Friday, April 8, 2011

EURUSD—new high

Euro has touched 1.4421 this morning. On the way, it broke the downtrend line on the weekly chart.

This move up has triggered many stops. This covering of short positions helps price rise. Now that price has topped 1.44, a big psychological number, there should be some reaction.

Were there price targets in this range? Yes. As I pointed out in my comment on the daily chart earlier this week, I had targets up to 1.4366. Given that Euro closed at 1.4392 yesterday, one has to look at weekly targets. One of the closest is 1.4432. This is where the current C wave on the weekly chart would be equal to A. 1.4451 is .618 of the move from 1.6041 down to 1.1876. As a result, 1.4450/4500 should top before a reaction. Profit taking will also fuel a reaction. I wouldn't necessarily short the reaction except in very small time frames. With the current signals, higher probability trades are those that buy dips. It is very possible that Euro is heading towards the top of the upward sloping rectangle, around 1.5150.

What about my Elliott count on the weekly chart below that implies this is wave 2 of (3)? Am I daffy? I hope not.  While I take it seriously when a pair breaks a major trend line, it's not my only piece of evidence. I don't have good reason yet to change my count. That count is a result of price activity from July 2008 to the present, almost 33 months. The current upward push from 1.1876 took place over the last nine months, about 28% of the total time.

I would like to see the pair retest the trend line, perhaps dip slightly below, and then reverse upward again to gain confidence in buying a large position.

Support for a pullback is at 1.4389, 1.4350/20, 1.4280/43, 1.4152 (strong) and 1.4000.

Here's the weekly chart:

© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author. My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Thursday, April 7, 2011

AUDUSD—new highs

AUDUSD reached a new high this morning of 1.0495. This was the first of several price targets in a zone that extends to 1.0550/95. I've unloaded some longs but still have two positions. I'd expect a reaction between there and 1.0600. Note that some trend lines intersect near 1.0700. (I don't disregard old broken trend lines). There are additional price targets up to 1.1400. While it certainly would not achieve that soon, this currency is a bullish freight train. Since the low in 2008 of 6007, Aussie has gained 4,488 pips, a gain of 75%. One could have done far worse than to simply buy dips in this currency. Commodity currencies in general are strong.

There is negative divergence on the daily chart. However, daily candles are strong—they are not throwing off many upper shadows. If it were, it would be a hint the market is rejecting higher prices.

Support is at 1.0289/57.

Here's the daily chart:

© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author. My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Wednesday, April 6, 2011

GBPUSD—April seasonally strong

If you look at the monthly chart below, you can see that April tends to be an up month for Cable. I've marked the years above the April candle. This chart begins in 2001 so it is only nine years of data but the pattern goes back further than 2001. Think about it only as something of which to be aware.

Cable is still below the downtrend drawn from 2009. However, the pair broke above a long-term downtrend line from Nov. 2007 in February, closed below it in March and is above it again as of today. The pair needs to close above 1.6401 for this break to gain credibility.

Note the symmetrical triangle. These can be continuation patterns. From an Elliott perspective, they always are continuation patterns that occur in a fourth wave. If this is true, the width of the triangle is the price target for wave five. This would be 3,542 pips (1.3503 to 1.7045). It seems a bit much to contemplate at this point—way down in the 1.11 area.

If, instead of a triangle, one wants to look at this as an ABC correction, then wave C at .618 A would be 1.6400. Other approaches strengthen this resistance. The .382 retracement of the 2.1164/1.3503 decline is at 1.6430 and 1.6410 is R3 of the weekly pivot.

Above 1.6430/1.6500 would strengthen the case for a move to much higher prices. The August 2009 price high is 1.7045. A daily flag target I blogged about March 19 had a target of 1.7215. If this is an ABC correction and wave C equals A, the target is 1.7725.

On the support side, 1.5345 is the most recent swing low. If one buys the Elliott triangle interpretation, leg D of the triangle would be 1.47 or so.

Here is the monthly chart:

© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author. My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Tuesday, April 5, 2011

AUDUSD—correcting

After yesterday's high of 1.0422, Aussie has pulled back to a low of 1.0289, breaking below its short-term uptrend line. RSI also broke below its uptrend line. The pair appears to be trying to hammer out a bottom here. This is close to key support at 1.0257, the December high. Below that is support at 1.0200, then 1.0143 and 1.0059. If the pair can base here and begin another push upwards, it needs to take out the 1.0422. If so, 1.0500 is next. This would be in line with the overall uptrend that has been in place since 2008. Here's the three-hour chart:
© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author. My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURUSD—failure at resistance

The recent 2011, 1.4269 high was the second time Euro has tried to break above the November high of 1.4182. The first was 1.4248 on March 22. This sets up a potential double top, potential because it requires a push below 1.4021 for confirmation. If it is confirmed the target is 1.3773.

Support is at 1.4139/15, 1.4110 (strong with confluence and an uptrend line), 1.4062, 1.4021 and the psychological 1.4000.

As I blogged yesterday, there are possibilities for a push to 1.4326/66 but, so far, this is out of reach.

Here's the three-hour chart:

© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author. My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Monday, April 4, 2011

EURUSD—Reaction versus change in trend

Is the price rally from the 1.1876 low a corrective reaction or a change in trend? This is almost impossible to answer at this point but looking at the price behavior from the perspective of different theories is useful. Today, I'll discuss the monthly chart considering Dow Theory, Elliott Wave analysis, and simple trend lines.

From the Dow Theory point of view, Euro remains in a primary downtrend on the monthly chart. In Dow Theory, a primary downtrend lasts one to several years and there is at least a 20% decline in value. The Euro had a 23% decline from the1.6041 July 2008 high to the October 2008 1.2329 low. The low of 1.1876 in June 2010 resulted in a percent decline from the high of 26%.

In a primary down trend, there are intermediate trends or reactions that result in price rallies. During these reactions, price retraces 33 to 66% of the prior price change. In the Euro's first reaction from 1.2329, price retraced 76% of the 3,712-pip decline. An intermediate rally fails to bring price above the top of the preceding rally. The rally that began from the low of 1.2329 stopped at 1.5147 in November 2009, well below the prior 1.6041 high. The rally that began at the low of 1.1876 is still in progress. This reaction is well past the 66% retracement of the prior decline of 1.5147 to 1.1876. A 76% reaction would bring price to 1.4362.

Differentiating between the first leg of a new primary trend and an intermediate reaction within the primary trend is difficult. Dow stated that the secondary trend often consists of three or more minor waves. On the monthly or weekly chart, one can see this as a three-wave reaction. One can also examine volume, unavailable in the spot market, and the maturity of the primary trend.

Maturity is tricky. The downtrend has been going on since July 2008 three months shy of three years. Is that mature or immature? In comparison to the prior long uptrend from 2000, it's immature. Dow spoke about three stages within primary trends, with the third stage of a bear market finding assets liquidated regardless of their underlying value. This is not happening. It is questionable if it has happened at all during the downtrend given the financial woes of various Eurozone countries. Another third stage sign is little interest in buying. Obviously, someone is buying or price would not be going up. All this leads to the appearance of this being a corrective rally rather than a change in trend.

By the way, many expect the ECB to raise the interest rate this month. Increasing an interest rate often boosts a currency. However, the proverb of buy the rumor, sell the news, comes to mind. How the Euro reacts to the actual news (if the rate increase takes place) will be interesting to watch.

Obviously, if price exceeds 1.5147, the primary trend has changed from down to up. For short-term traders that seems too far away to be useful; for longer-term traders, it is not that far.

Dow Theory is one piece of evidence. Elliott Wave can be another. From an Elliott point of view, one could argue that the C leg of an ABC correction on the monthly chart is over and that price is beginning another rise. It is possible. However, if one looks at my wave counts on a weekly chart, it seems more likely that price is in a third wave with this current correction being wave two of three. If price exceeds 1.4282, this interpretation is invalid (wave two cannot exceed the start of wave one). The high this morning was 1.4269, tantalizingly close. If it exceeds 1.4282, is a bearish interpretation out of the question? No. The correction could still be taking place. On February 28 I blogged that if one assumes the C wave is currently "in progress, then .618 of the A wave would bring price to 1.4347."

There are no absolute answers from either Dow or Elliott Theories. However, one needs to keep them in mind as many traders follow them.

Another thing to use is a simple trend line. Trend lines can be surprisingly valuable. Clearly, Euro is at an important resistance trend line. This line is currently at 1.4326. A sustained break above this line would be compelling evidence that the trend is breaking upwards. Note that while Euro has clearly broken below a major uptrend line (the dotted line), it has yet to break below the second uptrend line drawn in solid red on the chart below. That trend line is currently at 1.2226.

From doing only this limited analysis (Dow, Elliott and trend lines), I now have a resistance zone beginning at 1.4326 (the trend line) and ending at 1.4366 (the same percentage correction as the prior correction). The mid-point of this zone is a.4346, almost exactly the price projection from the C wave calculation. This zone also coincides with a price resistance on my three-hour point and figure chart. As a result, I will most likely think about selling if price reaches those levels. If price exceeds that zone, the next major resistance is at the upper boundary of the upward sloping rectangle. This is currently around 1.5150. Obviously, on a daily chart, one would see interim resistance levels.

What about time? Time is not as useful as some Gann followers would have you believe. I do look at it, though. One thing to say about it is that the prior correction took 13 months to reach the high of 1.5147. This rally is now in its tenth month. If the rally continues beyond 13 months then it might be significant.

An important factor is momentum. It plays a role in all trade analysis I do, particularly in shorter time charts. On the monthly chart below, RSI has broken above its downtrend line. However, note that it is not pushing into overbought levels (above 70) even though the price rally has been steep.

Here's the monthly chart:


© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author. My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Weekly High, Low and Close