Daily Trading Edge

Tuesday, Dec 10, 2013

While I am gong to use a current example in the EUR/USD, this set up can apply to any intraday trend, especially one that may be closing in on significant support or resistance. In the case of the EUR/USD - it’s resistance.

 

It’s difficult to commit to a long euro position not in light of the news coming out of Europe but because of the inevitability the market puts on the Fed taper. Being short the dollar into late-December and into March of 2014 means that

 

1) Either the taper is fully-discounted - which is a tough case to make since the December Dollar Index futures contract is flirting with an 80.00 level breakdown.

 

2) No taper is coming. Another tough case since the jobs data is steadily improving.

 

 

Past performance is not indicative of future results

 

 

Not all traders may concern themselves such longer-term concerns; an intraday trader may simply want to take advantage of the euro strength and dollar weakness. Staying nimble on the time frames - focusing on near-term movement - then is the key. Not expecting session after session of consistent movement in a singular direction as a pair reaches its limits can be a subjective call but it can be made.

 

Past performance is not indicative of future results

Notice that the EUR/USD daily time frame is closing it on the 1.3813 high which if broken would mean a new 52-week high. Below this level, a longer-term buy would be depending upon...

Wednesday, Oct 9, 2013

Risk aversion continues to test the patience of USD/JPY bulls bears. While many - if not most - fundamentals are Japanese yen bearish (therefore USD/JPY bullish), the main story is the continued risk OFF environment created by the U.S. government shutdown and all the ramifications in that wake: the taper, debt ceiling, debt default, equities support. Today the focus is the equities market.

 

The Dow has been supported at the 200 period SMA close (aka the 200 daily moving average or 200DMA) and this level is closely coinciding with the rally in the USD/JPY. The USD/JPY is rallying with the strength in the U.S. Dollar; one-part a “Yellin-rally”, one part a correction on the U.S. Dollar Index led by the ECB seven-dollar lending. The dollar will be in-demand by eurozone banks fearing a tighter lending cycle as the government shutdown nears the October 17 default deadline; there’s lots to be worries about the yen buyers continue to find opportunities in this risk averse environment.

 

So it is the equities strength not only the the Dow but the Nikkei today that has allowed for some yen weakness over the course of two sessions now, following a 96.55 low. 

 

Past performance is not indicative of future results

 

The U.S. dollar will get limited boost from the Fed Minutes revealing that most Fed members that the FOMC was likely to reduce bond purchases this year even as this did not come to pass in September as expected. However this news comes nine days into the (partial) government shutdown and in those nine days the market has seen an NFP report go unreleased, the BLS shutdown and not collect data, all as the debt ceiling and the fear of government default loom over the market...

Monday, Aug 26, 2013

There are two aussie stories playing out that have my attention. Neither is in a trend and therefore these set ups are less about dominant psychologies and Directional Bias. I am not looking for organization of sentiment and momentum this time of year - just in front of Labor Day - where the the volume and participation are low in the markets.

Past performance is not indicative of future results

 

The aussie versus the loonie is showing clear signs of a more neutral sentiment creeping into the once-established downtrend. The blue GRaB candles coming with more frequency as the four to six o’clock angle is succumbing to a flatter 34EMA Wave. This reflects the shift from the dominant downtrend. 

 

Past performance is not indicative of future results

The idea behind any flattening Wave is to look at the previous (dominant) trend and identify the levels of the emerging trading range.

 Both the AUD/CAD and AUD/USD are setting up momentum trades as the flattening Wave takes each of these daily charts from congestion into consolidation. The AUD/CAD is trading side .9534 and 0.9352 therefore wait until the breakout or breakdown occurs with MACD Histogram confirmation (positive for a break through resistance, negative for a break through support). The AUD/USD is squeezing within a triangle pattern....

Wednesday, Aug 7, 2013

Range bounce markets are deceptive. It’s the range extremes that matter most, while the inside of the range can prove bulls or bears correct - given any single session. It’s ultimately the follow-through that is lacking and therefore committing to a longer-term trend and/or continuation of momentum is often frustrating. So given that, where’s the U.S. Dollar heading next?

With the market still discounting a September taper and the U.S. Dollar Index dipping below 81.50, the greenback has sunk into gap support.

Past performance is not indicative of future results

 

The gap support extends down to 81.40 and at this point - with the 81.50 major psychological level broken - there could be the danger of increased acceleration lower.

 The real challenge comes from defining the current market trend. If the current market trend which is transitional is an early look at a “two to four o’clock” downtrend, then 82.20 represents a swing short entry and lower lows should be expected; however IF this is a “two to four o’clock” chop then the current gap support to 81.40 is actually an exhaustion level that would be faded (bought).

 What confuses matters more is the “subplot” of the June lows at 80.60/80.70 which could be a the target if there is downside acceleration on a 81.40 break.

 

Start the discussion! Questions? Comments. Leave them here at the Daily Forex Trading Edge for Raghee to personally answer. Using the icons at the top of the article to forward this update to a friend via email, post it on Google...

Thursday, Aug 1, 2013

The euro is trading lower against the dollar as Draghi reiterated that rates will remain low and that “The risks surrounding the economic outlook for the euro area continue to be on the downside.” 

This comes as the EUR/USD was beginning to show signs of a potential transition from chop to a fresh uptrend. However at this stage of the transition price action is vulnerable to the volatility of widely differing opinions. 

Past performance is not indicative of future results

 

Past performance is not indicative of future results

 

While it seems that the U.S. Dollar Index wants no part of accelerating below the 200DMA in front of Friday’s Non-Farm Payroll, it is - for now - the weak EUR and better-than-expected Unemployment Claims and ISM Manufacturing PMI data in the U.S. that’s carrying the greenback higher and pressuring the EUR/USD. Had the uptrend on the daily EUR/USD been more established this may have been a time to consider a swing buy off the 34EMA Wave but the transition is not clear enough to consider the EUR/USD to have bullish Directional Bias.

The lack of a “twelve to two o’clock” angle of the 34EMA Wave means that there is an increased chance of exhaustion along resistance and that the pair will remain in its wide, choppy range.

 

Start the discussion! Questions? Comments. Leave them here at the Daily Forex Trading Edge for Raghee to personally answer. Using the icons at the top of the article to...

Monday, Jul 29, 2013

The USD/CAD continues to trade heavy as th mid-May uptrend is tested for yet a third session. While the trendline has been broken today’s session may ultimately be the one that is able to close below and create the downward acceleration to tackle yet another significant support level: 1.0250.

In fact it’s the 1.0250 level that is most likely to usher in a test of the 200DMA, putting parity within reach. But that’s jumping ahead a little too much on a week that the market is readying for a Chinese PMI, FOMC, and ECB all before Friday’s NFP.

Past performance is not indicative of future results

 

The uptrend line break also has implications for the transition in the market trend. While there is bearish sentiment and momentum from the red GRaB candles, pulling the 34EMA Wave down to a “four to six o’clock” angle is not going to happen north of the 1.0250 level.

For this move lower to occur, the loonie will have to outpace any strength in the greenback which could put this pair in a “footrace” in that a stronger dollar (on an optimistic U.S. outlook) would also strengthen the loonie whose GDP relies heading on the U.S. and therefore the strength of the U.S. economy. (79% of Canadian exports go to the U.S.)

The downside expectations must be tempered by the market trend the daily chart is in now ad while trendine-break short sellers could pressure the USD/CAD lower, the current “two to four o’clock” angle of the 34EMA Wave suggests that the pair could exhaust in the near-term. Without a break of 1.0250, that’s likely to create a fade and a short-term rally higher back in to the range. This makes 1.0250 is major decision level and continued resistance at the 200DMA of the U.S. Dollar...

Thursday, Jul 18, 2013

Monday’s election results should shed light on how successful Abe and the LDP party’s plans will be and with a good showing from the LDP traders could see more USD/JPY and Nikkei strength.The set up for the USD/JPY is “old school”. It’s a simple trendline breakout scenario that relies on the bullish fundamentals on risk appetite, JPY weakness, and a strong Dow and Nikkei. The momentum will be provided by the election rally that could come with the election results that Abe is hoping for. The yen has already sold off in a strong Nikkei today, Bernanke’s testimony, and (so far) a solid day for the Dow - fresh off a new breakout high through the previous 15,542 resistance.

 

Past performance is not indicative of future results 

 

The downtrend line resistance which dates back to mid-May could need upward momentum through the major psychological level at 101.00. With the number of blue GRaB candles, there was a neutral market sentiment that help form the short consolidation and it’s this plus the flat 34EMA Wave that makes the momentum strategy valid.  For a momentum breakout to be valid, I prefer that the MACD Histogram be positive (above the zero line) and so...

Tuesday, Jul 2, 2013

One of my absolutely favorite tools is the PowerStats statistics on price that IBFX offers. It truly is a tool that I am passionate about and that I have a professional connection to. I have been a subscriber, an analyst, and an educator for Autochartist throughout the years and am close friends with the founders. It doesn’t seem like all that long ago that I was teaching how I get the most of the chart pattern studies when one of the founders told me about a new tool they were developing. They were utilizing an enormous amount of data to deliver timely, intraday chart pattern alerts and realized that with this data they could also crunch it to yield historical price action statistics. Once I saw what they had done and how they had organized the data…I was absolutely stoked.

 I don’t want you to confuse this with Average True Range. In fact that’s the most common question I get: Are the PowerStats graphs based on ATR? No, they are not. ATR is an terrific indicator that was developed by Welles Wilder and it too measure volatility and like PowerStats is not a predictor of direction. Both tools measure distance. For PowerStats it is the historical price range over the course of month so a range of high, average, and low emerges. ATR - simply put - is about measuring the distance between two points so the most common setting of 14 represents the average of the True Range values over the past 14 periods. The True Range (TR) is most often the currency period’s high to low range (if the current period’s high is higher than the previous high and if the low is lower than the previous low). Increasingly wider ranges is one way to measure “enthusiasm” and within the context of the current momentum or trend, could suggest traders likelihood to bid up or sell off a market. If the range narrows, this is reflecting of a market that may be consolidating. Do not think you have to choose one tool or the other. Quite the contrary. By...

Monday, Jun 24, 2013

A trend has a small window where pushing the validity of a trend-following entry can become a fade and that’s where the EUR/USD is today.

 The EUR/USD uptrend was cut short by the flight-to-safety in the U.S. dollar but has it lost validity? The initial trade entry was based on a swing buy set up and this set up is valid as log as prices remain (ideally) above the 34 period EMA low. The 200DMA and the 50DMA will have more widespread psychological and technical relevance.

 The green GRaB candles have given way to blue (neutral) candles and this means that the sentiment and momentum have shifted which is not unusual for a correction. The problem with this correction is the strength of the underlying trend. Because the EUR/USD has not been traveling higher in a twelve to two o’clock angle for very long it was not established and this makes the new (fresh) trend vulnerable to the tug-of-war between the bulls and bears.

Past performance is not indicative of future results

Today’s buy into the 200DMA and the 1.3100 level is relying on strength coming back into the EUR/USD as this psychological level is tested. The stop loss for this trade is just below today’s 1.3058 low, at 1.3040/45. Since the 34EMA Wave has also transitioned from the upwards angle to perhaps a more sideways direction, this entry could also be considered a fade buy which ideally would be confirmed with an oversold Stochastics (21 period) reading which is does not have right now. However the entry has enough to stand on based on the previous and therefore somewhat lingering bullish bias, 1.3100, and the 200DMA. The “cheated in” 1.3040/45 stop is designed to keep the trade on a tight leash.

...

Thursday, Apr 18, 2013

The U.S. dollar is at the heart of many forex trades and the price action longer-term with the prospect of a winding down of Qe is bullish but the recent transition in the trend shows that the problem is not whether QE will end but when and until that is know, the U.S. Dollar could continue to chop sideways.

The problem is that the dollar’s uptrend is no longer valid and to expect higher high and higher lows in this environment will be instead met with the volatility and unpredictability of a distribution market trend.

The daily time frame shows that the U.S. Dollar Index is still trading above the 200DMA and that the greenback is fairly well supported above 82.00. The climb will be met with a slippery slope between 83.00 and 83.50. While it’s easy to bet against the dollar along the near-term along exhaustion levels like the daily’s 20 period SMA close (aka the 20DMA) it’s tough to commit to a longer-term bearish play.

Past performance is not indicative of future results

 

This month has shaken some buyer loose. There is on-going confusion about the relationship between risk and the greenback since the sympathetic correlation between the U.S. Dollar Index and U.S. equities is not as clearly in lockstep.

 

Past performance is not indicative of future results


In the meanwhile, there is a loose bull flag that has formed on the 240-minute chart which - if broken -...