Daily Trading Edge

USD/CAD pushed lower but the play may be an intraday reversal

Tuesday, Jan 17, 2012

The USD/CAD continues to bounce in an ever-narrowing range and this has squeezed the pair into a triangle pattern on the daily time frame. Its uptrend line of the pattern that is of particular interest however since price action is testing it today on the heels of the BOC keeping overnight rates at 1.0%.

The lack of a Directional Bias on the daily chart shows that neither the bulls nor the bears are able to keep control over sentiment and momentum, and thus there’s a total lack of a dominant trend.

The lack of a trend will be a persuading factor in which of the intraday time frames I may set up for an entry; the five, 15, and 30-minute charts will be better candidates in an environment where we have to question follow-through in either direction.

Look at the daily chart and you’ll see that the pair is resting on the uptrend line support of the triangle. This is a major uptrend line because it reaches back into the market memory (the initial touchpoint dates back to Sept. 2011), I has multiple touchpoints (three excluding today’s test), has good separation in the touchpoint (meaning that all three are not bunched up in one area but rather spread out throughout the trendline), and finally it’s relevant since it’s being tested today.

Past performance is not indicative of future results

The USD/CAD follow-through will be predicated on who wins the battle at the uptrend line support being tested today. Since there is no Directional Bias, the likelihood for follow-through below this level is low UNLESS crude oil re-strengthens and/or the greenback drops.

 

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There’s significance in today’s aussie rally

Tuesday, Jan 17, 2012

While commodities generally are flat (referring to the Continuous Commodity Index) the euro’s strength today is based on strong Spanish and Greek debt auctions. The greenback’s move correction lower has allowed the aussie to rally against it as crude oil continues to attempt to claw back from last Thursday’s selloff.

In all this is the AUD/USD which benefits from the re-strengthening in crude oil and the weakness in the greenback. The pair has broken the resistance that twice held the pair below the 200 period SMA close on the daily. This is a significant breakout for a pair whose daily chart could be indicating a shallow uptrend.

Past performance is not indicative of future results

The daily AUD/USD has pierced the 200 period Simple Moving Average (SMA) close also known as the 200 period Daily Moving Average (DMA). Support above this level will be key to continuing what is now arguable a shallow uptrend. It’s important to note that a bullish Directional Bias will change the intraday approach to the pair and make any short entry counter-trend.

 

The breakout through the 200 period DMA is not necessarily where I am focused for any entry, in fact it’s the intraday uptrend that could be interesting IF the daily has transitioned to an uptrend. It’s a little too early to say that it is established but the angle is more “twelve to two o’clock” which makes the 60-minute swing buy valid since it’s trend following. These are important nuances. I have to mention that it is important - psychologically AND technically - that the pair find buying support at/above the 200 DMA.

 

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EUR/JPY near-term congestion offers options

Monday, Jan 16, 2012

The 15-minute EUR/JPY has been consolidating and has formed a triangle. Remember that the overall, dominant psychology on the pair is bearish. This can be confirmed by the “twelve to two o’clock” 34EMA Wave on the daily time frame.

Respecting the daily’s downtrend means two things: First that a long position on any time frame would be counter-trend and second, a long position should only be opened on a short-term time frame like the five, 15, or 30-minute chart.

The 15-minute chart has set up a momentum entry which means that a buy or a sell could be triggered depending upon whether the downtrend line resistance or the uptrend line support is broken. The MACD Histogram can be used to confirm the pierce of either trendline. By using an indicator like the MACD-H, a close of the candle is not required.

Past performance is not indicative of future results

The 15-minute EUR/JPY has formed a triangle pattern in as the 34EMA Wave flattens to a sideways,”three o’clock” angle. This sets up a momentum trade that can be watched for a breakout in either direction but remember that he buy would be counter-trend.

 

Here’s where a buy entry could get interesting. If the 15-minute is able to rally through the resistance of the triangle and follow-through towards the 20 period SMA close or the 34 period EMA low on the daily chart (currently plotting between 99.28 and 99.88) then a daily swing short will trigger. It’s a long ways off but any buy entry - or series of buy entries - should be taken within the context of where the selling pressure could build and therefore at which point the overall trend lower could continue.

 

As an active forex trader and Chief Currency...

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How long will the optimism last?

Thursday, Jan 12, 2012

I question the euro’s optimism today for a number of reasons, not the least of which is the substantial downtrend that it is in. But let’s look at some other reasons to question today’s move higher in the single currency: The Dow just ain’t buying it.

The December Retails Sales picture was dim and this is pressuring the U.S. equities and to that the increases in jobless benefit filings and there could be some justification for the weak Dow. But consider a much bigger picture: Europe. Europe has been a concern if not an all-out drag on the world’s economy. The fear that the contagion would not be contained has continued to concern traders and investors…and now here comes another positive headline courtesy of ECB President Mario Draghi.

In reality though could it be that - globally - we’re just not as pessimistic as we used to be? There’s probably a good argument for that but a lack of pessimism will not equate into an uptrend. What it can do is transition the downtrend into a more sideways range that will chop along the bottom of the downtrend.

And don’t look to crude oil for hope and growth. Crude’s marching to the geopolitical fear beat and a look at the Continuous Commodity Index futures will show that commodities as a whole are weak.

Past performance is not indicative of future results

The question of “how long” the intraday EUR/USD rally can last is dependent upon how long the bears will unwind their short positions and that means also how they will continue to react to Draghi’s optimism and U.S. dollar weakness.

 

The interesting thing about today’s euro rally is that the Dow is not benefitting at all. The dollar’s reaction is as expected and the...

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Betting Against the Greenback is Still a Bad Idea.

Wednesday, Jan 11, 2012

If you consider what I was tracking yesterday - namely the USD/CAD move intraday downtrend and the AUD/JPY intraday uptrend - the focus was on short-term moves that were - in part - based on the U.S. dollar’s pullback. These dollar-weak positions were contingent on the dollar’s continued correction which means that in terms of their relationship back to the greenback, they were counter-trend. Therefore it was best to keep these entries 1) nimble and therefore 2) short-term.

Counter-trend moves should be limited to the shorter-term time frames because the expectation for follow-through against an overall trend should be considered limited. But what if the daily time frames DO NOT have a trending Directional Bias? That was the case in both the AUD/JPY and USD/CAD.

Today the U.S. dollar has resumed its bullish ways and the Dow Jones Industrial Average has sunk back below 12,500. Risk is OFF and this benefits the dollar. This also means that the intraday strength in the AUD/JPY and intraday weakness in the USD/CAD has reversed. Consider how important it is to stay nimble and aware of these counter-trend entries. Expecting longer-term follow-through would be a mistake when the U.S. dollar’s Directional Bias is firmly bullish and the entries from Tuesday - albeit justified - relied upon the dollar’s weakness. It is important to know WHY a trade is working!

Past performance is not indicative of future results

The AUD/JPY is struggling to push higher as risk aversion creeps back into the market. The 15-minute Wave Reversal short entry which triggered at the vertical aqua line held until the 79.00 major psychological level before rebounding; the pair is now meandering sideways.

 

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Trade Set Up Synchronization: AUD/JPY

Tuesday, Jan 10, 2012

…defined as requiring the coordination of events to operate a system in unison. Let’s look at how exhaustion on the daily, a trend reversal on the 15-minute, and uptrend on the 60-minute chart AUD/JPY set up a “sync-trade”.

From a risk perspective, what does the advancing AUD/JPY reflect? When the aussie dollar gains against the yen the view is that there is a “risk on” attitude in the market as traders buy aussie dollars and sell yen. This can be further confirmed when the greenback is weak and equities are strong.

Starting with the daily time frame - in order to take a reading of the Directional Bias in the market - the AUD/JPY is nearing the resistance area of the sideways range. The meandering nature of the daily chart’s price action indicates a non-trending market phase and this increases the likelihood that prices will exhaust around prior higher. Add to that the Stochastic (21, 1, 3) climbing into overbought territory and the signs for selling pressure coming are there.

Past performance is not indicative of future results

The daily AUD/JPY is setting up an aggressive distribution fade (short sell) as prices look ready to exhaust near the previous highs at 79.48 and 79.70. This 22 pips range is where previous resistance was established coupled with an overbought Stochastic indicates that prices will remain in the sideways range.

 


Past performance is not indicative of future results

The 15-minute AUD/JPY is setting up a short sell of its own as the 34EMA wave is being tested...

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The USD/CAD Trend to Watch

Tuesday, Jan 10, 2012

Finding a trend equates to identifying where sentiment and momentum have organized. When this happens, the psychology of the market is clearer than when the market is moving sideways where neither the bulls nor the bears have control. Knowing who is in control increases the likelihood of better specifying what will occur at support and resistance.

Generally I prefer to not only trade a trending time frame but I also prefer when there is a trending Directional Bias on the daily chart of the pair I am trading.

The USD/CAD is not trending on the daily chart therefore my preference is to then focus on shorter-term intraday time frames like the five, 15, and 30-minute charts. The 30-minute has been moving lower with consistent resistance at the 34EMA Wave. By the way, you may notice that the 60-minute chart is also trending lower in what looks like an even steeper and smoother angle lower but the 30-minute is my preference because of the lack of direction on the daily and also because price action has been touching the Wave with more frequency offering an opportunity to short into bounces. Another reason I like the 30-minute is that if the sentiment and momentum shift, the 34EMA Wave will be broken sooner that the 60-minutes offering a more aggressive risk control strategy.

Past performance is not indicative of future results

The 30-minute USD/CAD is trending lower as the loonie gains on the greenback. If the intraday trend is to continue, equities and the “risk on” attitude will have to continue since the grenback’s pullback is pushing this pair lower.

 

 

As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a...

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The Forex Market Pulse Continues to Point to Indecision

Monday, Jan 9, 2012

Other than the continued pessimism in the euro, many pairs continue to drift in an environment where it’s increasingly difficult to measure risk appetite. The lack of a dominant market psychology can be traced back to a trio of markets that are behaving usually.

There’s little doubt that traders are still pessimistic on the euro, and skeptical of any solution in the near term. The U.S. dollar continues to benefit from this and even with today’s intraday bounce in the EUR/USD, is there much doubt that the bears are ready to position themselves at levels of resistance?

Past performance is not indicative of future results

The EUR/USD is getting a slight reprieve but this bounce - a correction - is likely to be sold into are traders have not carried the pair higher through even the short-term 15-minute time frame’s 200 period SMA.

 

Making the risk picture blurry is a combination of a U.S. dollar, Dow, and crude oil. These three daily charts are all in varying degrees of an uptrend with the U.S. Dollar Index being the strongest. Traders are accustomed to the push-pull of the dollar and Dow where one will advance as the other sinks. In the current market environment the three markets advancing together is making risk appetite seem stronger - in my opinion - than it really may be.

Pairs that are suffering as a result (and I quality “suffering” as a lack of market clarity) are comm-dolls like the loonie and aussie. Are the USD/CAD and AUD/USD moving with the strong crude oil market and slightly bullish equities market (risk appetite) or are they moving with the strong greenback. My analysis is that the strong U.S. dollar is dictating action and therefore I view the view of risk appetite that the Dow and crude are...

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Will the crude surge continue?

Friday, Jan 6, 2012

As crude rallies on impending Iran sanctions, the question now is whether the resistance overhead can be broken. If so, the next question is whether the loonie will benefit and go along for the ride as the USD/CAD hovers just above its floor 50 to 130 pips above parity.

The uptrend in crude oil may be shaky but the momentum certainly is not. Pushed higher in recent sessions on fears that Iran will block the Strait of Hormuz if sanctioned, the chart shows that the market is just above the 103.37 high from November 17.

Past performance is not indicative of future results

The daily USD/CAD is hovering above the 1.0000 parity level with recent lows at 1.0050 and 1.0131. If oil can find support above the 103.00 level, could this be enough to push the pair below parity. Likely no, and only because the U.S. Dollar I still maintaining its uptrend.

 

The U.S. dollar’s post NFP-surge will pressure the crude oil market if the Iran headlines can’t propel the market higher. For now and through the early part of the Friday trading session, all eyes will be on the NFP and its aftermath.

Technically, the near-term selling pressure has created a double top on the daily chart of crude oil and this is keeping the USD/CAD within its sideways chop. The parity level is not quite in play yet but the previous lows at 1.0081, 1.0065, 1.0050, and 1.0074 have established a layer of support that was being put in place back in October. Traders seem to be buying into the moves lower into this area and that is setting up a fade as prices are oversold.

The U.S. Dollar Index has pushed to the December 2010 highs and this is where it will get interesting since the index is poised to test the 81.63 level as wells attempt...

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Lacking any trend, the AUD/USD is rejected at the daily 200SMA

Thursday, Jan 5, 2012

The daily chart of the AUD/USD has been chopping sideways as the pair struggles to find direction. Certainly as of the last handful of sessions there is some bullish momentum but as prices rally towards the 200 period SMA close, sentiment could shift.

Assuming resistance will remain resistance until its broken is simply respecting support and resistance on a chart. It’s the very reason chartist mark the lines and levels they identify. They are DECISION LEVELS at which price action could react in one of three ways: accelerate, stall, or reverse; these are the reactions of the market IF I have identified a decision level in play. The Directional Bias of the daily does offer insight into the dominant psychology of the market and this sheds light on tendencies of market participants so as a chartist I can narrow down to a single choice as to which of the three reactions I could see.

Past performance is not indicative of future results

The daily AUD/USD climbs towards a battle with the 200 period SMA. On a daily chart there is arguably no more psychologically relevant an indicator/setting combination that the 200 period setting on a simple moving average.

 

The fact that the recent sessions have rallied must be considered within the context of the directionless market. How do I confirm that this market is without a dominant psychology and therefore without a direction - more commonly called a “trend”? I will look to the angle of the 34EMA Wave. Since it is neither moving higher at “twelve to two o’clock” or lower at “four to six o’clock” it’s then likely in consolidation or congestion. The flatter the Wave is, the less market volatility. Since this Wave is rather lumpy, it’s a “two to four o’...

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