Weekly Thread: August 10 - 15

Hello everyone, hope you all are enjoying your weekend.

Euro is not the only currency to be traded on forex, but no doubt it’s most traded after us dollar, and that makes EURUSD pair most traded one. Acc to stats of 2001, ~35% of trades on forex is eurusd. This fact turns eurousd pair to be most liquid. So lets start from this one.
As my friend Russell suggested, I will attach little image. This pic is not one I have on my charts, but only to show something everyone can observe on there own - the triangle. It will be easier to look at it and read what I mean without switching to charts all the time. It’s a daily chart. This formation is most important thing in terms of talking what may happen next, so that’s the main issue now.
Once we have a formation, its possible now to observe and analyze the process of its formation. Let’s go step by step and maybe that will help us to understand the sentiment behind it.
After the uptrend ran out of steam and the fall began, we had a trend line (yellow line) preventing up move and holding for whole month - from mid June to mid July. Once we got a deep move to 1.1 level for the first time (1), the market was unable to push it, and we got a day close above the opening; i.e. 1.1 area was area of very strong buying, and bears were way much weaker than bulls in that area, so bulls won it easily and that winning got them on such rally, that they were able to break the month old resistance trend line. After a week of that rally half of lost positions were regained and the price was pushed to point (2) : +1.15. That’s where bulls were unable to push prices higher, and that brought us to another reaction of bears and attempt to break through 1.1 area (point 3). However, this attempt was little worst - bears didn’t get to same recent level, and the day close was once again above opening level, forming bullish candle and giving bulls another chance. Slightly above 1.14 was the highest bulls could push (4) – much lower than the last time. Neither bears, nor bulls were strong enough to push the price either way. But after following the act of price movement during the formation, we can clearly see that although both failed to break the action in their favor, bears are stronger. Why? Because in their second attempt to go lower, bears managed to get to 1.113s; the first got to 1.111s = diff of 20 pips. While bulls pushed the price about 110 pips lower second time than the first. Can this be counted as sign of bulls being weaker than bears, meaning this triangle has more chance to be broken downside rather than upside? Cos at the moment the main thing is what side will the triangle be broken. This is what will determine the next move of about 250-400 pips. So is it going to be 1.08s-1.10s or is it going to be 1.16-1.18?
Well, best is to wait and see which way the break will be and trade afterwards, isn’t it? Some may bet on one side or another and take position while we are still in the figure, others may trade in range of the figure and take profits on its borders...whatever.
I've stressed weak sign for bulls, but there also is weak sign for bears in those two days when trying to go to 1.1 - both days formed bullish candles, i.e. support is very strong. At least it was those two times. Will it be next time? I don’t know for sure, but I think if we get a break down, 1.1 will not be that serious level anymore, as bearish sentiment will be approved.
For Monday, break downside will be a break of two levels: 1.1260 and 1.1230. For upside, we would need to break 1.1365 and 1.1405.
I know those of you looking at this triangle can say: yes, but what you just posted is just a descending triangle description and nothing is new here...well, its not quiet that. Those two single and lonely bars cannot be considered as something we can draw a lone through and say that’s descending triangle. Therefore the blue line is not relevant. Why are there 2 levels from both sides and not one? That’s because once line is drawn through highs and once through most traded areas on top. And from downside I took most traded areas and the average line - pink one. But I think 1.1 may still be level to watch in case there will be a break downside.
And another thing to remember about triangle is that if its not broken for long time and price is breaking at its end, the exit is not going to be that rapid. That’s the reason I posted earlier that we may expect for move of 250-400 pips, as it depend on when we break through the formation.
I would like to stress once again, that this triangle is not purely descending triangle, and therefore it cannot be said that more chances the break will be downside. I am treating this one as simple triangle, and as I posted last week, the break is possible both ways. Therefore my recommendation for those not rushing into trades is to wait for the break.
I think that’s it for single currency now, and I will post the rest little later today.

Regards,
Rezo.

 

Just quick comment on the 1.11 area, that was a hitting point of a very long term trend support if you check the dailys back to Mid April 2002 so is indeed a very strong support line, after that a major fib line is at 1.055, 38.2% retracement of the bull wave starting back in July 2001 when Eur started its upward trend.

 

For me, as for positional trader those dont mean much in case triangle will be broken downside. In that case bearish sentiment will be proven and it will mean we have new down trend, for which 1.1 level will be just something to overcome on its way down. So yes, we may get support there, and for some it may be profit taking area (which will add strenth to it being a good support), but for me, that's area to sit over while targeting lower levels. In my opinion, if we break downside, target I see is at least mid 1.08s. But thats my opinion, so one should treat it with fair skepticism. Only time will show how wrong I was.

Ok, now lets talk a bit about Cable.
According to those stats I mentioned on euro, cable is also well traded, and as far as I remember it was something like 20% of deals in Europe session, but this figure dropped to 10% in us sessions. Just something btw.
Nothing really to attach picture to, but still we have something to talk about. We had a sharpest sell off after the uptrend, and this is usual for cable behavior, but pretty much same time when we got first 1.1 on euro and up move after, here we also got nice up move. Second fall was more modest, but we may be in delay from euro here, and the stage of falling here may be only beginning. On longer terms, weekly chart is still indicating to sell cable. If we take a look at daily charts, we will see that over a week now the price is in range of 1.60-1.6170. Pretty tight range for such an aggressive currency as cable. I think we will see strong move once its out of that range. Recommendation may be to take position as soon as it breaks in either way, and target at least 150 pips with 40-50 pip stop. I don’t usually trade on breaks, but this situation may be treated as required. Here as well, the break may occur in any direction. I will post in case I consider range being broken, and of course in case any trade entered. If we talk more accurately about levels, I think its 1.6170 from the upside, moving stop to breakeven when see 1.6220, and 1.6020 from the downside, moving to b/e when 1.5990 seen. Putting orders doesn’t seem to be a good idea, as seeing price below those levels may mean just a false move. I prefer looking at market and taking decision afterwards.

I have couple more observes to share, and I will post em soon.

Cheers.

 

izeickl,

I think you're wrong in something here, as in mid april 2002 euro was traded at 0.8800. I dont see what re you referring to. If we go as far as 1999, we get mid 1.09, 1.1010, and mid 1.12s as supports back then. Since then and till this year, such a high levels on euro werenot seen...

 

1999 was a bear trend from Euros launch, the Euro was initially launched at 1.18+ but fell to around ~.83 just before Jan 2001 bounced around ~.85-~.95 till mid april 2002 roughly then had a constant rise to exceed launch price over 1.18 till retracing too our current price today.

 

So you ment 1.1 was a tgt for that trend begining back then? I get it. Yes, thank you. But anyways, what I said about it is what I think - just a barrier on way down...

Now one more post regarding coming trades.
Next most traded currency pair is USDYEN. Out of overall trades, its traded 15% in Europe session and about 25% in US sessions. We were in dead range trading here for very long time, and I think now it turned out to be a very nice up going channel. I’m attaching image in order you to see what I mean. We have very clear 3 tops each higher than the previous (1,3,5). If one thinks the leg we got (4) is breaking the channel, I should say one is wrong . Yes, it was a pretty much of a deep move, but the close was bullish. And doesn’t matter what caused to that firm of the close – intervention or regular market activity. If we are trading technical analysis approach, it doesn’t matter. All that matters is what we see on charts. And the leg (4) on charts, in this case is only a better indication for market being weak to push it lower. I posted long time ago that a break of either 11750 or 11950 may bring some light, but now we are back to 119s, after failure to break strong mid 120s area. I believe it will happen in coming attempt if one occurs. Meanwhile I am going to use this channel and trade it south in case I get to. I will be targeting 11830 with reversing for a test of mid 120 there. I’m hoping to sell it before or during Europe session, but if I don’t get to – no big deal, as I will be watching to see signals for buying it down there. If I see definite signals, I go long.

 

here's a pic:

 

I wanted to share two more posts with pictures, but I have no time at the moment to write much, so I will post in brief.
First is USDCHF, and situation here is same as on euro, except for here we have a definate descending triangle, and a break of price will bring same consequences as a break of such triangle...but it being descending may indicate a reversal for recent uptrend...judge for yourself:

 

And the last, but not the least is EURJPY - I posted last week that in my opinion we are having a major breakthrough downside, and thats where we are standing at the moment. Not much more needed to short this one. Will try to explain a bit later, but one thing Ineed to explain - thats not a triangle on the image. Those are just trend line and support area... possible short is what I see here.

 

sold EURGBP @7044