Daily Trading Edge

Three Pairs with Strong Directional Bias

Thursday, Aug 9, 2012

Starting with a clear trend offers a trader an edge by having a dominant psychology driving the pair. There have been recent transitions in trends on daily charts as of late in the EUR/JPY and EUR/USD most notably. There are however clear trends in the EUR/AUD, AUD/CAD, and GBP/AUD and all these pairs capitalize on the strength in the Australian dollar.

The EUR/USD has sunk back below 1.2400 as well as the 50DMA but since it’s moving in a sideways range, I am rather skeptical of follow-through and acknowledge that as prices sink towards the area between the 20DMA and 1.2200 bullish support could build.

Past performance is not indicative of future results

The flat 34EMA Wave and the blue GRaB candles reflect the lack of a trending Directional Bias and this means that the pair is vulnerable to higher volatility.

 

Contrast that EUR/USD with the next three charts. All have consistent red or green GRaB candles and a healthy trend in the 34EMA Wave which reflects that there IS a dominant psychology which then opens up the pair to longer-term time frame set ups, keeping counter-trend entries to the short-term five, 15, and 30-minute time frames.

Past performance is not indicative of future results

Don’t neglect a bounce in the EUR/AUD and look to enter short at the 20DMA. The pair has had support just above 1.1600 and a move higher from here will likely be sold into since the dominant trend is DOWN.

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Selling into the EUR/USD Intraday Rally

Friday, Aug 3, 2012

The EUR/USD rally strongly higher towards 1.2400 (with a high at 1.2391) as the U.S. Dollar Index sunk to 82.36 after Thursday 83.61 high. The dollar weakness has presented an opportunity for euro bears: Short into today’s strength as it corrects what has been an overall downtrend in the pair.

The short entry is built on the back of the daily chart which reflects the dominant bearish Directional Bias of the pair and this downtrend can be defined by the “four to six o’clock” 34EMA Wave as well as the red GRaB candles that had dominated the downtrend.

Two things keep me from looking to get long on the daily chart and that is the 50DMA and the other is the 1.2400 level. The fact that the major psychological level held is the first clue that there was enough selling pressure around the “00” to keep the momentum from climbing through this key resistance level.

The green GRaB candle does make me pause but there is muted risk on this swing short since I will keep my stop loss tight and that means I will use the 50DMA as the level at which I expect selling pressure to keep the EUR/USD from making an all-out reversal of the daily downtrend.

Past performance is not indicative of future results

The downtrend has been challenged but with the 1.2400 and 50DMA levels still overhead, there is a swing short set up that will capitalize on a dollar recovery and or euro weakness.

 

For traders uncomfortable with expecting the dollar to strengthen – especially since the daily chart has transitioned from the uptrend to a sideways market trend – remember that the dollar needs only to outpace the euro to push the EUR/USD lower. Mario Draghi did the single currency no favors with an...

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AUD/JPY Can’t Find Momentum Below 200DMA

Thursday, Aug 2, 2012

The AUD/JPY has yet to be able to sink below the daily 200 period Simple Moving Average as the pair continues to trade up against the daily range highs. This is 1) a sign that the aussie is not gaining on the yen but also 2) that risk may not be completely coming off the table as the AUD/JPY remains resilient.

The AUD/JPY is continuing to see stagnant trading as the pair simply won’t trade lower from what could be considered a distribution range high area. With the 34EMA Wave moving at “two to four o’clock” and an overbought Stochastics (21, 1, 3) the expectation would be that as the Dow also finds itself unable to find support above 13,000 that the AUD/JPY would move lower on the comm doll weakness and yen strength and that is just not happening.

To take advantage of what has been a very strong aussie dollar, the AUD/JPY would not be the pair to focus on since it is not in a bullish Directional Bias (consider that the AUD/CAD and AUD/USD are in nice uptrends while the EUR/AUD and GBP/AUD are in downtrends based on the aussie dollar strength) and therefore this leaves the AUD/JPY reflecting a confused risk environment and a poor candidate for an aussie power play.

Past performance is not indicative of future results

While I may not be focusing on the AUD/JPY for a aussie “power play” I am looking for aussie strength in swing buys on the AUD/USD, AUD/CAD and swing shorts on the EUR/AUD and GBP/AUD.

 

The distribution fade set up that I had outlined in an earlier update is simply not showing the king of selling resistance nor momentum that makes this trade a solid set up. In fact, the high today at 82.73 (just shy of the 82.80 minor psychological level) as...

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Technically risk appetite look finished but this is no typical week

Monday, Jul 30, 2012

Some week’s even a charthacker like myself has to push the price levels and technicals to the backburner and respect that psychology will be ruled by the economic calendar…and this week is stacked.

There are two charts that are at key momentum levels and one look at the daily EUR/USD and daily AUD/JPY it’s clear to see that this week’s central bank onslaught is going to establish the risk environment going into Fall.

With the Dow-U.S. Dollar stall, the risk on of last week’s Thursday/Friday rally in equities has taken a pause. But the EUR/USD is showing weakness as the week begins, perhaps a little buyer’s remorse for euro bulls. My take on much of the EUR/USD rally was that it was more a short squeeze than long positions being put on and the net results in simply fewer shorts than an increase in longs.

Past performance is not indicative of future results

The EUR/USD manage to break higher through resistance at 1.2332 but the pair sank back below this ceiling as the dominant trend of the EUR/USD is still down with consistent red GRaB candles and a “four to six o’clock” 34EMA Wave angle.

 

While the EUR/USD is in a downtrend, the AUD/JPY is moving sideways in a “two to four o’clock” chop.

Past performance is not indicative of future results

The trading range in the AUD/JPY along with the overbought Stochastics reading suggests that the AUD/JPY is techinically at an exhaustion level.

 

The...

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Lately I’m always up for an aussie correction and here’s why…

Thursday, Jul 19, 2012

Today’s update is all about capitalizing on a correction and knowing that weakness in an overall uptrend offers opportunity.

There’s been no arguing with the strength – across the board – in the Australian dollar. Any correction in this currency has been an opportunity to look for ways to get long again. The AUD/CAD has been a favorite of mine because of the clear bullish Directional Bias. It increases the likelihood that pullbacks will be bought into and I have been looking at corrections to the 34EMA Wave on the 60-minute chart.

Past performance is not indicative of future results

The uptrend in the AUD/CAD has continued to set up swing buys along the 20 period SMA close and 34 period EMA high.

 

The AUD/USD has been offering similar opportunities and while the daily uptrend doesn’t offer the established clarity that the AUD/CAD does, the aussie has been persistently outpacing the greenback. After breaking higher through a bull flag pattern, the AUD/USD attracted enough bullish attention to power through the 200DMA. The shallow corrections have been better to swing buy along the uptrend of the 30-minite chart.

Past performance is not indicative of future results

Uptrends are great to set up swing buys in but the corrections must be sizable enough to be able to buy into and the 30-minute has offered a solid balance of a steady “twelve to two o’clock” uptrend as well as pullbacks that reach my swing buy zone between the 20 period SMA close...

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Risk appetite enters a reversal area

Wednesday, Jul 18, 2012

Today’s AUD/CAD buy entry is done and what’s left is a lesson about trade selection, more specifically, time frame selection.

The Dow’s triple digit rally following Fed Chairman Bernanke’s second day of testimony is accompanied by a push to 90.00 on crude oil. July losses are being erased but before getting too bullish at these levels there are a few things to consider.

First, the U.S. Dollar Index is not falling too sharply on this rally. The index is finding buying support at the 83.00 major psychological level which is also five ticks from the 38.2% Fibonacci Retracement at 83.05.

Second, the crude oil market is not necessarily being driven higher solely on the risk appetite seen in the Dow but rather a surprise drawdown in supplies. 

Past performance is not indicative of future results

The Dow’s trading higher in to a layer of resistance that marks the high end of the trading range and ultimately could be where the rally begins to exhaust.

 

Another troubling chart for bulls has got to be the AUD/JPY. The aussie has been outpacing most currencies to the upside and yet on a day where the yen should be weaker on the optimism equities market, the pair sits below the 200DMA.

Past performance is not indicative of future results

The daily AUD/JPY broke higher though a near-term triangle pattern that had formed but ultimately the momentum hit the selling pressure surrounding the 200DMA at 81.72.

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AUD/USD and NZD/USD sit just below 200DMA

Monday, Jul 16, 2012

With today’s meandering U.S. trading session, there’s no wonder the attention may be shifting to the Asian session and the aussie and kiwi reports scheduled for the Asian open.

The bank holiday to start the week means that we haven’t seen full participation in the Asian session yet so Tuesday is really the full open for the week and what timing…the New Zealand CPI and AUD Monetary Policy Meeting Minutes are scheduled to be release at 6:45pm 9:30pm EST, respectively.

Past performance is not indicative of future results

The AUD/USD sits at the 200DMA as the pair has entered the gravitational pull of this psychological level. The 200DMA must be seen as near-term resistance for now but the upcoming Minutes release could be the trigger needed for this pair to resume the uptrend it had been developing.

 

The daily AUD/USD’s 34EMA Wave has flattened as the pair has been unable to scale the recent highs along 1.0280 to 1.0327. With the selling pressure putting a price-based ceiling on the pair, the economic news tonight is likely the catalyst that will resolve the stalemate and despite the intraday/near-term strength in the pair, a dovish Meeting Minutes highlighting concerns for consumer spending growth would likely be enough to send the aussie back below 1.0200. The reason for the aussie strength today is certainly not the weak to flat Dow but rather the speculation of more Chinese stimulus.

These same factors, an anticipated economic release and stimulus expectations, are the same reasoning behind the NZD/USD move today.

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Trading the Euro’s Rally

Friday, Jul 13, 2012

The weakness in the euro is getting a reprieve and despite today’s strength, I see it as an opportunity to set up a longer-term intraday swing short on both the EUR/USD and EUR/JPY.

Risk is on for today and this is pushing the dollar and yen lower against the euro but the play I am looking for is the trend-follow which means I will look for near-term resistance to sell into as I would expect exhaustion and the larger, dominant trend to ultimately prevail.

Past performance is not indicative of future results

The 240-minute chart of the EUR/USD is trending lower and today’s correction higher of the “four to six o’clock” downtrend is an opportunity to enter short with the trend. Notice the consistent red GRaB candles that reflect the bears stronghold on sentiment and momentum on this time frame.

 


Past performance is not indicative of future results

When there is a dramatic rally such as the one seen today, it’s good to wait for signs of exhaustion when looking to enter on a correction. In this case the rally should find resistance and at that point – ideally – the longer-term trend follow should at or near the entry area. The five and 15-minute charts are what I call “building block” time frames. When I see the consolidation that follows the uptrend exhausting, the confirmation for the 240-minute chart is found.

 


Past performance is not indicative of future results...

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The post-Fed Minutes Risk Environment

Thursday, Jul 12, 2012

Juxtaposing the global slowdown and the near-term earning seasons means that there could be near-term support amidst a pessimistic backdrop. There are some signs that the 200DMA is continuing to hold and even through the Dow is down triple digits this morning, the chop on the daily Dow chart indicates prices are reaching a layer of support.

Add to that the 50DMA on the daily S&P and the major psychological level ceiling at 84.00 on the U.S. Dollar Index there are a few scenarios I am entertaining both long and short-term. One of the main stories of course is Fed’s wait-n-see attitude which the market did not like but was none-the-less able to recover from into Wednesday’s close. This morning is another story as equities are pressing lower into post-Fed Minutes lows.

Past performance is not indicative of future results

The Dow is testing buying support at the 200DMA. The move lower through 12,500 did cross a major psychological “line in the sand” and this momentum could carry the index lower. The question is how much will the current sideways market chop effect the possibility that the index will reach an “oversold” area along prior lows between 12,384 and 12,376. If the Stochastics (21, 1, 3) dips below a 20 reading, look for a potential buying opportunity. Big caps tech like IBM are a serious drag on the market.

 

Past performance is not indicative of future results

The U.S. Dollar Index “flight to safety” has halted at 84.00 even with the Dow’s weakness. Partly given a reprieve from the Fed yesterday, the dollar is not...

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AUD/CAD: Intraday and End-of-Day Trend Following

Tuesday, Jul 10, 2012

When the daily time frame has a Directional Bias it helps better define the overall psychology of the pair and that’s exactly what the AUD/CAD going for it. The bullish Directional Bias determines how I will define the dominant trend (up) and what a counter-trend position would be (short) therefore the daily is important in time frame and trade selection.

Here’s how I do it.

I start my analysis with the daily chart to determine what the dominant trend is and for most pairs right now it’s sideways chop. A few exceptions like the AUD/USD (which I wrote about yesterday) and the AUD/CAD have a Directional Bias that indicates that the bulls are running the show. The Australian dollar strength echoes through both these pairs and my approach to both is very similar. But while yesterday I focused on the daily AUD/USD swing buy there is a swing buy also on the AUD/CAD which takes advantage of that same “twelve to two o’clock” angle on the daily. The pullback on the AUD/CAD triggered an aggressive (“aggro”) buy as prices hit not only the 20DMA but also the 200DMA.

Past performance is not indicative of future results

The daily uptrend on the AUD/CAD opens the door to swing buy opportunities are price correct lower into the support of the 20 period Simple Moving Average and the 34 period Exponential Moving Average.


 

Past performance is not indicative of future results

When there is a clear, established trend on the daily, I will set up trend...

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