It’s EDDY time. The EUR/USD is just up, up, and up, but I think we may have a short window to yell about potential downside. IF THIS WAS ZEROHEDGE, I WOULD SEND A TWEET ON EDDY IN ALL CAPS. But we’re not at FXBT, so moving on:
- The monthly chart looks nasty. This is something I had mentioned before already. The pair left a bearish engulfing candle in January after failing to break the trendline from October 2007. Additionally, every time the pair has reversed like this on the monthly (since 2007) after a bull run, it has usually seen downside. Overall, big picture suggests downside in the near future
- The weekly chart is more of a wash. It’s up,down,up,down and so on. Nothing much to say here except that it did hold the 1.3480s key level on the chart. It needs to break below this for some downside momentum to grow.
- The magic is on the daily chart for this one. We can see the rejection at the trendline from the recent highs followed by the lower lows and lower highs. It’s been maintaining a channel and on Tuesday the pair left a bearish wick off the upper trendline of the channel.
The pair is itching for downside, don’t you think? I like playing the downside until 1.3550s or 1.3480s if we make it there.A break below here and you have a downside party.
If you think this is too much, look at EUR/AUD then. The Aussie is en fuego and probably has firepower until .9150s and .9200 (tough cookie here). If the Euro helps with some minor weakness, you have a trade. The EUR/AUD is also at the KEY support of 1.5020s. If it breaks, it will be looking for 1.4800 (and 1.4600 if you want to be aggressive).
If it holds…sad face. And it could rally hard (likely Aussie downside). Good luck!
It’s what we’ve all been waiting for: the 2014 Olympics! Ice skating is awesome, nah?
On lesser news, the Bank of England is also about to release its quarterly inflation report. The tone and revisions to GDP, inflation, etc will be closed watched. How should we position ourselves?
- The monthly chart is still business as usual. It broke to the upside in December after getting through that super long-term trendline from 2009 and direction has not changed yet (note: trendline got challenged from the top last week as the pair touched that 1.6250s)
- The weekly had been a long grind. For weeks upon weeks the pair got sold as it approached 1.6550s. It finally put another inverted hammer two weeks ago which led to some slight downside (1.6250s), but the pair quickly kicked back. It left a huge wick on the chart that looks quite bullish. So far, we’ve seen some follow through this week to the upside.
- The daily and 4 hour pretty much tell the same story.
The pair now is waiting for this inflation report. Yes, it could be a non-event, but I’m betting that we’re likely to see volatility.
On the upside, we have 1.6570s and then 1.6740s as major resistance. On the downside, we have 1.6350s (expected suspect), 1.6250s (same), and then 1.6180s, 1.6090s, and the other LINE IN THE SAND (similar to 1.6250s) 1.5900s.
I’m keeping an eye on the super key levels (see red lines in chart below) and playing the ranges. If the pair breaks below 1.6250s, then I’m in the 1.5900-1.6250 park. If nothing happens, we’re still stuck in the current 1.6250s-1.6570s zone. And if it goes rocket ship, then we play the upside. And just imagine how many stops are above those highs? Stoplandia if you ask me.
No need to jump the gun here.
The Dollar Yen has been flirting with 102.00 and 102.50 for quite some time now (as in 2 whole days?!). As headwoman Yellen did not damage the pair on her testimony, I think this guy may be looking for some upside (at least until 103.30s). Pair overview below (some of this pulls back from prior posts because things such as the monthly picture not changing on a daily basis):
- On the monthly chart, the bearish engulfing candle off the 61.8% fib of the big bear run is still in place. February is thinking about challenging that though it seems. Wait and see.
- The weekly chart left a great bullish hammer last week off the 100.50s key support. Given that the OK jobs number and Yellen did not hurt the pair, this may mean something. So monthly still bearish while the weekly is showing signs of hope. It also helps that equity markets are rallying
- The daily is where we really get the better picture on the USD/JPY. It’s still in a channel, so don’t get super excited yet. Nevertheless, the pair held the 100 daily moving average last week which was also the 50% fib of the latest bull run (this sounds good to the ears and traders like to play off of this).
- The pair sees the 55 daily moving average at the 103.30s level, which is also a general key level. This also happens to be the 4 Hour 200 moving average, so resistance should be strong here.
Overall, the pair looks good as it was able to hold strong while that whole emerging market thing happened. I like upside until 103.30s which will be the first level to show strong resistance. After that we have 103.70s that will be a tough cookie. If it can break this, then we’re looking for some good upside.
On the downside we have support at 102, 101.50s, and 100.50s (as before). Keep an eye on that channel, because note this:
It kind of looks like a BULL FLAG. It just has to break to the upside soon.
Monday was an exciting day with a lot of volatility. Some of the trades reviewed yesterday fared well, so I just wanted to give a quick review:
GBP/USD (The Unstoppable Pound Sterling)
- The pair opened on Sunday below the wedge trendline and the daily trendline (as expected). This was a trigger point for a short entry at 1.6420s, which to 1.6300s gained some 120 pips.
- 1.6250s is the next challenge level on the downside. I would expect it to bounce back on first strike if it hits. I would only think about shorting again if it retraces to 1.6350s or right below 1.6400. If it goes towards 1.6250s, depending on why/how it gets there, I would think about small longs
GBP/AUD (The Unexpected Short)
- The Pound selling combined with some marginal AUD buying got this pair selling too. I was looking for a rebound to 1.8780s and the pair maxed out at 1.8790s. I was out at 1.8550 for +130 pips.
- The wedge break here was also smooth. It’s now back near the wedge. RBA announcement is coming up so no trade for now.
USD/JPY (USDJPY wants to go)
- Another great wedge break here. I have to say I was not expecting the bloodbath post ISM data, but I got out at 101.10 post the 101.90 break. So +80 pips was not bad.
- I would only resell at the 102 zone. 101.50s will likely act as some resistance and this pair looks headed for 100.20s-60s.
- I like buying at 100 or so. Maybe a bit under because we’re likely to get some stop hunting if it hits 100 (also have option barriers that could be broken).
- For now, no trade.
EUR/USD (EUR/USD looks shaky)
- At first, the EUR/USD held the 1.3480s zone so there was no short trade during the selling we saw on Monday. However, it did manage to hit 1.3530s (almost to the pip). As I had mentioned, I put in some shorts at this level looking for 1.3480s again or so. I like this short going into the ECB meeting. My current stop is 40 pips.
AUD/USD (The Aussie to rise from the ashes?)
While I’m on a roll, I’m uploading the GBP/AUD weekly review too.
For more color, take a look at the reviews of GBPUSD review (The unstoppable Pound Sterling) and the AUD/USD (Aussie to rise from the ashes?)
- The monthly chart is easy on this one: all you essentially see is green. Since the 1.4000s, this pair has been a rocket. It makes sense given the GBP strength we’ve seen (UK economy strength and Carney ) combined with the AUD weakness (rate cuts, lackluster economy, and dovish stance from the RBA)
- Nothing really points for downside here, so bull stance remains on this time frame
- On the weekly chart, we had some downside last week but nothing convincing. We would need to see a break of 1.8700 to start getting excited. The pair touched these levels last week, but did not have the push to break it. This level had acted as resistance and then became support two weeks ago
- The daily chart is really what’s telling a story here. First, we had a large shooting star some days ago. Then, the pair finally closed below the 1.8780s key level and was not able to get above it last Friday. This also coincided with a break of the short-term trendline from 1.8000.
- GBP/AUD has not broken the 1.8700 level yet, but 1.8780s was the first step. I like selling rallies to 1.8780s if we see it (or selling in general here at 1.8750s)
- For us to see more strong downside on this pair, I think the RBA needs to help out. See the AUD/USD review for details. Also, if the GBP/USD breaks its current wedge to the downside, it will be very helpful
- On the downside, I’m looking for: 1.8500s key level, 1.8230s key level, and then the 1.8000 level
- Upside: 1.9000 resistance and then the high of 1.9178
- Should you rush? No need. The 4 Hour chart also has a great wedge in place. I say wait for the break of the trendlines for your trade (1.8700 to the downside and 1.8880s to the upside).
Just waiting for the pitch.
GBPAUD 4 Hour
Let’s see where the Euro is at. Looks pretty ugly if you ask me.
- The monthly chart closed January with a strong bearish engulfing candle. If you look back to 2007, every time this happened after a bull run, it meant downside ahead.
- The pair was held at the 1.3480s level, which also corresponds to the 55 and 100 monthly averages. It’s on a thin thread though.
- Important to note that this monthly rejection came ahead of the long term trendline coming from February of 2008.
- Given the history, I would say the monthly suggests selling rallies to 1.3700-1.3800.
- And on the weekly chart the EUR/USD finally cleared the 1.3500 level to the downside. Any rallies to the 1.3530s level will likely face solid selling pressure.
- I think the monthly and weekly chart is a reflection of the market expectation for this Thursday’s ECB interest rate decision combined with the Federal Reserve tapering. Inflation numbers in the EU keep getting softer so people are either expecting strong dovish language or some kind of rate cut/liquidity program this week. If this does not happen, we could see a good bounce. However, going into the meeting, I can’t see people taking longs.
- The daily chart adds to the bearish story. Since touching the long-term trendline after Christmas, the EUR/USD has been making lower highs and lower lows.
- The key factor will be whether it can clear this 1.3470s-80s level to the downside and stay down there.
- If it does, the downside levels I’m looking at: 1.3450s (typical magnet level), 1.3360s (200 daily moving average), 1.3300s (lows hit after the last ECB cut), and then 1.3160s (key level).
- On the upside: 1.3530s, 1.3650s, and 1.3740s.
We finished the last week at the bottom of a bear wave. If looking to go short, might be interesting to wait for a bounce (1.3530s being a good entry level). If it breaks 1.3480s on the open, maybe on a bounce back to this level. Long entries would have to be small.
The Aussie has been punched over and over again in the last few months. Is it over?
- The monthly chart would tell you that the downside continues. After being rejected at the .9750s level, the pair has been on a steady downside trend and then broke the .8850s zone without much fighting. It’s now been below the 55 monthly moving average for two months in a row on a closing basis.
- The next big support on the downside is .8570s.
- This .8500-.9300 zone was a comfortable place for the pair in 2007 and then 2009-2010. It can easily get stuck around here for a while
- Have to think about the traders playing the 123% and 150% extension of the 1.06-.88 run.
- The weekly chart is not the most inspiring thing for upside but it does leave you with some questions to ask. Given all the downside in markets and the emerging market fears at play last week, the pair managed to close positive. Hmmm? This is a good divergence to note down.
- On the daily chart, the pair is consolidating and has not done much. It’s been holding the .8700 level but it can’t break above .8820s.
- This .8820s is the first important level the pair has to break if it wants upside. This is the dark blue line on the daily chart below.
- The second key level is .8880s, which is the light blue line. Both of these levels were strong support levels, so they won’t be given up easily
- I think the above levels will likely need a catalyst to be broken. And hey, guess what? The RBA meets this week!
- Given the recent inflation numbers, all the trading houses put out pieces saying that the RBA will likely ease on the rate cutting language. If this does happen, than we likely have what the AUD/USD needs to reach for .89 and .90 again
- Of course, no change in language and you can probably think about saying hello to .8570s.
- Now to the trigger points and the 4 Hour chart: We have a triangle forming on the AUD/USD. I like playing the break to either side but with a bias to the upside. Why? Because of this expectation that the RBA will likely tone down on its dovish language. I say play the possible upside and get out before the RBA announcement (to reduce risk).
- The 4 Hour chart is also showing some bullish MACD divergence
- Downside levels to watch: .8650s recent low and then that .8570s
- Upside levels: .8775, .8820s, and then the zone from .8850s to .8890s (what I call the concrete box). If the RBA helps the AUD, we could see .9000 be touched. This would also put the pair above all the 4 Hour moving averages.
Let’s see what happens.
AUDUSD 4 Hour