Gold and AUD ready to retrace?
Dollar strength was the story today, pulling risk currencies and commodities off their highs, most notably AUDUSD and EURUSD, gold and oil. I have attached a daily chart of AUDUSD to make note of the beautiful double top accompanied by the negative divergence showing very prominently on the CCI indicator. Is this a signal after yesterday’s doji and today’s subsequent fall that more retrace is in the works? It will be more apparent once price revisits this very important trend line which has been in control since the March low, now seen at about 0.9100, the weekly pivot. I will be playing the shorts by selling the rallies as long as 0.9310 holds resistance. Typically with this CCI divergence I like to target the daily 50ema, but since it is quite a bit below the trendline, I will likely take profit nearing the trendline until and unless this trendline is actually broken. This is a contra trade since the trend is still very much up, so stops will be tight. Price may very well fall to this trendline and then reverse again to go higher. 0.9301 is 61.8% of today’s range, an excellent entry but the daily pivot at 0.9272 may also hold. Let’s see how Asia sets up. Good luck and good trading.
Brilliant market selling to end the week and month
The rollercoaster market that we forexers crave returned this week and the putrid whiff of fear is again wafting through both Wall Street and Main Street. The big news of the week was released yesterday with the US Gross Domestic Product release at 0830am, spawning a fresh load of buying and pushing the Dow up 199 points, the GDP data did slightly surprise to the upside to 3.5%. This after three days of a moderate slide in stocks, and continued dollar weakness. After yesterday, traders were excited that price action would likely continue up and up, at least for a time. Friday brought in the sellers. The important level to watch is 2712 on the Dow, which was September’s close. But with the -250ish point fall, the monthly Dow candle will be quite a nice wick and doji. Why all the selling today? Could be the consumer data today showing spending fell in September now that Cash for Clunkers in finished. This may be the beginning of truth coming out in the numbers as the economic stimulus wears, afterall jobless rate continues high and people here just cannot sustain the go-go-go spending that kept the US humming for so long. The jobless data next Friday will be big, either way. Question is, was today’s selling only end of month profit taking or the beginning of something much bigger? Meanwhile, I was happy to snag about 100 pips on the GBPJPY today, selling. Here is something to consider: The daily GBPJPY certainly points to further downside, but even with today’s action the weekly GBPJPY is still neutral to buy. Check it out: The 5ema has crossed the 8sma back down on the daily chart, indicating further selling. But the 5ema crossed the 8sma upward last week on the weekly chart and will close this week firmly in control. Lets see if we can get a drop to the 146 region to begin buying this pair again, near the 61% retracement, looking for a return to 155.00 and maybe even 162.00 level. Good luck.
Weekly GBPJPY chart
Weekly GBPUSD: a precarious position
A spectacular and somewhat surprising run up for the GBPUSD this week after weeks of weakness may have caught many traders off guard who were still holding short trades. The reason for this giant 400 pip move is still allusive, it may have simply been a hardy short squeeze to rattle the shorts, as there was not significant fundamental news that caused this move. But now that the weekly candle has closed, there are some important price levels to note for planning next week. Firstly, the psychologically important 1.6000 was left far behind in the tracks of this up move, this level may now hold support again. Remember how the GBPUSD remained for weeks and weeks inside the 1.6000-1.7000 range, price may again bounce about here for some time. Second, price did reach the 38.2% retracement from the low at 1.3600 to the high at 1.7000, at 1.5700. So there is potential now for a continuation in that up move. However, if you fib from 1.6750 to the recent low of 1.5700, price now is sitting pretty at the 61.8% retracement at 1.6380. So if this surprise up move was just a short squeeze, then this current price level would be perfect for the shorts to re-engage. The clue may just be the weekly CCI indicator included on the attached chart: it is curving up at the 50 line, a sign that the up move may indeed be real. Have I confused everyone?? Yes, yes, too many points here perhaps. For me, I will be looking for opportunities to go long now until that strategy stops working. For example, if price closes back below 1.6000 then I will likely return to a shorting strategy. Good luck and good trading.
USJPY wick wick
What a spectacular wick forming on today’s daily candle on the USDJPY pair, after Asian stocks has a troubling time of it pushing yen stronger, the action in the US and European markets helped this pair recover to nearly the same level as it began - - a doji. But before we get too excited about reversals for this super strong down trending pair, let’s do some investigation. Friday’s daily candle was a massive red down candle, closing outside the lower Bollinger Band. With today’s down move and subsequent retracement back inside the Bollinger Band, it stands to reason that we need to take a fib measurement of these two daily candles, the high at 91.34 to the low at 88.22. Today closed just underneath the 50% retracement at 89.79. And, the 61.8% retracement level is up at 90.15, which consequently is also a previous support level from Sept. 16, to the pip, along with the daily 5ema. I would guess that this level will be hard to break above, for now, and thus should be a good place to place short orders - I am placing mine at 90.00 with a stop at 90.45. Now, why wouldn’t this be a reversal candle with such a big wick? It could end up being the beginning of a morning star reversal candle pattern, actually. The confirmation will be with tomorrow’s candle closing higher than the 50% of the large red candle, at 90.41, which will also then close above the daily 5ema. For the short trade target I will be looking for a revisit to the low at 88.22. It is a good risk/reward trade. Let’s see how it plays out. Good trading!!
Trade idea: AUDJPY breakout of range
After last week’s interesting price movements in GBP, oil, and the USD, we may be heading into some larger volatility price action as autumn gets under way. The USD has shown signs of strength last week especially after Wednesday’s Fed statement and the 160 point swing on the Dow. The GBPUSD has finally broken down through the 1.6000 level which held all summer long. I have certainly been shorting the GBP over the past couple weeks, and most eyes are eager now that 1.6000 broke to close the week. I like to trade the obvious breaks like this one, but I also like to trade less observed breaks as well. Case in point: the AUDJPY. The AUD is also showing some signs of toppishness, though much less weak than the GBP, if the USD really picks up some steam then the AUD pairs will certainly follow. Nothing can keep going up in a straight line like the AUD’s have been. I like the AUDJPY pair, on the weekly chart, attached, this pair has remained in a semi-tight 300 pip range for the past 6 weeks, remaining superbly underneath the 50% retracement level of last fall’s crash, right at 80.00. I wanted to point out a pair that has not yet broken down, so that we can catch the fall. Wait for a break of the range support at 76.80, and through the supporting up trendline. The negative divergence on the CCI is also supportive of this trade plan for shorting. But certainly, wait for the break and retest and continuation before entry. Targets to 68.00 area. Good trading.
EURUSD daily doji, at a monthly reversal pivot
Friday price action has closed with a gorgeous doji on the EURUSD pair, the daily chart, at an important resistance level going back to December. All week the quickening death of the dollar catapulted the euro up and out of its recent range, a 330 pip green candle for the week, directly to touch the upper bollinger band on the weekly. Is this daily doji a signal for a reversal? Incidentally, 1.4589 is also the monthly M4 pivot, a typical reversal pivot. Nice that price closed today below it. Fundamentally I see no reason for the dollar to strengthen at this point, but this could certainly just be readying for a technical bounce. This week’s move was so strong that price has not even touched the daily 5ema for the past three days. It is very, very likely that price will pull back to at least the daily 5ema on Monday, around 1.4500. Monday’s close will be important, whether significantly below the 5ema or not, possibly confirming some sort of reversal pattern like an evening star. We may even see a similar action like what happened the beginning of August, price rounding over to retest the daily 50ema, only to resume the up trend then. Personally, I may wait for a confirming daily close below the 5ema to begin some shorting next week. Of course, price closing above the 5ema, or continuing up to higher highs negates the shorting idea. Good trading.
On to September, bring on the volume
Summer is ending. Boo hooooo…. But with autumn trading and autumn higher volumes, the good trading times are just around the corner. First, let’s revisit August trading: +821 pips, 19 winners, 8 losers. I only traded GBPJPY in August, intraday trades, cutting losers quickly. Now with the new monthly candle closed, it is time to check the big big big picture. Sometimes it is hard for intraday traders to care that much about the monthly candle, but I do think it important and take the time, each month, to see where things may be headed. Attached is the monthly chart for the GBPJPY. The bear candle closed today certainly could indicate more to follow. But it is also important to remember: when price gets so far away from the 50ema, it will soon react like a rubberband and retrace back to that equilibrium, if only for a moment to recoil. That said, I have placed two fibonacci retracements: one from the high reached last year at 215.00 to the low at 119.00. The second is the green fibo up from the low to the recent high at 163.00. The “perfect” scenario would be for price to now dip down to the 50%-61.8% retracement area around between 135.00 to 140.00, that being sufficient to build new steam to break upward toward the 50ema, now sitting between the orange 23% and 61.8% retracement at 187.50. Also of note is the up trendline which also comes in around this level, even more reason for price to head in that direction. But it is our job as traders to deduce the next move, and then trade it for profit. Easier said than done, at times. It is certainly possible that when the summering institutional traders return to the market this month, they will be eager for more risk. But the interesting thing with the yen pairs most of the summer is how they are NOT in synch with the Dow as usual, making the trading landscape harder to decipher with the yens. So, remaining open and flexible to trading the charts and not my big picture plan is imperative. But I like to keep this in the back of my head. If price does reach 135.00-140.00 zone this month and bounce, I will certainly be looking to long for an almost certain bounce up to that 50ema. Would take months to get there, the next carry trade would be in swing, if only for a few months.
The fundamentals, the technicals of JPY
As quoted from BBCnews: “Japan has come out of recession after its economy grew by 0.9% in the April-to-June quarter.
The growth comes after four consecutive quarters of contraction.
Correspondents say the rise is due to a huge government stimulus package and it is unclear whether the momentum will be sustained when this is concluded.
Recent figures show other economies coming out of recession, including Germany, France and Hong Kong, a sign the global slowdown is easing.”
Another green shoot from Japan? Though a very good point that it may be only the government stimulus that is working over there, and maybe in other parts of the world too. Meanwhile, the JPY has been strengthening against all odds most of the summer, against most major currencies. This strong JPY has created quite a large divergence with the Dow, normally the Dow and USDJPY run in very similar lines. But not for some months now have we seen any such typical correlation between these two, which is making traders scratch their heads, and making it a bit more difficult to trade because of it. I had recently written an article about this type of divergence in the past and how divergence with the USDJPY has signaled major reversals in the Dow and S&P 500. Could this summer’s price action be another such sign? After exhaustively looking around the usual places on the net for a reason for the JPY strength, I still have no good reason for why this divergence is occurring. Key price levels to watch on the USDJPY are 93.70, and then 92.50 which is the 61% retracement on the weekly chart. Below there could be something. Also of note: the USDJPY remains in the bear channel on the weekly chart, despite that spike above it just two weeks ago during that NFP spike. So, I must remain a USDJPY bear until price can truly break out of that channel. Good trading!
GBPUSD still remains in the range
GBPUSD remains in the range in the weekly chart between 1.6000 and 1.7000, since June. Since identifying negative divergence on the weekly chart two weeks ago, I have been tentatively shorting this pair, will some success. Looks like an evening star formation on the weekly chart confirmed for further downside, but this week’s close formed a doji, which means indecision. I am still expecting price to revisit the 1.6000 level, which is very near the 20 sma on the weekly chart, which is pointing upward. That may be all we get for downside on this pair, even though in the bigger picture GBPUSD remains in a very wide up trend, with the lower trendline way down at 1.5000. Also, this week’s close closed just below the weekly 5ema at 1.6525. We need to see a real confirmation below the monthly pivot which is at 1.6474. This week, every day, price flirted with this pivot point, but ended the week above it, helping to form this doji. So to me there is potential for serious support down there, as proven by this week’s action. The jury is out, with this weekly doji formed. The monthly pivot is key for next week. another thing to point out about this week’s candle chart is the MACD is certainly rolling over, near a cross over, but not quite a cross over. This could be just cycling down for another try at 1.7000 before any further fall. Truly the USD has not shown major strength this week, in fact is has stayed weak, it was the British pound weakened against major currencies, the fundamentals were not good for the Brits. I think this next coming week will be very interesting in price action, the summer is coming to an end soon, new and stronger volatility will be knocking on the door with fresh moves.
USD index breaks out of its triangle formation
The U.S. dollar has been enjoying a respite from its declining value over the past two months, as evident on the dollar index chart. A triangle formation has been broken this week, an important support at 80.00, as another nail bore into the dollar’s coffin when the TIC data reported that foreign demand for long-term U.S. financial assets dropped by the largest amount in four months. This after the Fed’s announcement of its dollar printing strategy earlier this year which kicked the widespread dollar selling into high gear. So, down she go. The dollar index now just needs to break the 79.00 level decisively for further weakening to really get going. Similar consolidation patterns are seen on the EURUSD and the AUDUSD, both appear to be readying for a breakout to the upside. EURUSD 1.5000 looks to be soon on the horizon. It is so nice when the fundamentals and the technicals both agree. Only seeing the dollar index claw back above 81.00 would cause me to reassess my plans of continued dollar shorting.
Jennifer Shotts
Casey Stubbs has been trading for 14 years. He started trading in the stock market and moved to Forex. 
Richard draws from his extensive experience trading to write insightful trading articles for both fundamental and technical analysis.
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