Last week, or more, were largely dominated by Yen trading, with CAD-JPY getting most coverage here. Yen pairs arrived at an important junction of this stage- the sell off of last two weeks has run out of steam and looks like it is reversing. Couple of crosses already had a appear to be rebounding, while others are building intermediate term bottom bases. Next day or two should provide additional important clues as to next move. Daily charts could be a buy here, stops are small. Very short time frames are playable as well. However, what I try to focus on in this blog, 4H and 1H charts, need more development to make decisions.

Pound-Swiss Franc is a cross that I have been trading a lot this year. Except for more recent history. I think current price level warrants a closer look at this pair and sketch out some likely next moves. After a prolonged up move, possible double top was formed at 1.81 area. Lately price fell to under 1.75, which is a strong support zone. This to some degree reinforced by presence of 100SMA, which often, but not always, causes reaction with price. If somebody is looking for a reversal of the daily trend, development of potential head and shoulder, or crown, could be seen here.  Typically, about 70-80% of the time, we should expect the price to form the missing part of either pattern, meaning that chances are good for a move up. There is no guarantee this will happen, price can just keep falling, but probabilities favor such outcome.

With my very long term outlook still bullish, I find this situation to be a good long entry. Don’t want to blindly buy it at the market, though. I want to see the market demonstrate strength in this region. One of the ways to accomplish it, is to see price move above the high of latest candle. Since that was most definitely bearish, breaching its high could signal turning of the momentum. Should next day make lower low, its high would become buying point. Ideally I’d like to see a strong bullish pattern like hammer to form today or tomorrow. Once that happens, hourly chart would be used for trade management.

Right now buy order sits at 1.7580, with an objective of about 1.78. It is relatively small and not trying to reach previous top of 1.81. I am a little concerned with this potential large topping pattern, so move to “right shoulder” would satisfy me. After that market will have to dictate what to do next. Sentiment is that Swiss National Bank will intervene again, but I never count on it. If they do it and my trade is on the right side, that’s great, a bonus, but it shouldn’t be reason in itself. Exact target and risk levels will have to be worked out once the trade is initiated.

We’ll see it the exuberance from Bernanke’s speech will carry over into next week. The recovery speech from FED conference. Almost forgot. Something else of interest was disclosed there. An official for International Monetary Fund gave an interview about US Dollar. According to IMF USD is reasonably valued, as measured by fundamentals and medium term outlook. No major currency is out of line, by the Fund’s equilibrium standards. One big, happy family.

Mike K.