlds, relying as it does on both break and a bounce style methods.

Daily time frame chart showing gold versus the US dollar

Gold (XAUUSD) Daily Chart.

The gold price has been in a down trend since October and has now formed a descending triangle. That is, the highs are getting lower but the lows have found a support level which draws out a triangle with a horizontal base.

This is a classic continuation pattern which expects the downward pressure of the trend to break the support level for a confirmed short trade. That’s the break trade, which if you’re aggressive is certainly valid, but I prefer a bit more caution so I’ll be waiting for price to come back up and test the old support as new resistance before selling the break of that bounce.

This is a very early heads up so the trade may not set up, or it does but not yet (it could run another cycle inside the triangle before breaking south). I’m pointing it out now because if it does pan out, it’s a high probability trade.

And we like those!

Happy trading.

Turning Japanese? I Really Think So!

Awful title, I know, but looking at the USDJPY charts I can’t get that song out of my head!

I said in my last post that I thought the top may be in on the soar-away Yen and the evidence for a reversal is mounting. At the time, all we really had was price being resisted at a previous support level, overextension from the EMA’s and a weak reversal divergence on the Daily chart.

All of that is still true, but now we also have a possible double top on the 4hr chart (at the MR1 level) and a series of reversal divergences on the 60.

A US Dollar versus Japanese yen chart on the 4 hour time frame.

USDJPY 4Hr Chart. Could this be a double top forming at Monthly Pivot R1?

 

A 60 minute chart of US Dollar versus Japanese Yen

USJPY 60m: Three reversal divergences on the trot. Bullish conviction could be waning.

Added to this, I noticed that the Daily FX SSI indicator shows there are fewer retail short positions now than at the beginning of the week on the Yen. For those not familiar with SSI, it measures how the difference between long and short positions held by the broker FXCM. The way you read it is to look at what the majority of retail traders are doing (in this case, going long USDJPY), and you do the opposite – because most retail traders are wrong most of the time!

It all adds up to a compelling case for going short.

Happy trading!

FTSE & Yen Ready To Play?

Playing FTSE on the Ceiling

The festive period often brings a surge of bullishness into the equity markets and you can either jump on board these moves or bet against them. One rally I definitely won’t be taking long right now is the FTSE Index which tested 6100 while the rest of us were eating & drinking our way to a New Year diet. 6100 hasn’t been breached since May 2008 and given the state of our economy, it has no business being there now.

A weekly time frame chart showing the FTSE 100 Index

The FTSE 100 Index. Can it break 6100? Strong resistance level and reversal divergence make this an interesting short.

The weekly chart above shows how significant the 6100 price point is, with a flurry of tests in the first half of 2011 finally being rejected with a violent two bar move down to 4791 in August. Price has been creeping slowly back up since then and a nice bit of correlated evidence that this test doesn’t have enough strength to punch through is the reversal divergence setting up on Stochastic.

I’ll be looking to take this short tonight (on the Daily time frame), but will have my stop well on the other side of 6100 (+ATR/2)  to protect from spikes – however if price settles above 6100 I’ll be out early.

JPY – Are We There Yet?

This isn’t so much a trade idea than some observations on JPY and the JPY pairs. The observation centres around the fact that we’ve been on one of the Bank of Japan’s rocket ship intervention rides since mid November and the Yen is surely getting nosebleeds by now? Much more of this and it’s going to get altitude sickness.

I’ve tried calling the top on these rallies before without much success, but that doesn’t mean I’m not going to try with this one too. Let’s look at the context as of right now:

A weekly chart showing US Dollar versus Japanese Yen

USDJPY: Weekly Chart

The BOJ first intervened at the end of 2011 to stop the Yen’s relentless strengthening against the Dollar and it’s been largely rangebound since. But any time the authorities think price has gone too low the BOJ pump billions of Yen into the market, driving a truck through good sense and decent technical analysis as the currency rallies for no sustainable reason. But that truck only has so much fuel…

The current USDJPY price has found some resistance at 88.50, an old support level from 2009/10 – a decent level as any to give us a bounce. Let’s have a look at the Daily chart:

A daily time frame chart showing the US Dollar versus the Japanese Yen

USDJPY Daily Chart: Overextension from the 50EMA far exceeds previous averages.

What I find compelling about this chart is the massive overextension from the 50 EMA at 540 pips. Visually compare that with how price normally interacts with the 50 and you can see why I think this is due a retracement. Topped with (albeit weak) Stochastic reversal divergence and I’m expecting Yen to strengthen against the Dollar soon.

You’ll find the same kind of overextension on all the JPY pairs right now, but they all rely on USDJPY weakness before showing they’ll react similarly. Have a look through them and see if you can find the better setups and let me know – any really good ones I’ll publish here.

Remember though – I’ve tried calling these tops before, but I’ve never caught one yet!

Happy trading!

EURUSD Short – Trade Conclusion

The trade I posted earlier has now hit target for a 2.1% gain (risking 1%), but not before retracing and testing the daily pivot line twice which then effectively became a double top, reinforcing the short bias.

60 Minute Chart of EURUSD

EURUSD: Two retracements to Daily Pivot formed a double top before finally breaking short.

The decisiveness of the move was because of the ECB’s press conference in which Draghi hinted that Euro Zone minimum bid rate, while being kept at 0.75%, hadn’t been a straightforward decision for the board which means there’s a chance it will be lowered in the near future.

Anyway, as I said before, the entry from the 60 minute chart was a bit riskier than the 240 minute entry which I’ve highlighted below.

The 4 Hour Chart of EURUSD

EURUSD 240 Minute Chart: A more conservative entry.

The entry was to wait for a break of the trendline, wait for a retest and enter if that retest failed – highlighted here with the gold dashed line. I would have put the stop loss 55 pips away, above the previous high, and if you were in that trade you’d be about 1% in profit now.

The trade’s probably got further to go, but I’m away from the screen now until Monday and what with NFP tomorrow, I’d rather take the money!

Have a good weekend.

EURUSD: Time to Sell ?

Looking at the charts last night, the EURUSD daily chart caught my eye because it has posted three descending tops, the first in September, the second in October and one last night. A nice pattern that led me to suspect a sell was on the cards as we’ve got two confirmed failed tests of price at the 1.3125 level and maybe a third setting up now.

A Daily Chart of EURUSD

EURUSD Daily Chart: Three descending tests flag a short opportunity.

That’s not enough for me to take the trade, however. I’d like to find lower timescale bearish price action to confirm that the buying sentiment has changed. If I’m a bear, I don’t want to jump into the arena first and get gored to death by the bulls for my hastiness!

So let’s look at the 240 minute EURUSD chart from the same period:

240 Minute chart of EURUSD

EURUSD 240: The upward trendline is being tested.

Here we can see that the trendline support on the EURUSD 4 hour chart is being tested, but where previous tests have provoked a decisive reaction, this time there doesn’t seem to be much enthusiasm for it. This isn’t enough however, so what I’d like to see is a break of this trendline and then for it to be retested as resistance from underneath.

So while we wait for the 240 minute chart to show a decisive move, let’s have a look at the 1 hour chart and see if there’s anything there.

EURUSD 60 minute chart

EURUSD 60: Reversal Divergence broke the Daily Pivot and set a lower high.

Now this is more promising. The gold line covering the last few peaks is divergent from the gold line covering the peaks on the Stochastic, that is, price was setting higher highs but Stochastic was making lower highs. That’s reversal divergence and is a clue that price may be about to reverse – which it did when it broke the Daily Pivot.

Price has now set a lower high, and this is the signal I was looking for to say there’s a decent probability short setting up.

There were two ways to play this, the safer way and the riskier way. Normally I’d plumb  for the safer way every time, but this was happening overnight so I wanted to leave an order on while I caught some Z’s and that meant I was obliged to take the riskier trade.

The riskier trade (the one I’m in) was to place a sell order underneath the consolidation formed at the 4 hour trendline (shown on the 1 hour chart as; Green Line = Entry, Red Line = Stop Loss and Blue Line = Initial Target). While this is risky, the upside is a more aggressive risk / reward if it works.

A safer and more elegant trade is the retest of the underside of the 4 hour trendline. Wait for it to be tested (which is happening as I write) and if the test fails, sell the break of the failed bar.

But Be Careful: It’s Non Farm Payroll tomorrow and the markets are jittery. All trading carries extra risk right now and spikes are likely. Consider closing your positions before NFP.

NZDUSD Trade Conclusion

The NZDUSD trade I posted earlier this week didn’t go quite as well as I’d hoped, returning either 0.7% or break even depending on where you got out. Here’s how the trade unfolded:

60 minute Kiwi Dollar chart

NZDUSD: Two possible exit points, one a modest profit, one a break even trade.

We got the entry as expected with a break of the daily pivot (blue dashed line) followed by a retest, marked by the green arrow, stop loss above the bar marked with a red arrow.

The retest was also a high test, a good sign for a short trade.

Price then briefly worried us by retesting the daily pivot. If it has closed above then we would have exited for a small loss, but it simply set a lower high and at this point we drew a trend line in purple which would be our emergency exit line – any close above this trendline would invalidate the trade.

Price then tested the green dashed line of the weekly pivot before retracing and setting a new lower high, and again we drew a trendline (in green). An interesting point to note us that these two trendlines show different momentum in the market, with the green one being much more aggressive. Steep trendlines usually exhaust themselves quickly, so at this point we should be looking for signs of reversal, and we could see the first signs already with Stochastic showing reversal divergence.

The ideal exit is circled in green. This is where the the retest of the weekly pivot failed (ie it broke through and closed) and also where we have a close above the green trendline. What’s more, the bar which signaled the exit was a strong buyers bar, so we can’t expect the bears to take control any time soon.

The exit at this point banked 0.7% based on 1% risk. Not great, but not too bad during a very unpredictable week.

If you missed that exit or wanted to see if our original trendline would hold, it was given a little extra strength by the 50EMA (in red) but failed nevertheless. This confirms the bears are out of the market so, if you were still in this trade, it was time to bail out at around break even.

Let’s hope for some better opportunities next week. Have a great weekend.

NZDUSD Trade Idea

NZDUSD has thrown up a trade possibility in what has otherwise been a pretty choppy and directionless market. It’s much like the previous trade idea at the beginning of November in that there’s a trendline flip on the Daily chart with a double top on the 60 min chart.

Let’s have a look…

Chart of NZDUSD

NZDUSD Daily Chart: Lower highs & lows and a trendline flip.

The Daily chart got my attention because the blue supporting trendline has been broken and has now become resistance (blue circles). This is a lovely bit of price action hinting that the bulls are leaving the market. In addition, we’re getting lower highs a lower lows shown between the purple lines.

So this is a good start, however it’s always a good idea to get lower timeframe correlation as a confirmation and for a more efficient entry, so onto the 60 minute chart:

The NZDUSD 1 hour chart

NZDUSD: Double top and Inside Bar

A quick look at the NZDUSD 60 minute chart immediately shows a double top (marked in yellow circles) which is a strong indication that the buyers are exhausted. As Al Brooks says in Reading Price Charts Bar by Bar, “if the market tries to do something twice and fails, it will usually do the opposite”.

At the time of taking this snapshot we had an inside bar forming at the Daily Pivot level, a sign of indecision. A break below this and the pivot will be a good sign for going short, a bounce back up and we’ll have to sit back and watch subsequent price action to see if the bulls are back in.

NZDUSD Trade Entry: The congestion shown on the current 60 minute chart needs to be resolved, and my preference would be to see a break and retest of the Daily Pivot. I’ll then sell the break of that retest.

I’ll follow up this blog and examine whether this trade triggered, and if so, whether it was a winner or loser.