Technical Analysis

Talking Points

• Prices turned lower as expected after putting in a Bearish Engulfing candle pattern
• A break of support at 0.9302 (50% Fib ret.) would expose 0.9195 (61.8% Fib ret.)
• Reversing back above 0.9409 (38.2% Fib) targets 0.9542 (23.6% Fib)

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Daily



-EURUSD has broken the trend channel that defines action from the July low. My interpretation of this development is that the major trend has turned at least sideways, and maybe down.
-Significant levels (the channel in the current situation) are sometimes re-tested from the opposite side of the market. The underside of the channel crosses about 1.3500 to 1.3510 the rest of this week.
-The previously uncovered 9/13 close was filled on Thursday and the EURUSD made an inside day on Friday. This combination is short term bullish.

Trading Strategy: A Friday high would present a short opportunity. Keep 1.3500/10 in mind although an overshoot is always a possibility.

LEVELS: 1.3296 1.33551.3400 | 1.3470 1.3500 1.3547


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• USDJPY 98.90 serves as key pivot now; buying a dip
• EURAUD and EURGBP trade setups
• Monitor USDMXN and USDNOK for support at slightly lower levels

USD/JPY
Hourly




-USDJPY has broken above the trendline that extends off of the Jul and Sep highs. Price is nearing its Sep high of 100.60 and has not closed below the Oct high since 11/7.
-Even a break above the Sep high still faces headwinds at 100.97 (7/8 close) and 101.52 (Jul high). Of note is the fact that the Nikkei (USD) has already broken above its Jul high. Is USDJPY just lagging or is the Nikkei wrong? There is no way to know in advance. Just know that the USDJPY hasn’t confirmed the Nikkei’s strength just yet.
Trading Strategy: Order to go long at 99.90, stop 98.80. A breakout could be phenomenal so allow the market to dictate upside (if it plays out).

EUR/USD
Hourly




-EURUSD has broken the trend channel that defines action from the July low. My interpretation of this development is that the major trend has turned at least sideways, and maybe down (see last week’s writing on false EURUSD bullish breaks in recent years).
-Significant levels (the channel in the current situation) are sometimes re-tested from the opposite side of the market. The underside of the channel crosses about 1.3475 to 1.3510 next week.
-The previously uncovered 9/13 close was filled on Thursday and the EURUSD made an inside day on Friday. This combination is short term bullish.

Trading Strategy: After a week of choppy upside, the EURUSD finds itself at the right place to stop rallying but evidence is insufficient to
warrant a position. A move through 1.3547 may be needed to rid the market of weak shorts before the next bear leg. Weakness below 1.3400 would pique my interest in the downside.

GBP/USD
Weekly




-GBPUSD has spent 2 months trading sideways. Is the consolidation a pause in a bull trend from the Jul low or a topping process? I lean towards the latter given the presence of the multi-year trendline confluence impeding gains.
Trading Strategy: 1.6160-1.6207 is resistance. How the market trades up there (if it gets there) will determine tactics.

AUD/USD
4Hour




-Bigger picture, the market broke from a symmetrical triangle the week that ended 5/17/2013. The Oct top is pips from that close level (with an outside day reversal on 10/23) and right at long term channel resistance.
-The advance from the August low is defined by converging lines (pennant, common in bear market advances).
-The market is probably consolidating before the next leg down. The first consolidation within the move from the Oct high took 4 days (11/1-11/6). Today was the 4th day of current consolidation.
Trading Strategy: “Currently short. Original stop was .9550. Stop has been lowered to .9475. The 9/13 uncovered close is at .9241 so target half at .9250.”

NZD/USD
4Hour




-The NZDUSD is one of the more compelling longer term bearish possibilities. Consider that…
-The decline from the April high unfolded in 5 waves (impulsive), the advance from the August low is defined by converging lines (pennant, common in bear market advances) and action since 9/18 may compose a head and shoulders top.
Trading Strategy: Nothing to do here…yet.

EUR/GBP
Weekly




-EURGBP consolidation since the Feb top is similar in form to consolidation that began at the Dec 2008 high. Both series are corrective.
-Price action (inside day after the rate cut and sharp advance and now an inside week) during and after the ECB rate cut suggest that the drop into .8300 was one of capitulation.
-Near term, EURGBP is holding up at former resistance.
Trading Strategy: I am long. Stop is .8295. Target is .8500 (Aug low).

EUR/AUD
4Hour




-EURAUD has followed through on last week’s reversal and is approaching the 9/27 high of 1.4559. Of interest in the future is the 8/30 uncovered close at 1.4841 and 8/28 close at 1.4918.
-Price has traded through the line that extends off of the Aug and Oct highs. The top side of the line is serving as support.
Trading Strategy: I am long. Stop is 1.4360. Target is 1.4550.


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Talking Points

• Prices are testing the 10556-65 area (falling channel top, horizontal barrier from September)
• A break lower targets 10492, November 6 low
• Above resistance at 10653 (23.6% Fib exp.) exposes 10839 (38.2% Fib exp.)

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Talking Points:

• Developing Downtrend on AUD/CAD Daily Chart
• Short Set-up on 4-Hour Chart
• Long Scalp Trades for the Short Term

AUDCAD is offering two trade possibilities as it begins to display a potential downtrend on the daily chart. A rising support line has been broken, but it is only now being retested. A declining channel is also potentially forming.

Guest Commentary: Beginnings of an AUD/CAD Daily Downtrend



An actual downtrend still has yet to be formed, however. The lower high and lower low formation is encouraging, but the untested broken uptrend line is an issue. Before price gets there, it will have to deal with resistance from the declining channel, as shown on the daily chart.

In looking at the four-hour chart below, which magnifies the declining line of resistance from the downwards channel, an estimated resistance zone has been obtained between 0.9840 and 0.9878.
There is a rising wedge pattern, but given the daily chart pattern, it is anticipated that the price may overshoot upwards out of the wedge into the resistance zone before turning around.

Guest Commentary: Key AUD/CAD Resistance Zone



Of course, as indicated on the daily chart, this resistance may not be able to overcome the magnetic power of an untested broken trend line. However, it is a valid area for taking nibbles at the short side.

Traders should be ready to take one or two tries on the short side on the hourly chart should price rally to this area and give short signals like pin bars, bearish engulfing patterns, or reversal divergence.

At the time of writing, the pattern is far from ready to be traded, and it may take some time to get there. However, a lower time frame may offer a more immediate trading opportunity.

The hourly chart below shows a pennant, or triangle pattern, following a declining move and the formation of a pole.
Using the Fibonacci expansion tool and estimating a breakout level from the end of the triangle, a break to the downside would have to deal with support from the 0.9771-0.9783 zone.

Guest Commentary: Potential AUD/CAD Buy Opportunity



For those who want to understand the reasoning behind this long-entry opportunity:

• A pole followed by a consolidation pattern (flag, pennant, etc.) is usually followed by a breakout in the same direction as the pole move, which, in this case, is down.
• That move is usually projected to be 61.8%, 100% or 161.8% of the original pole's move.
• However, in this case, that level would be a break of the larger rising wedge pattern, which suggests that price should not go too far before being pulled back up to retest the underside of the broken rising wedge.
• Thus, the 61.8% -100% levels form a reasonable zone in which to look for a long scalp set-up.
• This move has justified reward for risk because the potential of the move is to begin a longer-term swing upwards to trigger the hourly short trade described in the first half of this article.

Those who wish to prepare for the trading opportunity should be eyeing 15-minute-chart longs for this second set-up, which would be triggered especially by pin bars, although bullish engulfing patterns and reversal divergence would also be acceptable.

Keep in mind this is a countertrend trade, and so a large part of the position (up to 75%) should be taken out as defensively as possible at the first sign of trouble, with a small, longer-term component held just in case this trade runs a long way into profit. After all, the higher-time-frame short may fail as prices race up to retest the underside of the broken trend line on the daily chart.

In this transitioning AUDCAD market, the best response is to have a mindset and trading plan for both shorts and longs, as we’ve described here today.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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Talking Points

• A Spinning Top candle at in the 1.3499-1.3529 area (38.2% Fib, channel bottom) hints at weakness
• Below support is at 1.3421 (23.6% Fib) eyes 1.3294 (Nov 7 low); we’ve holding short
• Breaking above resistance exposes 1.3563 (50% Fib retracement)

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Daily



-USDCAD has pulled back from the line that crosses the July and August highs. A break above that line would warrant a bullish bias.
-An early month low is in place at 1.0397. Weakness below there would shift focus to channel support closer to 1.0350.
Trading Strategy: Flat
LEVELS: 1.0397 1.0428 1.0448 | 1.0484 1.0525 1.0567

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Talking Points

• Cycle turn window here in Gold
• USD/JPY needs to overcome key resistance soon
• USD/CHF extends retracement

Foreign Exchange Price & Time at a Glance:
Price & Time Analysis: USD/JPY

• USD/JPY is in consolidation mode below key Gann resistance at 100.65
• Our near-term trend bias is higher in USD/JPY while above the 5th square root progression of the year’s high at 98.60
• Traction over 100.65 on a daily close basis is needed to validate the latest move higher
• A minor cycle turn window is seen around the end of the week
• Only a daily close below 98.60 would turn us negative on USD/JPY

USD/JPY Strategy: Like the long side while above 98.60.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*98.60	99.70	99.95	100.40	*100.65

Price & Time Analysis: USD/CHF

Charts

• USD/CHF has come under steady downside pressure since failing a couple of weeks ago at the 61.8% retracement of the September to October decline near .9250
• Our near-term trend bias is higher in the exchange rate while above .9045
• The .9160 area is immediate resistance, but traction over .9250 is really required to signal an upside resumption
• Thursday is a minor cycle turn window
• A daily close below .9045 would turn us negative on the exchange rate

USD/CHF Strategy: Like the long side while over .9045.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CHF	*0.9045	0.9070	0.9105	0.9160	*0.9250

Focus Chart of the Day: GOLD


Gold has come under renewed downside pressure over the past few days. With a clear head & shoulders looking topping pattern on the daily chart the technical outlook looks fairly ominous for the yellow metal here from a classic technical perspective. However, cycle analysis suggests some caution might be required as the next 48 hours or so are a clear medium-term cycle turn window from where the commodity could try to stage a reversal of some kind. Key support looks to be a convergence of the 2nd square root relationship of the year’s low and the 5th square root relationship of the 3Q13 high between 1248 and 1243. A failure to get below the latter on a daily closing basis by Friday would favor a general move higher next week.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

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Talking Points:

• Textbook Symmetrical Triangle in EUR/CHF
• Daily Chart Favors Upside Breakout
• Key Support Zone for Initiating New Longs

Today, the attention turns to EURCHF, which is famous for the fact that from time to time, intervention will force the pair toward certain levels. A look at the weekly chart below confirms the declining interest of traders as it forms a nearly perfect symmetrical triangle pattern.

Guest Commentary: Classic Symmetrical Triangle in EUR/CHF



As always, all consolidating markets must eventually break out, and we are in the final third of the triangle as price winds towards the termination point. Of course, some triangles simply develop into more elongated sideways patterns, but a breakout at this point would be very significant.

In the meantime, traders can keep entering smaller-time-frame trades, hoping to ride it into a bigger trend.
The daily chart presents a triangle within a triangle. All this consolidation will break out at some point, and the question is whether to back the bounce or the break. There are arguments both ways, but the strongest argument would be that the most recent price action prior to the triangle was bullish, so a bounce seems like the more likely scenario.

Guest Commentary: EUR/CHF Triangle within a Triangle



The four-hour chart below provides even more clues regarding support. Here, we see a confluence of support levels comprised of pin bars and a general estimate of the support from the rising trend line on the daily chart. Actually, price is already winding towards it.

Elliott wave fans will note the “N” formation of zig-zag 1, and that the inverse of that pattern may be in play as price goes towards support before it bounces. Of course, traders backing the break down will note that a head-and-shoulders pattern may also be forming. However, there is no telling who is right until the market gives the result.

Guest Commentary: Dual 4-Hour Patterns for EUR/CHF



For those uninterested in the technical jargon, the bottom line here is that the zone of support can be identified as 1.2294-1.2307.

A better entry could be taken on the hourly chart (not shown) if/when price gets to that zone, and the usual entry signals, including pin bars, bullish engulfing bars, and bullish reversal divergence, would be in play.
As always, it may take two or three tries to get it right, but in this case, price may well reverse suddenly upon reaching support. After all, abrupt turns are extremely common in consolidation territory, and if this happens, it will undoubtedly benefit the trade.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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Talking Points

• Prices bounced as expected from falling channel resistance-turned-support set from July
• A break above resistance at 10653 (23.6% Fib exp.) exposes 10839 (38.2% Fib exp.)
• Turning below the channel top (10505-32) aims for 10492 (November 6 low)

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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