Tag Archives: technical analysis

Trade Leader Or Kahana analyzes recent developments in the GBP/AUD

Last night (on 22-04-14) GBPAUD created a bullish pattern in the weekly CCI, a weekly Zero line reject (ZLR). I am not using the standard CCI but rather the Woodie's CCI. The blue CCI (turbo-6) reached to the zero line while the black CCI (50) was and still is in the 40 region, both in a V shape.

GBP/AUD weekly chart - click to enlarge

You can see all the recent ZLRs have led to strong gains in this pair, between hundreds to thousands of pips.

A weekly ZLR does not mean one can execute a long trade in GBPAUD immediately!

In the daily CCI there is still a potential for a bearish ZLR. Before entering the bullish uptrend, make sure this potential ZLR is invalidated!

I would analyze the hourly chart and search for a ZLR after the opening of the first green bar or the following green bars in order to perfect my entry.

GBP/AUD hourly chart - click to enlarge

There are a couple of things you must note before taking the trade. The first thing is the negative swap. Longing GBP/AUD incurs a relatively high negative interest so it may be wise to target 30-40 pips (depending on the hourly range) as intraday take profits and to continue buying on dips if intraday technical patterns are confirmed, 1hr, 4hr and/or Daily chart should be used. The second is not less important than the first. When looking at the monthly chart you will see that this pair already gained approximately 5,000 pips from the bottom. Bear this in mind! I won't expect hundreds to thousands of pips as seen in the latest ZLRs. Taking this ZLR I would expect a smaller movement of about tens to hundred pips.

Trade Leader Alex Kazmarck of SpotEuro presents analysis of the JPY.

Update

The Japanese Yen has been stuck within a range for the past two months, trading within the 101-103 level for the most part. Friday’s strong move continued into Monday as the USDJPY is now trading above the 103 figure for the second time in March; it briefly tested these waters for three days during the first two weeks of March.  With today's commentary from Federal Reserve Chair Janet Yellen that the US economy will need extraordinary support for “some-time” and that the job market is not back to normal health have given traders appetite for more risk and thus we’ve seen a rally in equities as well as a sell-off in the yen as it is often used as a carry trade. While we remain in a volatile trading environment with the EU on the brink of easing to fend off deflation and geo-political concerns remaining in Eastern Europe, I think there is an outlook for both long and short trades in the near term.

Technicals

USD/JPY - click to enlargeUSDJPY – the pair is once again trading above the 102.80 level and is aiming to break out of the wedge with resistance just above the 103.10 level. A close above March highs of 103.76 will be bullish for the pair and a close above the figure will lead to test the 105 level which should prove difficult; However, if broken and the daily price sets a new yearly high, we should see continuation higher. A failure to hold the 103 figure could lead to a broader sell-off and target the 100 figure and possibly deeper into the mid-90s, targeting the region in which the pair spent most of last year.

EUR/JPY - click to enlargeEURJPY – trading within a channel for the past two years with moderate consolidations, the pair can be seen within a wedge as of late, setting an important lower high in early March. With Friday’s bounce off of 140, the pair is now testing 142, just below the descending slope. If the pair breaks above, it will most likely target 145, the December 2013 high; however, a break below 140 will most likely lead a much deeper correction and target the 134/136 levels, which are previous resistance and support zones respectively. Until a close above the descending slope mentioned earlier and a close above 144, I expect a longer term bearish outlook more worthwhile from a risk/reward point of view.

GBP/JPY - click to enlargeGBP/JPY – also trading within an ascending channel during the past year and a half, the pair has begun to consolidate and correct lower over the past four months. Currently, enjoying momentum to the upside following a break of consolidation, the pair is aiming for the highs of 173.70 set in January and matched in March. While I expect the pair to trade lower than 175, which is December and January’s highs, a break above this figure could lead to another leg higher. Until this break, I expect further consolidation between 170 and 175 before a break below 168 leads to a deeper correction that should reach to prior resistance of the 160 level.

Conclusion

The yen mostly responds to risk-on/risk-off strategies due to its carry trade and safe haven status. All three are within a specified mid-term range or a wedge formation, attempting to break out to the top. If successful, technical all point to continuation to the upside; however, if we see another bout of risk-off selling, this could be seen as a failed attempt and a much deeper correction could be in the works. Considering the big gains during the last 18 months and consolidation taking place across different markets, I am looking for current momentum to wane and support levels broken in the next few weeks.

Trade Leader Or Kahana presents technical analysis of the USD/JPY.

USDJPY daily chart painted a bullish flag. Flag is a technical pattern indicating a resumption of the trend. A bullish flag is created when there is a large upward price movement (that's the flag "pole"- marked in purple on the left picture) followed by sideways activity (three or more candles, marked in the light blue rectangle on the left picture) at the top of the flag pole, which do not cover most of the candlestick and are almost the same length.

USD/JPY chart - click to enlarge

The logic behind this pattern is that if after a healthy move its correction will be in a smaller range (sideways), the technical correction is weak and we should expect the trend of the flag pole to continue.

When entering this pattern it is better to examine other indicators to strengthen the entry point. Usually I am waiting for a candle that closes significantly (the amount of pips depends on the time frame of the flag) above the flag's resistance, but in this case I am using Woodie's CCI for improved entries. Woodie's CCI helps me to avoid minor or moderate corrections. I am observing the hourly chart looking for a zero line reject (ZLR) to join the uptrend. In the hourly chart, I marked in yellow, on the right picture, every ZLR that was created from the beginning of the flag (from 20.03.2014). Each of them gave a profit of approximately 10 to 20 pips. I will continue monitoring the hourly chart in order to take the next ZLR.

How does a bullish ZLR form?

First, a bullish ZLR must come after the first/s green bar/s. When the 50CCI (in black) is in the Zero line (ZL) region and rebounds sharply in a V-shape simultaneously to the 6TCCI (in light blue) which turns up in a V-shaped recovery below the ZL, close to -200. The pattern will be stronger if the V in both the 50CCI 6TCCI is big and very clear.

If a ZLR forms when the 50CCI is in the +100 region and the 6TCCI is in -100, it may not be the perfect ZLR. On those occasions, the established trend may temporarily resume and the 50CCI will swiftly return to the ZL in order to make a better ZLR.

In a previous post, I explained the nuances of the Zero Line Reject.

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD.

The euro’s lack of momentum above the 1.39 level has left a lot of traders consolidating their positions. There remain a lot of uncertainties that could put pressure on risk-on strategies and ECB President Draghi’s comments on Tuesday that the ECB is paying close attention to the exchange rate level drove the EUR/USD pair to test the 1.3750 level.  Draghi also mentioned that the exchange rate plays an important role in inflation figures while at the same time saying that the rate isn’t a policy target. Perhaps this confused some traders as the pair bounced back following a 50 pip plunge and almost recovered to its opening price of 1.3840. Comments from Bundesbank President Weidmann also put downside pressure on the euro as he, along with other officials, have raised concerns over the worryingly low level of inflation in the euro zone, which increased the prospect of a large-scale asset purchases as Weidmann said that such an option is not ruled out. Currently down 33 pips, trading at 1.3793 early Wednesday in NY.

EUR/USD daily chart - click to enlarge

Technicals

Not much has changed in my technical analysis. The fact that the EUR/USD pair is trading below 1.3800, which is the top of the left shoulder in the “Head/Shoulders formation”, a break below 1.3700 should confirm downwards movement and I expect momentum to pick up and lead price to test 1.3600 in the coming days. As mentioned in the last update, the break below the upwards sloping channel from January to March remains valid and supports further downside euro weakness. Two important levels remain for the euro at this time, if it has any chance of reaching and breaking 1.40: the 1.3876 pivot high on the 21st of March and 1.3967 high on the 13th of March.

Guidance

While the euro remains within a reliable 500 pip range, between 1.3500 and 1.4000 for the last five months, a break of either top or bottom figure will most likely be sustained in the coming months. As mentioned earlier, there still remains a lot of uncertainty. Yesterday, President Draghi said that the Euro-area crisis is not over and I believe him. Europe is much more intertwined with Russia than America and while sanctions will hurt both economies, instability within Ukraine could prove more harmful to Europe than Russia. Expect more of the same for the time being: uncertainty and volatility.

Short term resistance – 1.3850-1.3900/1.4000

Short term support – 1.3750-1.3650

1 Comment

Or Kahana of Trade Leader OR FX presents technical analysis of the USD/CAD.

In my post regarding USDCAD  on 3/12/2014, I explained that the pair established a bullish round bottom in the monthly chart. The pair already posted moderate gains with bearish corrections during this uptrend. Whoever followed the post saw the pair gaining over 500 pips at the time of this writing and I still expect further gains in the pair. The second post (11/02/2014) I wrote about USDCAD again, suggesting to observe the weekly chart and to look for a Zero Line Reject (ZLR) to join the forecasted gains. Further to my previous posts I am observing the charts, searching for patterns to buy on dips.

USDCAD painted a bullish symmetrical triangle in parallel to the Zero Line Reject (ZLR) in Woodie's CCI on the daily chart.

A bullish symmetrical triangle forms after a strong uptrend, when two trend lines, one descending and the other ascending, ensuring the price is held in a tight range. The formation occurs as a result of making both lower highs and higher lows.

Usually the entry to this pattern would be when the price breaks above the descending trend line. I am using the Woodie's CCI to perfect the entry. Sometimes the price breaks above the trend line a correction takes place as the price tests the breached trend line. To avoid false break I am entering before, using the ZLR that was affirmed in Woodie's CCI on the daily chart.

Everyone who wants to avoid bearish corrections should observe the hourly chart looking for an entry with a smaller risk. In the hourly chart two scenarios may happen. The entry would be when the price will break above the flag (1.1145) or in a hourly ZLR after a bearish correction. When the 50CCI is at the zero line region and the 6TCCI is close to the -200, both in a V-shape. A ZLR can also be established when the 50CCI is at the 100 region and the 6TCCI is at -100 region.

USD/CAD

Recap

The GBP/USD pair has had quite a steady move higher since the summer of 2013, after bottoming out at 1.4840 for the second time in 4 months. Since then, the pair has managed a 12.1% increase in price in the span of 6 months. Consolidation occurred between late September and November before continuing higher to recent two and a half year highs. Over the past few weeks the pair has managed to find resistance just under the 5 year high of 1.70, topping out at 1.66 beginning in early January. The current price action points to a correction, with momentum in favor of the dollar.

In this analysis I will only cover technical points to consider for both short and long positions along with fundamental catalysts that could alter the current trend higher.

Technical Analysis

The first point I’d like to bring to your attention is the big move that occurred during the fall of 2008, when the pound dropped from 2.01 to 1.40 during the highs of the financial crisis. The price action we’ve seen since quantitative easing began later that year was a corrective one, with a 50% retracement at 1.6830 acting as resistance for the last 4 years. During this time, it looked to have traded in a wedge (marked in orange) before what seemed to be like a breakout lower that eventually double bottomed at the 1.4850 level. What made this move believable was that the initial break of the lower wedge support retraced to the 62% level before another sharp move lower broke the previous pivot low; however, it was not able to close below the pivot low and from that moment the pound began its 12% rise.

Looking closer at the pounds recent strength, we can see the rise taking place in a channel, which is currently being tested at the support. Previous level of resistance, which acted as support in December, is just under 1.6300, which I think will be important if the channel is broken. If we see a daily close below 1.6200, then I suspect a retracement is in full gear and my target for a short would be somewhere between 1.57 and 1.58, which is just above the 50% fib level of the channel. This retracement should continue to be valid until the January high of 1.66 is broken.

The longer term analysis seems to point for further sterling strength, unless there is a fundamental shift in UK housing, inflation, or economic data that acts as a catalyst for a reversal. Pound strength is also technically supported by the strong reversal following the break of the wedge, and the recent strength that resulted in the 12% appreciation of the pound thereafter. Once 1.66 is broken I expect 1.70 and 1.76 to come into the picture with the earlier being resistance during 2009 and the latter being 62% retracement of the financial crisis.

Outlook

While the longer term trend says long, the shorter term analysis is pointing to a correction in favor of the dollar. I’m looking for this week’s economic data to be the driver of price action with technical support/resistance levels acting as inflection points. The 1.66 resistance must be broken, and I prefer to see a close above the figure, before I consider a long and continuation of the uptrend.

A close below 1.6300 would result in the current uptrend being broken and I will look for 1.6200 as support before a close below will confirm a correction with a target of no less than 1.6000 with continuation to the 1.58 level. This could also be the beginning of a head and shoulders formation.

Summary

The correction could begin when UK and US inflation figures are released this week (Tuesday/Wed & Thurs) or on economic weakness such as US and UK Retail Sales (Tuesday/Friday). Mark Carney is also scheduled to speak on Wednesday. A lot of potential catalysts; I expect volatility and some of the prior mentioned levels being seen as early as Tuesday.

Short term resistance – 1.6500-1.6600

Short term support – 1.6200-1.6300

3 Comments

Or Kahana of Trade Leader OR FX presents technical analysis of the AUD/USD.

The AUD/USD monthly chart is providing two possible long-term trades for market bulls and market bears.

Scenario A: Short

This is the most probable scenario for AUD/USD. The monthly chart painted a round top in parallel to a Zero-Line Reject (ZLR) in Woodies Commodities Channel Index (CCI) following a red bar in the CCI that affirmed the expected downtrend. The short trade will kick into play only when the price below 0.8846, below the monthly low. When a break is confirmed, observe the 1hr and/or 4hr charts and look for bearish technical patterns in order to join the monthly trend. In my account, I would look for ZLR and/or Vegas Trade (VT) in order to establish my shorts in Aussie-Dollar.

The bearish targets for AUDUSD are:

1) 0.8519

2) 0.8045

3) 0.7803

4) 0.6756

5) 0.6032

There are a couple of things you must note before taking the trade. This is a monthly entry. A decline of approximately 2,800 pips may not occur in one day or one week. Naturally, there may be corrective gains during the expected downtrend but the weakness is expected to be significantly stronger. The second note is the negative swap. Shorting AUD/USD incurs a relatively high negative interest so it may be wise to place 25-30 pips as intraday take profits and to continue selling on dips if intraday technical patterns are confirmed, 1hr, 4hr and/or Daily chart should be used.

If the intraday take profit is not triggered and you have to rollover your trade do not hesitate to increase the short from a higher price when you have another technical confirmation to do so and do not exit the trade due to the negative interest.

Scenario B: Long

The second possible scenario is a double-bottom reversal pattern (W) on the monthly chart (marked in blue). If AUD/USD re-tests the monthly low, 0.8846 and does not break below, there is a strong scenario for moderate gains. In order to join the trend, monthly, weekly or daily entries should be sought via technical patterns. The initial target for the bulls can be found at 0.9756 and the latter target at 1.0580. Similar to scenario A, technical corrections may be seen during the expected uptrend but the price should remain above 0.8846.

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the GBP/USD.

Technical Analysis

The weekly GBP/USD chart shows a very long consolidation pattern in the form of a triangle following the big drop during the 2008 crisis. Once the bottom formed near 1.3500 a retracement began to take shape, finding a top just under the 1.6800 level, which can be noted as the 50% retracement level. This triangle continued to consolidate for the next three years until the first quarter of 2013 when it was broken to the downside; however, the move to the downside lost traction mainly due to the dollar and the risk-on environment. There was a double bottom in mid-2013 before the sterling began to rally back towards the upper end of its previous four year range.

Looking at the daily chart, focusing on the July impulsive movement that created a new low during 2013 but was unable to close below the figure, I think many are surprised at the resilience the pound has shown during the last few months. Most of the move can be attributed to a weaker dollar (USD Index) along with supporting evidence of stronger economic growth within the UK; however, I think it’s too early to call this a new trend until we see a clear break above the earlier mentioned 50% retracement.

Once the pair closes above 1.68, it should get a positive boost from a technical perspective and it will be “open water” all the way to 1.76, the 62% retracement on the weekly chart.  If this occurs, the analysis would have lost much of short term bearish potential I’m looking for.

While I’m not calling for any specific direction at this time, I’d like to note that the false breakout to the downside has also created a possible head and shoulders formation with the orange box representing the left shoulder and the current rally representing the “head” of the formation. It’s also interesting to point out the rising trend-line from the triangle acting as resistance.  Having said that, there is also an inverted head and shoulders formation with the double bottom representing the head and the 1.5850 level representing the neck-line as can be seen on the daily chart.

Summary/Outlook

Technically, this setup can play out in several different ways and I am placing more emphasis on the USD than on the GBP. While technically this pair has rallied quite nicely following the false break and double bottom, I am reluctant to take a long at these levels and would prefer to short the pair into a possible risk-off scenario going into the December FOMC announcement. I’m keeping an eye on the daily trend-line and a close below 1.5800 should support the bears. Once the pair closes below the 1.4900 level, the pair should continue to gain momentum and a possible retest of 1.43 and 1.36 will be targeted. Perhaps we’ll continue to see more range-bound activity with increased volatility.

Short term support – 1.6300 to 1.5850

Short term resistance – 1.6500 to 1.6800

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD.

Fundamental

The euro has been correcting upwards following the big sell-off that occurred late in October and early November following deflationary data from Europe and the unexpected action from the ECB, which lowered its minimum bid rate. There has even been a mention of negative interest rates, which caused some volatility but most traders have brushed that news aside. Even US economic data has been more or less positive with both employment data and housing figures surprising mostly to the upside but the euro continued to climb higher, reaching the 61.8% retracement from the Oct. 25th high to the November 7th low (the fundamental change I wrote about last time). The EUR/USD pair has now been consolidating during the past 6 days and there have been convergence in both the currency and equity markets as the highs in SP500 are pointing to a top and possible upcoming correction. The most likely scenario to expect is the ECB remaining concerned about the economy and indicating that interest rates will remain low for an extended period of time. Importance will be placed on the ECB press conference and Draghi’s inference to possible negative interest rates and the deflationary economic data, not just in Europe, but even in Germany. Non-Farm Payrolls are on tap the following day and if the figures are better than expected we could see risk aversion take place as tapering of Quantitative Easing by the Federal Reserve will outweigh the positive news (equity markets will fall and the USD will act as a safe haven, along with the JPY).

Technical

The bearish analysis remains constructive as the EUR/USD pair remained below the upwards sloping trend line and below the 62.8% retracement level of the earlier mentioned drop that started in late October. While the bearish picture is intact, we must remain aware that if Non-Farm Payrolls come in weaker than expected, the markets will once again assume that tapering will be pushed further out into the future and we should expect a decline in the US dollar.

Currently, looking at a head and shoulder formation on the daily chart, with the right shoulder correlating with the 61.8% retracement mentioned earlier. A break above that level could target the 1.38 highs and we’ll have to reanalyze the situation following the ECB and NFP news.

A break below the current channel trend line and most notably below 1.3450 should target the 1.3300 pivot low. A close below that level will lead to 1.3150 and the weekly (in yellow) trend line should act as support for the time being.

Outlook

Much emphasis must be placed on this ECB meeting and Draghi’s comments on how the ECB will deal with deflationary pressures within Europe. Friday’s US NFP data will also be very important as stronger employment will guide the Federal Reserve into tapering its QE program sooner rather than later. Expecting increased volatility.

I threw the question of what I should write about this week to a former manager of mine who was a forex dealer back in his younger years and now makes a living telling folks what’s happening in the markets. He tossed back a surprisingly good question:

How can technicals be relevant when central banks are trying to manipulate the market- BOJ with USD/JPY and SNB with EUR/CHF?

I’m sure this is something that others have pondered as well.

Here’s my view on it – speaking as someone who is very much a practicing technical analyst.

Currency intervention by a central bank or other monetary authority (in the US intervention is directed by the Treasury, though it’s executed by the NY Federal Reserve Bank) is just another news item or event that influences exchange rates. Those of us who’ve been around the markets for a while have seen a great many dramatic market reactions to all kinds of developments. Some of them have been triggered by data releases. Some have been driven by news events. Some have been caused by speakers. And some have been the result of intervention action. Heck, some of the moves have come just from the suggestion of intervention without it actually happening.

In other words, intervention is just one more thing that is reflected in the price action we see on the charts. Furthermore, it’s also something that is incorporated into the market’s expectation of the future as part of the price action we’re seeing now. The more market participants anticipate intervention, the more they will factor that into their trading and by extension the more it will influence the price action we see. It works in the same way that stock traders will price in anticipated share buybacks or weak earnings. All markets are discounting mechanisms in some fashion or another, and we can analyze the patterns that are developed in the price action through that process.

So, from my perspective, I don’t view technicals as any less useful in a market where intervention may happen. I use the same methods I would in any other case.

Now, having said that, intervention certainly presents the potential for a major volatility spike on the event (or even the hint of it). If your trading strategy or market analysis is ill-suited to that kind of thing, then while that risk is in the markets you may be best advised to either change the pair(s) you trade or to lengthen your trading time frame out to one where sharp intraday moves aren’t so much of a concern. Alternatively, you could adjust your risk so that you have less exposure for trades going against the likely direction of intervention (like when going short USD/JPY if you think the Bank of Japan is going to sell yen). The analysis doesn’t change, but how you then use it does.