Technical Analysis

Talking Points:

• Raging Uptrend on GBP/JPY Weekly Chart
• A Countertrend Opportunity Too Good to Ignore
• How to Choose an Entry Signal Wisely

GBPJPY is sporting an uptrend according to all measures on the weekly chart, as shown below. It has recently found some resistance at the 1.236 external Fibonacci retracement of the previous downtrend (not shown). After the pin bar from last week, price is now headed up to challenge the highs. Whether this will prove successful, however, remains to be seen.

Guest Commentary: Raging Uptrend on GBP/JPY Weekly Chart



The daily chart, however, sports a different formation (see below). A rising trend line has recently been broken and is now being retested. Should the underside of that trend line hold as resistance, there could be 800 pips of downside potential, or perhaps even more. Although this set-up is countertrend in nature, it’s extremely tempting and shouldn’t be ignored.

Guest Commentary: Potential Countertrend Move in GBP/JPY



The four-hour chart below is a little vexing, however, as it exhibits a potential zone of resistance that is a quite sizable 167 pips deep. In many scenarios, this might be considered too large to trade, as there may be too many false signals before the actual move occurs. However, given that this is the most infamously volatile of all currency pairs, it makes it somewhat more acceptable, especially when the risk profile is viewed in the context of the potential 800 pips of running room if the trade works.

Guest Commentary: Big Resistance Zone for Initiating GBP/JPY Shorts



In all, the final resistance zone for initiating GBPJPY short positions appears to be 173.22-174.89.

As usual, though, this trade is to be taken on the hourly chart (not shown) in order to increase precision. The “normal” triggers that would justify an entry are bearish reversal divergence, pin bars, and/or bearish engulfing patterns. However, given how large the zone of resistance is, one may expect some false entries, and some traders may attempt to circumvent this by taking a more conservative trigger. This would include, perhaps, a very quick moving average crossover, like the 2 and 3 simple moving average (SMA) crossover, for example.

There are pros and cons to adopting such an approach. The obvious weakness is that it tends to trigger a late entry, usually at a less-favorable price. It also means that price has to travel further in order to provide a satisfactory reward-for-risk ratio. On the other hand, though, it is far less likely to provide a false signal.

The usual entry triggers are just as valid, but traders who use them will have to accept that instead of working on the first, second, or even third attempts, price may go on the fourth or even fifth signal.

It is strongly advised that only two or three attempts be made to get on the trend, because if this trade does not work out, this can be a very slippery slope for traders, particularly because it is still counter to the weekly trend.

Both types of entries (aggressive and conservative) are acceptable, but traders should choose their entry in accordance with their own unique trading plan and psychology.

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


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Talking Points:

• Fundamental Concerns from Bank of Canada (BoC)
• Finding a Good Trading Counterpart for CAD
• Attractive Technical Set-up in CAD/CHF

The Canadian dollar (CAD) has been the market’s favorite whipping boy for perhaps the past six months, and the Bank of Canada (BoC) did nothing to reverse that trend this morning, as it expressed concerns about lower inflation.

The BoC expects inflation to remain below target for “quite some time,” and said that downside risks to inflation have increased of late. The BoC also left the door open for more cuts, saying “the timing and direction of the net change to the policy rate will depend on how new information influences this balance of risks.”

Suffice it to say that things aren’t great in Canada, but this had been established already. Personally, I believe the market is getting a little ahead of itself given how much CAD has sold off.

When looking to buy a weak currency, it’s important to find another currency with some fundamental weakness to sell it against, and here enters the Swiss franc (CHF). I’ve been a fan of trying to sell CHF for a long time now, as the Swiss National Bank (SNB) would prefer a weaker franc, and has proven willing to take steps to get it.

USDCHF has broken higher over the past few weeks and looks poised to continue to the upside, which would ideally bring most other CHF crosses higher as well.

Furthermore, there is an attractive technical set-up in CADCHF that bears watching. The pair is nearing the 61.8% Fibonacci retracement level from the pre-intervention lows (back in 2011) to the highs above 0.98, and has been trading in a descending wedge on the daily chart for a while now.

Guest Commentary: Potential CAD/CHF Bounce from Channel Support



The pair is approaching that wedge support and showing some significant RSI divergence on the daily chart, providing a nice confluence of supporting factors that make this trade attractive, despite its countertrend nature.

By Liam McMahon Currency Strategist, GlobalFxClub.com


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Talking Points

• EUR/USD has a big cyclical test coming up this week
• USD/JPY finds support at important retracement level
• Gold overcomes key resistance, but cyclical picture less positive here

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

• EUR/USD recovered this week after finding support just below the 1.3540 3rd square root relationship of the 2013 high
• Our trend bias is lower in the Euro while below the 2013 closing high near 1.3800
• The 1.3540 area remains key support, with weakness below on a closing basis needed to signal a broader downside resumption
• A cycle turn window is seen around the middle of next week
• 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	1.3680	1.3750	*1.3800

Weekly Price & Time Analysis: USD/JPY

• USD/JPY broke below the year’s opening range this week and traded to its lowest level since early December
• The close below 103.35 has shifted our broader trend bias to negative
• The 38% retracement of the October to Janaury advance near 102.00 is a key downside pivot that must be surpassed in the next few days to trigger the next important leg lower
• A turn window is seen today and Monday
• A weekly close back over 104.85 is needed to shift the trend bias back to positive

Weekly USD/JPY Strategy: We like selling USD/JPY on strength while below 104.85.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	101.55	*102.00	102.35	103.30	*104.85

Weekly Price & Time Analysis: GOLD

• XAU/USD traded to its highest level since early November this past week before encountering resistance at at the 50% retracement of the October to December decline at 1270
• Our broader trend bias remains positive in the metal while above the 1x1 Gann angle line of the 2013 closing low near 1213
• A convergence of Gann and Fibonacci levels between 1270 and 1286 needs to be overcome to signal the next leg higher
• A cycle turn window is seen today that could lead to some near-term weakness
• A daily close back under 1213 would turn us negative on the metal

Weekly XAU/USD Strategy: Like being long while over 1213.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	*1213	1246	1252	*1286	1300

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

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Talking Points:

• Pennant-Like Weekly Pattern in EUR/GBP
• Key "Decision Point" on Lower Time Frames
• 3 Technical Themes Unfolding at Once

The weekly chart of EURGBP now seems slightly confused. What was originally a bullish formation—a pennant after a move up—is now looking somewhat suspicious. This pennant-type pattern should have broken upwards to continue the move, but it has been edging ever lower in recent weeks instead.

Although the overall pattern is still admittedly bullish, there’s reason to view this with caution. For the moment, the best move would be trade EURGBP as if it is in consolidation, or in conjunction with the lower-time-frame trend, which is down.

Guest Commentary: Weekly Pennant-Like Formation in EUR/GBP



The daily chart below shows price having risen to the first decision point, i.e. the test of the declining line of resistance. Regardless of whether price breaks down or moves up from this level, there are about 80 pips of potential movement. However, given the clear downward trend in this pair, the short would be most preferable.

Guest Commentary: “Decision Point” on EUR/GBP Daily Chart



Given how limited the first targets are, a lower-time-frame entry is preferred in order to offset the relatively smaller potential with greater precision.

The four-hour chart below is interesting because of a number of coinciding levels:

• A previous horizontal resistance and support-turned-resistance immediately above;
• A declining line of resistance;
• An inverse head-and-shoulders breakout, the standard target for which has been illustrated on the chart, and also falls within the key zone of resistance.

Guest Commentary: 3 Technical Factors Impacting EUR/GBP



Thus, the resistance area shown in blue is a logical place to engage with a potential downward move in price. The zone indicated is 0.8296-0.8331, or 35 pips deep. Compared to the potential 80 pips between here and the first level of major support, this is reasonable risk. However, the hourly chart may provide a more suitable trade trigger.

Guest Commentary: The Ideal Time Frame for Trading EUR/GBP



Readers used to the typical entry triggers will wonder if now is the time to short EURGBP, as there is already a bearish reversal divergence in price with the (8,3,3) stochastic (not shown). Normally, that would be so, but the momentum move up makes this a more dangerous proposition, and thus, it would be better to wait for the next divergence before taking this trade.

Other common entry triggers like pin bars and/or bearish engulfing patterns would still be valid, and it would not be unreasonable to take two or three tries to get in on this trade. At the time of writing, a proper trigger had not yet developed, but this remains a distinct possibility.

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


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Talking Points

• A bullish Piercing Line candle pattern hints a move higher is ahead
• Pushing above 10718 (horizontal pivot) exposes 10756-76 (Jan high, channel top)
• Turning below 10661 (23.6% Fib ret, channel floor) targets 10602 (38.2% Fib ret.)

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Talking Points:

• Pullback in Overall EUR/CAD Uptrend
• Key Support Zone for Initiating New Longs
• The Ideal Time Frame for Taking This Trade

With last week's two star trades, the first in GBPJPY, which is now more than 400 pips into profit, and the second in EURGBP, which is running with a 60-pip profit on tiny initial risk, now well on their way, it will be interesting to see if the winning streak continues into this week, possibly signalling a return to a higher-probability trading environment.

See previous trades:

Today's trade is a textbook set-up in EURCAD that involves buying a pullback in an overall uptrend. This trend is clear on both the weekly and below daily chart, but it has the drawback of potentially having put in a blow-off top.

Guest Commentary: Clear Uptrend on EUR/CAD Daily Chart



Nonetheless, it is far wiser to trade in the direction of the overall trend, and thus, all that remains is to find a logical zone of support from which to initiate this trade.

The risk zone can be found on the below four-hour chart, although it is admittedly a little higher than expected. A nearby pin bar that was formed on the way up reveals a hidden level of support, and price has already begun to test this level. The support zone then extends down to the top of the previous major move up.

Guest Commentary: Key Support Zone for EUR/CAD



Of course, this zone also includes the rising level of support. It is 79 pips deep, which is small compared to the overall potential of this trend trade. Even a move back to the top would contain at least 180 pips, and if it made a new high, there would be much more.

To gain precision, however, it is preferable to take an entry on the hourly chart (see below), which may afford for a smaller stop loss. The trigger for this trade could be bullish reversal divergence, a pin bar, or a bullish engulfing pattern on the hourly chart.

Guest Commentary: The Ideal Time Frame for Trading EUR/CAD



The hourly chart also sports an eight-wave Elliott pattern which may be completing a “c” wave, possibly indicating higher prices in the near future. Price has already begun to react with the support zone, having just grazed it, but it will require the close of the hour in order for proper judgment to be made as to whether this trade has officially triggered.

As always, two or three tries may be required in order to get in on this trade, but each try will probably have less than 25 pips of risk, and thus, that aspect of the trade would be well under control and in fact advantageous should the trade go quickly.

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


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Talking Points:

• US Dollar Setup Hints at Upcoming Recovery
• S&P 500 Testing Pivotal Chart Support Cluster
• Gold Prices Signal a Reversal Lower is Ahead

US DOLLAR TECHNICAL ANALYSIS – Prices put in a bullish Piercing Line candlestick pattern above support in the 10656-61 area, marked by the bottom of a rising channel set from November and the 23.6% Fibonacci retracement. A break above initial resistance at 10718 – a horizontal pivot – targets the January high at 10756 and the channel top at 10779. Alternatively, reversing below support exposes the 38.2% Fib at 10602.




S&P 500 TECHNICAL ANALYSIS – Prices are testing support at 1773.30, marked by the 38.2% Fibonacci retracement and a pair of rising trend lines set from November 2012 and October 2013. A break below that initially exposes the 50% Fib at 1749.20. Near-term resistance lines up tin eh 1809.60-20.60 area.




GOLD TECHNICAL ANALYSIS – Prices put in a Bearish Engulfing candlestick pattern at 1267.71, a support-turned-resistance level set from early October, hinting a move lower is ahead. Initial support is at 1235.57, the 23.6% Fibonacci expansion, with a break below that targeting the 38.2% level at 1208.88. A turn above 1267.71 eyes the January 27 high at 1278.72.




CRUDE OIL TECHNICAL ANALYSIS – Prices declined as expected after putting in a bearish Dark Cloud Cover candlestick pattern. The WTI contract is now testing support at 95.56, the 23.6% Fibonacci expansion, with a break below that eyeing the 38.2% level at 94.17. Near-term resistance is at 97.81, the January 23 high.



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

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Daily




-NZDUSD has responded to resistance above .8400. The 1/14 high is just shy of the 9/19 and 10/24 highs at .8435/45.
-Longer term trend remains sideways, possibly within the confines of a triangle (since 2011). In general, the market has entered longer term resistance (highs in March 2012, December 2012, February 2013, and October 2013 are from .8471 to .8543). The pattern probably explains why NZDUSD isn’t doing much at the moment.

LEVELS: .8132 .8212 .8230 | .8277 .8302 .8345

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Talking Points

• A bullish Piercing Line candle pattern hints a move higher is ahead
• Pushing above 10718 (horizontal pivot) exposes 10756-81 (Jan high, channel top)
• Turning below 10661 (23.6% Fib ret, channel floor) targets 10602 (38.2% Fib ret.)

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

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- Forex markets at critical points following Turkish and South African rate decision
- All eyes turn to the US Federal Reserve for a critical interest rate decision
- Follow all up-to-the-minute updates on our Forex Real Time News Feed

Forex markets have been especially volatile following emerging market interest rate decisions. All eyes turn to the US Federal Reserve for potential fireworks.

Fair Value of S&P 500 Futures See Big Moves on Turkish and South African Rate Decisions




Japanese Yen Nears Critical Resistance (USDJPY Support) Ahead of FOMC Decision




It will be critical to watch price action into the Fed interest rate decision as it could determine US Dollar and broader financial market price action through the foreseeable future.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies.

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