Tag Archives: technical analysis

A look at the USD/CAD chart

I have been recommending USD/CAD shorts at ForexLive for the past month based on the break of the wedge from September to mid-January.

The trade worked wonderfully at first, quickly falling from the 1.0150 entry point to below parity.Last Monday, Feb 20, the decline looked like the start of another leg down but the pair has since rebounded 100 pips after falling as low as 0.9907.

Another look at the chart is in order.


The pair has been trapped in a 09907 – 1.0052 range for the entire month of February — less than 150 pips. As a trend-following trader, that’s a tough way to make money.

The low coincides with the late-October low of 0.9895 and it will take a close below there to re-establish my utmost confidence in shorts. It’s also a good entry point for someone who is not in this trade.

At the same time, I have to be prudent and protect my profits. I’m putting a stop at the Feb. 16 high of 1.0052, locking in a roughly 100 pip profit.

I’m patient with trades that are in the money, but five-weeks is a long time even if the carry is positive. The run ups in oil and stocks haven’t been the negative shocks I expected for this pair.

The upcoming LTRO is a major event risk and I am expecting major volatility. If I get stopped out here, I will look to establish yen shorts as that is a trade I have been pushing for the past three weeks.


Cable near three-week low

Every day we spin the wheel. Pick one of the PIIGS and pick one of the four following problems: banks, bonds, politics, ratings.

One day it’s Greece and politics, the next it’s Italy and bonds. The news is never positive; just bad or good enough to spark a short squeeze.

I’m generally a trend-following trader and after two weeks of nasty, directionless gyrations, I’m frustrated.

But there may finally be some clarity. I’m closely watching cable right now. The October rebound cleared but failed to close above the 61.8% retracement of the September fall. Now, we are testing the low end of the range and a break may be imminent.

It’s doubtful that I will trade a potential break of 1.5868. Ideally we will get a close below that level and perhaps a weekly close below 1.5820. That would give be the confidence to sell GBP/USD.


Not Reaching for the Falling Knife

The news was bang on consensus. The EFSF, bank capital and the Greek haircut were all in line with what everyone was expecting yet markets have reacted as if hit by a bolt of lightening.

To some extent, I get it. I was evidently one among many who thought European leaders wouldn’t be able to pull it off – the boat was tilted far too heavy to that side and the reckoning is here.

That’s not to say there aren’t risks. Nothing has been finalized and the devil is always in the details.

I’m of the firm belief that economic growth will continue to disappoint. Even today’s GDP report showed the rise in consumer spending tilted towards healthcare and utilities at the expense of the savings rate, suggesting the consumer is tapped out for everything but the essentials.

The Bank of Canada took a dovish approach this week and the ECB and RBA may both cut in the week ahead. There is a tremendous opportunity to short CAD, EUR and AUD today and those would be my three favourite trades. But there is no rush, I have little doubt that selling EUR/USD at the tail end of US trading today would yield an easy 70 pips, but let’s see if we can set-up for something more.

The dollar was the worst performer, followed by the yen. The Swiss franc led, followed by the euro.

Of all the strange things today, the CHF rally is the strangest. How on earth is CHF rallying in all this? The only answer is that the SNB sold some of their euros into the rally.

The first chart to check out is AUD/USD. If anything is overbought, it’s this. The resistance at 1.0764 is a stop that makes for a good short-term sell.


Buying USD/CAD longs is the trade I’m looking for right now but if I had a gun to my head, I would be selling because 0.9800 looks like it’s coming.

Finally, I can’t say that I’m crazy about the euro. The ECB is probably going to cut rates tomorrow but with the momentum the way it is, any short for more than a 70 pip move is too risky.








More Detailed S&P500 Chart Comparison

A friend at Macrostory.com sent along a more detailed view of the comparison between the S&P500 charts from now and 2008.

the current move up is a 55.3% retrace in 14 days (May 2 high to most recent low) versus in 2008 a 57.4% retrace in 44 days



$1728 Is Key for Gold

Our belief is that the two-day selloff in gold is the result of a harsh correction compounded by a leaked CME report. Gold is down $170 from Tuesday’s record high of $1912/oz.


Gold weekly

We think this may provide another excellent buying opportunity for gold but in order for us to buy here we want to be confident there will be no weekly close below $1728. A close below that level would create a bearish engulfing candle on the weekly chart and point to a fall toward $1500.


We will be ready to add to our gold longs in our retirement account on Friday if it looks like gold will close above $1728. If not, we will be ready to hold on for the ride and buy more when it’s cheaper.


GBP/USD Breaks Out

Cable broke out on Tuesday. In yesterday’s post, we noted that we thought the bias was to the upside, despite the resistance around 1.6475. When that level broke, the pair rallied more than 100 pips. We talked about buying at 1.6500 and perhaps some of you did, but we did not have a buy order in play.


The reason we didn’t have a buy order is because we hoped the pair would come back and re-test 1.6475. It’s an effect called ‘buyer’s remorse’ where the pair will re-test a breakout level. This is generally where we like to pickup breakouts. Sometimes we miss the trade but it diminishes the number of false breakouts.


With cable trading at 1.6513 at the moment, we are getting an itchy trigger finger. What’s making us hesitant is that we have had 5 consecutive days of gains in the currency that we believe holds a heavy short interest. The weekly IMM data from the CFTC shows GBP is the only currency held short against the USD. That could mean we have been experiencing a short-covering rally. If that’s the case, it’s probably running out of gas and could reverse.


Ideally, we would like to see a day or two of consolidation with the pair generally holding above 1.6450. This would relieve somewhat overbought conditions and give us the confidence to aggressively buy. At the moment, we’re going to wait, watch and stay disciplined.


Our AUD/CAD trade was up more than 200 pips on Tuesday but has pulled back to 1.0312, which is still 60 pips above our first unit and 20 pips above the portion we added on Monday. We will stay patient but might trim some of our exposure on a close below 1.0296. We are still very confident in this trade and like how the technicals have progressed.


Cable at Inflection Point

We are awed by the trading possibilities of the GBP/USD daily chart at the moment. We see amazing opportunities to make money long or short depending how the market breaks.


GBP/USD Daily Since Jan

Cable hit the highest since May on Tuesday but it only exceeded the prior high by one pip before slipping back below 1.6450. The area around 1.6475 has now become a critical inflection point. We see a minor bias higher because the break lower after the first two tries at 1.6474 was rejected so aggressively. What makes us hesitant to buy is the lack of follow-thru above 1.6475 on the break.

If cable does break above 1.6475 we don’t expect 1.6547 to offer much resistance. Instead, we anticipate a straightforward rally to 1.6747 and a likely test of 1.7000.

We are in no rush to jump in here. We may see a slide all the way down to 1.6325 before we get the conditions to rally. We will buy on a break above 1.6500.

Alternatively, if GBP/USD falls below 1.6300, we will sell on expectations of a move back to 1.60, or lower.

In either case, we expect to make upwards of 200 pips, so we can afford to be patient.


Bought AUD/CAD at 1.0248

Technicals were the primary driver for a long AUD/CAD trade I entered Friday. I announced the trade on twitter via FX_Button.


Every Friday, shortly before the market close, I take a look at the weekly charts and see if anything jumps out. This turnaround, along with probably reversals in CHF crosses caught my attention. The reversals in CHF look convincing but I’m reluctant to fight the huge upward trend in CHF.


Let’s have a look at AUD/CAD weekly chart.


AUDCAD Weekly Aug 12
AUD/CAD Weekly One-year

The dragonfly doji reversal pattern is what jumped out. AUD also looks strong against USD but with this trade I minimize the difficult risk on/risk off trade.


Breaking down the fundamentals also creates a convincing trade. Despite the furor about the soft AUD jobs data and potential rates cuts this year, we are not yet convinced. The RBA took a small step toward HIKING rates at the last meeting, while warning about potential downside risks off shore. It appears as though some of those risks are coming to pass (esp. in US and Europe) but that, alone, will not be enough for the RBA to cut rates. At the same time, Chinese and Japanese data has been stronger than expected.


The same risks apply to Canada. What leaves CAD more vulnerable is that the market is pricing in rate hikes in Canada in the coming six months. With US growth faltering, we highly doubt those hikes are still on the table. If fact, we see the BOC as more likely to cut rates that the RBA.


With this trade, we will look to add around 1.03 for an initial target of 1.05. So far the early Asia-Pac trade has been good to us after a curious rally in CAD in the final 30 minutes of trading on Friday but us behind 35 pips almost immediately. Those losses have been recovered with the pair gaining 80 pips so far this week.


July Trade Review: AUD/USD (+108 pips)

Entered AUD/USA short at 1.0735 on July 4. Exited July 18 at 1.0627. Result: +108 pips

AUD/USD daily July 2011
AUD/USD daily July 2011

Entered with stop at 1.0800 (65 pips). Greatest open loss: 54 pips Greatest open gain: 210 pips

I entered this trade ahead of the RBA decision on July 4. I expected a dovish statement and explained why in a post RBA Will Remain on the Sidelines, AUD Vulnerable  “The Australian dollar is likely to fall if policymakers do not take strong incremental steps toward future rate hikes,” I wrote. “The market is still hanging on to the idea that the RBA could hike in August but we see it as a long shot.”

I wanted to be short USD on July 18 so I exited the trade. Then the RBA minutes were more hawkish than I expected. I wrote this before exiting the trade RBA Minutes Disappoint Doves “What sounded like worries about employment and growth in the statement, read more like a simple adjusting of time frames in the minutes,” I wrote, noting that a high CPI reading late in July could put rate hikes back on the table.” Later in the month I used this perspective and I made money on AUD/USD longs.

What I should have known better: Not much. I could have booked a nicer profit on July 11 but I wasn’t prepared (see my trades in NZD/JPY and NZD/CHF for more).

What I’m happy about: This is what I do best – trades based mostly on fundamentals with some technical underpinnings. I entered the trade ahead of a fundamental event and left the trade as soon as the fundamentals changed. I also didn’t get shaken out by the nearly 300 pip rally on July 11-12.


July Trade Review: NZD/JPY (-26 pips)

Entered NZDJPY at 66.68 on 30 June. Exited July 29 at 66.92. Result: -26 pips

NZD, JPY, Chart
NZD/JPY May-July Daily

I entered this trade at the same time as my short NZD/JPY trade. I wanted to be short the carry trade at a time I thought stocks were overbought with many risks on the horizon. The stops were wide and this was meant to be a position that could last a month (which it did).

What I should have known better: Similar to NZDCHF, I was away from my computer on July 11 and did not have a T/P order in. While I had a few days to still book a great profit in NZDCHF, this pair rebounded quickly to a loss. Still, it was an amateur mistake.

What I’m happy about: I wasn’t too concerned about the initial loss as I was willing to eat some pips in expectation that I would eventually be in the money. I’m very happy about the way I exited this trade. Sentiment was hurting due to weak GDP data, debt ceiling worries and downgrade worries but the S&P 500 bounced off the 200dma so I covered quickly and shrewdly for a manageable loss.