After the huge moves in preceding weeks, last period gave us a little bit of consolidation. I’m talking about the currency pairs that experienced the most movement. All crosses of AUD, NZD, JPY and GBP. Question now is, has the reversal started, or is it just some sideways move? Due to the size of earlier moves, this is very difficult question. I’ll use AUD-JPY as an example.

Some people use trendlines to define when a trend is broken. I find them ambiguous and subjective, so no trendlines for me. Previous highs/lows is what I’m looking at. They are very objective, price either moves above/below them, or it doesn’t. No guess work. In order for trend to be considered reversed, or broken, the most recent, preceeding price high/low most be taken out by subsequent price development, on the time frame of interest. In this example I’m looking at a daily chart. Latest high before this sell off leg was at point “A”. The down trend is not broken until price moves above that point. For as long as we are between “A” and “B”(lowest point), we are in consolidation phase. Directional trading on this time frame during this period is going to be very challenging, because of the sheer distance between these two points. Stops needed for trading here would need to be ridiculously large, and, for most people, untradeable. Reasonable option is to trade smaller time frames, like 1H or so.
I would prefer to see another move down to undercut point “B”. Once that happens, reversal confirmation would be move above the highest point between “B” and the new low. As of this writing, that would be “C”. I don’t know if this is going to happen, only that I’d like to see it. This would give me more confidence to trade daily time frame, as the stops, and targets would become more manageable. Until than, it is smaller time frames, and targets, for me.
Like my old stand by, GBP-JPY, small objective upside break outs.

Another interesting set up is found on 4H EUR-AUD chart.

This a sell at 1.8970, with something like 700 pips objective. This pair has been moving a lot lately, but I don’t really expect any more 1000 pips days, so this set up might take some time to complete. Perhaps a week?

Mike K.