Technical Analysis

Talking Points:

• Retest of a Broken EUR/AUD Trend Line
• Key Zone for Initiating New Shorts
• An Entry Signal That's Forming Right Now

As markets begin to find their rhythm for 2014, we’re beginning to see some more traditional trading patterns.

For example, EURAUD has just broken a rising line of support and is now in the process of re-testing it before it decides whether or not to head even lower.
On the daily chart below, a potential head-and-shoulders pattern is developing, and one factor that favors the down side is the fact that price has already managed to produce a lower low.

Guest Commentary: Retest of Broken EUR/AUD Trend Line



Although classical technical analysts require a lower high as well, conditions are favoring a move lower, or at least a consolidation. As a result, a short trade is in order, as this could be the beginning of a new downtrend in EURAUD.

The four-hour chart below demonstrates a beautiful zone of resistance, which is already beginning to come into play. This zone comprises the rising trend line and a medley of previous support and resistance.

Guest Commentary: Key Resistance Zone in EUR/AUD



At the time of writing, price suddenly made a swipe downwards, which suggests that this trade may be preparing to go already. The zone of resistance is estimated as 1.5287-1.5337. As always, however, gaining a precision entry requires going one time frame lower.

Turning to the hourly chart, the trigger would come in the form of bearish reversal divergence, pin bars, or bearish engulfing patterns, and in actuality, a bearish divergence has already formed. Thus, although the entry is late, traders should still be able to hop on with limit orders.

An entry price between 1.5274-1.5280 should be achievable, as price still has to deal with a line of rising support, which could hold it in place for a while yet.

Guest Commentary: EUR/AUD Entry Signal That’s Forming Now



As always, two or three attempts may be required to hop onto this downward move, but given the huge profit potential stemming from the high on the daily chart, this is definitely a potential move that’s well worth trading.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com

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Talking Points

• A break above 0.9077 (618% Fib ret.) has exposed 0.9143 (76.4% Fib ret.)
• Pushing further above that targets 0.9235 (rising trend line from February 2013)
• Reversing back below 0.9077 aims for 0.9024 (50% Fib retracement)

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


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Talking Points:

• CAD/JPY Breaking Daily Trend Line
• Declining Wedge Pattern on the 4-Hour Chart
• A Long-Entry Signal That's Flashing Now

The daily chart of CADJPY shows a portrait of price just beginning to break a line of support. As price pushes through, some will already consider this line of support broken. However, until the candlestick actually closes past it, it is possible that a false breakout may still develop. If that is the case, then the upside potential could extend to the previous high. That alone makes this situation worth trading.

Guest Commentary: Daily Trend Line Break in CAD/JPY



Of course, the level of granularity is insufficient on the daily time frame, so analysis of the four-hour chart is necessary as well.

On the four-hour chart below, we see a declining wedge pattern forming, which is a bullish formation. This is encouraging for a long trade as price enters an area of support defined by previous resistance and support. The supportive zone is estimated as 96.46-97.08.

Guest Commentary: Declining Wedge Pattern in CAD/JPY



Clearly, price is already at the support area, and thus, an entry opportunity may already be forming. The ideal time frame for this trade is the hourly, which allows for reduced risk and a more precise entry.

As always, the trigger chart should be scanned for bullish reversal divergence, pin bars, and/or bullish engulfing patterns.

In this case, the reversal divergence has already formed, ignoring the pin-bar entry on the left, which was already past at the time of writing. Price is currently moving sideways and providing a good opportunity to enter at a better price. With any luck, it will turn out to be a nice runner, as was the case yesterday in our EURAUD entry.

Guest Commentary: A CAD/JPY Entry Signal That’s Flashing Already



Although it is hoped that the first entry will work, traders should be prepared to give this trade two or three tries, as all supportive areas are zones, not precise lines. At this point, this is still considered a trend trade (rather than countertrend), and thus, risk should be adjusted accordingly in order to reflect that.


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Talking Points

• Prices broke higher as expected, completing a Triangle chart formation
• Moving above 1.0865 (50% Fib exp.) exposes 1.0930 (61.8% Fib exp.)
• Below 1.0799 (38.2% Fib exp.) eyes the 1.0706-18 area (Dec 4 high, 23.6% Fib exp.)

Daily Chart - Created Using FXCM Marketscope 2.0

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Talking Points:

• Clear Daily Uptrend in GBP/NZD
• Viable Reasons to Trade Short Instead
• How to Manage the Entry and Control Risk

GBPNZD is in a clear uptrend on the daily chart (see below), and yet in spite of that, there may be potential for a short set-up that could run as much as 200 pips.

Guest Commentary: Clear Uptrend on GBP/NZD Daily Chart



Normally, traders don’t want to go against the daily trend, but there are exceptions to every rule of thumb, and one of those exceptions is a break of a trend line. As shown below, this has happened on the four-hour chart of GBPNZD.

The break of the momentum trend line set price up to move down towards the next rising line of support, which is a potential move of up to 280 pips. The resistance area is 72 pips deep, which should provide a more-than-adequate reward for risk.

Guest Commentary: A Viable Reason to Short GBP/NZD



It is worth noting that because two or three tries at the entry are usually advocated, the actual risk may be less than, or occasionally slightly more than, 72 pips, depending on the way the trigger develops on the hourly chart, which is the trigger time frame in this case.

Similarly, the 280-pip target is precisely that, a target. Although targets are very popular among traders, it is best to regard them as guidelines. There is a real danger in disregarding the price and becoming overly concerned about reward for risk. More to the point, trade management should rule the decision-making process, not any pre-determined price targets.

The hourly chart of GBPNZD (see below) looks ready to turn, having printed a five-wave Elliott pattern that, unfortunately, is not entirely obvious. However, there is a line of support in the way, and that could potentially mean that the first try at gaining an entry could flounder. Nonetheless, it is not the business of traders to predict the market, and thus, it’s best to simply continue to take the trades as they trigger.

Guest Commentary: Trigger Time Frame for GBP/NZD Shorts



In this case, the triggers would be bearish reversal divergence (which has already formed or is forming now in many indicators), bearish engulfing patterns, and/or pin bars. Stop losses should be placed above these patterns, although more risk-averse traders may select larger stop values.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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Talking Points

• Prices are retesting rising trend line support-turned-resistance at 1.6497
• A break higher initially targets 1.6603 (January 2 high)
• Near-term support is in the 1.6316-36 area (January 6 low, 38.2% Fib ret.)

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

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Talking Points

• EUR/USD halts decline ahead of important Gann level
• USD/JPY reverses from just below a long-term retracement
• Gold threatening to breach key Gann resistance

Weekly Foreign Exchange Price & Time at a Glance:

Weekly Price & Time Analysis: EUR/USD

• EUR/USD stalled its decline after finding support just ahead of the 1.3540 3rd square root relationship of the 2013 high
• Last week’s close below 1.3655 shifted our trend bias to negative in the rate
• The1.3540 area is key support, with weakness below needed to signal a broader downside resumption
• The latter half of the month is the next medium-term cycle turn window
• Only a daily close back over 1.3800 would turn us positive on the Euro again

Weekly EUR/USD Strategy: Like the short side under 1.3800.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	*1.3540	1.3655	1.3665	*1.3800	1.3895

Weekly Price & Time Analysis: USD/JPY

• USD/JPY reversed course sharply on Friday and traded to its lowest level in almost three weeks
• Our broader trend bias is positive in the exchange rate while above 103.35
• The 105.55 level remains critical resistance that must be overcome soon if another important leg higher is to unfold
• The first half of next month is the next important cycle turn window
• A weekly close below the 2nd square root relationship of the year’s high at 103.35 will turn us negative on the exchange rate

Weekly USD/JPY Strategy: Like being long against 103.35

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*103.35	103.90	104.00	104.80	*105.55

Weekly Price & Time Analysis: GOLD

• XAU/USD reversed from the 1184 161.8% extension of the October advance last week
• However, our broader trend bias is negative in the metal while below the 2nd square root relationship of the 2012 low near 1250
• Gann support at 1206 is important, but only weakness below 1184 will confirm that the downtrend is resuming
• A medium-term cycle turn window is seen around the end of the month
• A daily close over 1250 will turn us positive on the metal

Weekly XAU/USD Strategy: Like being square here, but will look to go long if 1250 is overcome.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	*1184	1206	1247	*1250	1263

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

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• USDCAD in 2014 is USDJPY in 2013?
• British Pound may come under ‘surprising’ pressure
• Key levels for EURUSD and USDJPY are 1.3745 and 102.50

USD/CAD
Weekly




-After a month of trading between roughly 1.0700 and 1.0560, USDCAD has broken out. Measured objectives from the breakout above the 2011 high range from 1.1680 to 1.1910. The Jul 2009 high rests in this zone at 1.1724 and the 2007 high is near the top of the zone at 1.1875.
-From an Elliott perspective, it’s possible that the rally from the 2012 low composes a ‘3rd of a 3rd (or C)’ wave from the 2007 low. Such market swings tend to exhibit extreme rates of change (so please refrain from terms such as ‘overbought’ or ‘divergence’). Food for thought.
-Levels that could trigger reactions are now (2006 low, 2010 high (circled), and trendline that extends off of the 2002 and 2009 highs), 1.1125 and 1.1460.

Trading Strategy: Staying long. I am looking to add to the trade. Support is estimated between 1.0775 and 1.0850 next week. Stop remains 1.0640.

GBP/JPY
4Hour




-GBPJPY carved a massive outside day reversal on the first trading of the year along with a weekly key reversal the week that ended 1/3.
-The tape this week was bearish. After holding tendline support on Sunday/Monday, a ‘drift’ higher failed at former support (12/31 low) and price slipped below the trendline on Friday. Friday’s video covers GBPJPY in more detail.
Trading Strategy: I am short with a 173.20 stop and 166 target.

AUD/USD
4Hour




-Last week’s (week that ended 1/3) outside reversal broke a string of 10 consecutive down weeks, something that had not happened since 1982.
-The bounce from the 12/18 low is shallow and corrective. Still, the specter of 5 waves down from the Oct high at least warns of a stronger rally attempt. .9167 (former 4th wave price extreme) to .9267 (former range low) is likely resistance.
Trading Strategy: Flat (trading long intraday) but looking higher towards .9167-.9267 for the next top.

EUR/USD
4Hour




-On 12/27, EURUSD traded into the line that extends off of the 2008 and 2011 highs and reversed. On 1/2, price broke below the line that extends off of the 11/7 and 11/21 lows.
-The decline is impulsive and price has rebounded from support (1.3547 is the 11/6 high) in what may be part of a corrective rally. 1.3745 is of particular interest as resistance.
Trading Strategy: Flat but monitoring for resistance at 1.3745.

USD/JPY
Daily



-USDJPY has responded to the previously uncovered close from Oct 2008 at 105.30 (high was 105.43). A cluster of bearish outside days (1/2, 1/6, and 1/10) suggest big selling and there is little reason to suspect that it’s complete.
-At this point, one needs to treat weakness as part of a larger bull move. 102.50 is of interest as support. This level was the ‘lower high’ in May 2013, 12/17/13 low and more generally the middle of congestion that took place in the first half of Dec. I’m tracking a possible topping pattern in the S&P 500 as well.
Trading Bias: Flat but monitor for support if the market sees 102.50. Long seems like a crowded arena so respect the potential for the rate to overshoot into 101.50/60 (Dec 2013 low, Jul 2013 high, Apr 2009 high, 2005 low). Things could get worse if the S&P setup completes.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

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Talking Points

• Prices moved higher as expected, completing a Triangle chart formation
• Closing above 1.0930 (61.8% Fib exp.) exposes 1.1011 (76.4% Fib exp.)
• Reversing back below 1.0865 (50% Fib exp.) eyes 1.0799 (38.2% Fib exp.)

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

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Talking Points:

• Bearish Momentum Prevailing in GBP/JPY
• Nearby Support on Multiple Time Frames
• 2 Ways to Participate in This Trade

As currencies finally appear to be gathering momentum to start the year, it is somewhat ironic that today’s GBPJPY trade actually goes against that momentum.

Several crosses are setting up, and although the four-hour charts are likely to offer better set-ups, the focus of today’s article will be how to enter such moves using the hourly chart.

On the below weekly chart of GBPJPY, we see that the pair has failed to touch the top of the channel, which usually means that there is some kind of divergence movement occurring, potentially indicating the slowing of the general trend.

However, it is also worth noting that three bearish countertrend candles in a row is unusual, especially given how strong the trend has been, and thus, price may be overdue for a reversion to the mean.

Guest Commentary: Bearish Signals on GBP/JPY Weekly Chart



The daily chart pattern below is extremely similar to that seen on the weekly, but with one difference: it is nearing a point of completion. Readers will readily see the upcoming line of support and the potential for that to be traded. Due to the slowing strength of trend on the weekly chart, this trade may not break the previous high, but there is still room for more than 400 pips to the upside, which makes this a very interesting trade scenario.

Guest Commentary: GBP/JPY Closing in on Daily Support



Given that support is more likely to be a range than a line, however, we look to the four-hour chart to gain a better idea of where this trade may develop.

The four-hour time frame offers a declining parallel channel of price action with price currently testing the bottom. This, in conjunction with several other factors such as previous horizontal support/resistance and the rising trend line, provide a zone of support at 167.67-168.89.

Guest Commentary: Key GBP/JPY Support Zone



This zone of support is notable for being only slightly more than 100 pips deep while the potential reward on this set-up is several hundred pips. Trades taken within this support zone using hourly triggers would likely have risk of less than 100 pips, and thus, excellent risk/reward profile would be established.

When drilling down further to the hourly chart, however, some traders may be spooked by the extreme momentum exhibited on the chart, and indeed, they should be rightly wary.

Guest Commentary: Rare V-Bottom Forming in GBP/JPY



Momentum moves rarely end in a V-type bottom, which we see shaping up in this case. As a result, there are two ways to participate in this trade:

• Scalp any bullish pin bars (such as the one forming) or bullish engulfing bars. (Reversal divergence is also acceptable, but the first two are more likely.) These moves may not last long, so at least two positions should be taken in order to mitigate risk. This strategy itself does carry some risk, but if price turns up, it will richly reward these traders. In most cases, it will turn into a slightly profitable scalp trade.
• Wait for more evidence of buyers entering the market. Currently, there are many bear flags with practically no sign of increasing volume, and thus, more conservative traders may choose to wait for a steeper reversal pattern before engaging with this price activity.

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



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