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!!
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.
End of the month and quarter: confidence reigns
It is hard to believe that 2009 is half over today! For those of us who have been “the glass is half empty” because of the recession/depression/economy gone bad, maybe the second half will be better. But for intraday forex traders, this market has actually been quite nice for making consistent pips, especially this second quarter. Typically I pull in about +200 pips per week, but my average has actually increased to almost +250 per week in the past few weeks. The thing with forex trading, as soon as you start to celebrate your wins, you may get knocked down a few notches with some losses, but so far so good. In June my average weekly winning percentage actually decreased from 82% to 79% winning trades, but my losses have been lower, therefore my overall pip intakes has increased. Pretty cool. I guess I am quite a geek for being so interested in the statistics of forex trading, but truly it is just as important to track all of that each and every week, as it is to actually do the trading. The reason: it will improve your confidence immensely in order to properly act at each trade opportunity rather than second guess yourself. I “feel” better about entering a trade when I have my trade entry confirmation when I know that they past 4 weeks I have seen 80% of these exact trades do win. It makes me sweat less. Along with the confidence of consistent trading, tracking the stats week in and week out will help you determine best days of the week to trade, best times of the month and year to trade. These markets are so cyclical. I have mentioned before in another post that during different times of the year the New York session is good and easy trading, while other times the Asia and/or London are much better and smoother. One way to track your weekly/monthly/yearly trading performance is to track your profit factor. Profit factor is your Gross Profit divided by your Gross Losses. For example: if you make 10 trades in June and 7 are profitable for $15,500, and 3 are losers for $4,100, your profit factor is $15,500/$4,100 or 3.78. The goal is to keep your profit factor consistently about the same, and definitely above a 1.0 profit factor, which is break even. It will make you feel pretty good when you master your trading strategy each month with a consistent profit factor, and the cash you made will make you feel pretty good too. July here we come!
GBPJPY is following my plan
GBPJPY has been playing right into my trading plan this week. I started piling on shorts after I saw the evening star confirm on the daily chart on Monday for 3 trades of +100 pips each. I was targeting 155.00 as stated in my previous post, and sure enough price hit 155.00 almost to the pip today in London trading. When I woke this morning to check my charts at 7am New York time, I saw a golden opportunity staring at me in the face! Since the target had been hit and price was consolidating near 155.50, the smaller time frames were oversold at that point, just prior to the 8:30am news release. I figured there could be more room for a movement to the upside at that point, especially since the news was jobless claims which has been moving the markets positively the past several weeks. Also pointing up: there was positive divergence on the CCI on the 1 hour chart. So, about 15minutes after the news released I entered a long trade at 156.10. I managed to hang on for +100 pips, it was a quick trade, about an hour and a half. So now it looks like the GBPJPY is following along my big picture trade plan: it appears to indeed be heading back up to possibly form the right shoulder of this head and shoulders pattern on the daily chart. If you fib from the high at 162.50 to the recent low at 155.00, the 61.8% retracement is 159.60, pretty darn close to the 160.00 area I was originally thinking. I will observe the price action at that level (if it gets there) and look to enter a short to ride this back down to the neckline again at 155.00. Of course, price may not have the strength to reach 160 area, or it could blow right through it. That is why I prefer to set an alert for my price targets to actually see how price behaves before making any decisions. Wish me luck, and good luck to you.
GBPJPY evening star candle pattern
The GBPJPY daily chart confirmed an evening star reversal candlestick pattern at today’s close, and into this evening’s Asia trading price has fallen quite hard on this pair already. For weeks now I have been happy to be buying up this pair at every chance but now with this confirmed reversal pattern I suspect price is ready to retest the daily 50ema, now near 151.00. The negative divergence outlined on the CCI indicator also indicates that a large retracement is looming. I like this pattern better than the recent fake out similar pattern eight days ago, which did confirm but then promptly again re-entered its upward channel the very next day, it faked me out pretty good and I took about a -50 loss on it. But the reason I like this most recent evening star pattern is that it is coupled with the negative divergence on the CCI and the CCI is already pointing down and back through the 100 line. I am thinking that the GBPJPY price action may end up making a large down pointing head and shoulders pattern, with a neckline building at the 155.00 level. If that does happen then I will be looking for price to continue to fall to the 155.00 area this week, then see if price rebounds to indeed build a right shoulder around 160.00. If price does get there, then I will enter a short trade there back to 155.00. But I am getting ahead of myself here! First, I will look for more shorting opportunities down to 155.00. I expect 155 to hold support but there is also a chance that price will knife through there and head on to the daily 50ema near 151.00. Good luck and good trading.
USD index sinks toward critical support
The US dollar index sank to 79.29 so far today, toward a critical support sitting at 78.50 that held back in December 08. The fundamentals are clearly in control of this currency for now, but contra traders are looking for an opportunity to jump into long dollar trades once the greenback finds some support around this level. The dollar should find some resilience, it cannot fall like a rock, right? EURUSD is reaching for 1.4150 - 1.4200 which was reached when the USD index hit this support level. I am watching the Dow as it may start a new dip today or next week, bringing some money back into testing the old “safe haven” drill of buying up dollars. In the longer term I am still bearish the USD, but a good retracement is likely at this point in my opinion. The weekly EURUSD 100ema is sitting daintily at 1.4225, that could be the target for longs to get out, and for shorts to get in. Cheerio.
USDJPY: brilliant week
After pointing out the two head & shoulders patterns last Friday, the USDJPY tested the neckline of the smaller inverse pattern after NFP last Friday and never hesitated, falling all week this week to break the larger head & shoulders pattern neckline near 96.50. Attached is the daily chart of this pair, with the obvious pattern in view, neckline is in blue. The nearly 400 pip move this week is surely a precursor of what is to come in the coming weeks. Since the neckline of this larger head & shoulders pattern broke, I am expecting further downside, potentially all the way to 89.60 area. The new dotted white lines outline a new down trend channel that has also emerged. Any price pop ups should be good for selling into, as long as this new down channel upper line holds. In fact, with large patterns like this one, and such a large move this week, I would not be surprised if this pair continues its fall without much retracement at all. Target for the pattern points to 89.60 area. Only price above the newly formed down channel would make me reconsider shorts.
The dollar/yen technical dilemma
There are several forces that are pulling and pushing on the USDJPY as is evidenced by the daily chart attached. A large head and shoulders pattern, in pink, has been slowly developing since the breakout of the up channel, in white, some weeks ago. But in the past 10 days a smaller inverse head and shoulders pattern is now evident, in blue. It is important to note that the neckline of the inverse H&S, in orange, is also a trendline slanting down from a previous resistance, obviously still remaining very important and respected. So how does one trade all of this? Thursday and Friday there is important economic data expected: the EUR and GBP interest rate decisions on Thursday and then the NFP unemployment data on Friday. Everyone is waiting for this news before making any big moves. This is evident in this sort of price action: making chart patterns within chart patterns, creating a technical dilemma. So I for one will wait for price to tell me the direction and then pounce on it, because this sort of ranging and pattern making always preceeds a big move. In case this pair heads higher after the news, 99.50 is the level to watch. Price breaking 99.50 and then retesting it for a buy entry, confirms the inverse head and shoulder and also fails the larger pink head and shoulders at the same time, since a move above the right shoulder is a pattern failure. Target for longs is then 103.50 area. If, however, price decides to head downward after the news, 95.60 is the neckline to break for continued fall. A break, retest, and subsequent fall would then target 89.70 region. The important thing about trading these types of chart patterns is to wait until the break happens then look for a retest to confirm the move. Fakeouts are likely. Good trading, and be careful, use your stops.
Yens shorting finally worked out
The head and shoulders pattern that I identified several days ago on the GBPJPY finally broke through its neckline on Friday and the selling continued through Monday to the target. From neckline break near 147.00 to the target at 142.00, a cool 500 pip trade. Since the break happened on Friday, I shorted at 146.90 but price just ranged down and up until the close of the day. I chose to close my trade prior to the close of the day and week, it is one of my rules not to hold trades over the weekend. So Sunday evening I re-entered the trade and took a quick +100 pips. The AUDJPY also had a beautiful head and shoulders pattern on the 4hour chart, so I sold that pair at the break of its neckline at 70.39, taking +100 pips profit. Another clue to the potential break of the AUDJPY was the inside daily candle on Friday, breaking the low of that candle Sunday I figured it was quite likely that price would continue south. Monday continued the selling, I again sold the GBPJPY at 143.54 for another +100 pips. The GBPJPY trade was tricky: the original head and shoulders pattern that was first identified about 10 days ago actually failed when price bounced up off the neckline and broke above the right shoulder, near 149.00. But just two days later a completely new head and shoulders pattern developed, and this is the one that finally broke and gave up all the pips. Sometimes you gotta be flexible and patient to cash in on these patterns, especially when they are on the bigger time frames: 4hour and daily. By the way, am I upset that I did not keep my original sell trade and get all 500 pips? Nope. +100, +100, +100 = +300. That is just fine. Good trading!
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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