For this patter to become official, the EUR-AUD must advance above the high of 1.2616. It is not only a resistance here, but crossing this level would also complete the Cup with Handle pattern. At this point, the EUR-AUD would be officially, from a technical perspective, in an uptrend, with a target of around 1.2950 or so.

Rebounding from a steep correction, the CAD-CHF returned to its prior high for the trend at 0.9400. Couple of weeks ago, the price found support at the 50% Fibonacci retracement level or 0.8934. This confirmed the bullish sentiment, in particular when combined with rising volatility, as shown by the ATR.

Now the CAD must close above the 0.94 handle, in order to continue its rise. The ADX is rising, supporting a trend gaining momentum, and the price is above all important support levels. However, breaking key levels is not always easy, so we must on careful of potential fake breakout. The CAD-CHF is likely to attempt a move soon, perhaps even today.

All of the Japanese Yen pairs have been advancing strongly for several months now and the NZD-JPY is no exception. Here the price gained over 1100 pips, reaching as high as 68.32. At this point, however, this pair went through its first significant correction of the uptrend and dropped to 65.31, before recovering to the 68.33 on Wednesday.

For the rally to continue, the NZD-JPY must close above this level on daily basis, which could prove difficult. The RSI developed a divergence, suggesting that the trend is not as strong. Another indicator, the ADX is in concurrence, having gone flat and not rising any longer. All this points towards a continuation period in the NZD-JPY, even if the general sentiment is still bullish.

Mike K.

In a nutshell we are now looking at an ‘extra’ 529.5 billion Euros available of which 311 billion is fresh money and not regurgitated rolled over old loans. This second LTRO has been spread to 800 institutions and apparently to the institutions that need it – to the little guys. Banks have not got the funding they wanted; funding that wasn’t previously available.

What does all this mean to the active traders?

On this daily chart of the EUR/GBP you can see a clear rejection of 0.8500, an important psychological level that happens to coincide with an almost classic 200 moving average test. The green downwards sloping trend lines are clearly pointing out the lower highs. Is our next stop the 2012 lows of 0.82200? Traders will be watching for a clear break of the previous daily swing low of the 02 Mar 2012 at the 0.83109 mark to signal a further bearish outlook.

Is it still all too early to predict? After all the LTRO has only just been released all eyes are literally fixed on Greece. Are the loans, the bailouts and other help all just leading to over leverage and exposure for the ECB? Is Greece so deep in the hole that it can’t get out? The second bailout of 130 billion Euros will certainly help the private creditors but where did that money come from?

Propping up Greece is and will continue to cost the Euro. Although it is lent at a low rate of interest it is still above the actual cost of borrowing for the lenders, mainly Germany and France. European banks will lose money. Traders and investors should realize that this is a very long term plan and there is likely to be comparatively little effect on the Euro currency in a positive sense. The Greek government is still spending more than it receives and EU leaders are still arguing that they have no other choice but to continue to support Greece even if it hurts the overall economy in the short term.

Greece is generally in the forefront of the news, but it is not alone. Plenty of Euro zone countries have perhaps enjoyed themselves a little too much for the last 10-12 years and ran up an expensive bar bill. Some say that their governments and citizens are both to blame due to high government debt and high mortgage debt. Now that the crises is in full swing, both government and citizen alike are unable to repay their debts, particularly as they are having to deal with spending cuts and subsequent tax rises.

So what does all this mean for the little guy? Do we buy or sell Euros? Common opinion is that the only trade you should be doing is one that involves getting rid of any Euros you may own. But, even in the face of all the current news, the points made above and ‘how the charts look’, it is still just way too early to make that call. After all, as every trader knows… trade what you see, not what you think.

Dragan Lukic is a Forex trading course mentor at Forex Training Worldwide.

When trade moves our way, we always hope it is going to progress even more. We try to squeeze every possible pip out of the market, which is only natural. After all, most of us are in the market to make money, not because we are in need of mental challenge. For that, one can play chess or try to decipher writings of Nostradamus. Unfortunately, this amounts to finding a top/bottom, in order to fully monetize trade, which is exceedingly hard to do. This typically creates situations when a transaction, after being profitable for some time, sheds gains and even turns negative. Very unpleasant feeling, yet one that everybody is familiar with. One starts to question own ability as a trader often leading to self-doubt and undermining entire enterprise.

What to do, then? There is no simple answer, but for most traders setting targets for trades should be as important as the entry set-ups themselves. If market reaches projected value, in most cases trade should closed and profits pocketed. It worked as planned; objective was met on correct analysis, job well done. And yes, very often the moves will continue, making as feel as if we left “money on the table”. While this is certainly strong emotion, it is not nearly as debilitating as the ones mentioned before. Trader’s job is not necessarily to be great predictor of things, or not even to be right, but to make money on those occasions when we are right. Give it some thought.

There are strategies that employ trailing stops, without having objectives. All methods that rely on crossovers of indicators and oscillators fall into this category. In addition, tracking market progress with stops just under/above most recent bottoms/tops is like that. I employ some of these methods form time to time. Strategies like that will not capture entire move, something that must be accepted before even starting to trade one. Nature of this kind of methods is such that many trades will end in small gains and losses, but few will deliver huge moves, hopefully making more money than losing. Trading like this is absolutely OK, as long as rules are observed. One just must be aware of limitations.

What about if trade is going along fine, but is short of objective? Should it be closed, because of emergence of negative market news? What if our opinion changes? What if the trade takes too long? What if….? No one straight, fit all answer to this. Trading is an enterprise involving many variables, constantly shifting elements. Some of them can be categorized, while others demand discretion, which gets better with experience. This week I made such decision in a trade that was featured on these pages.

On Sunday, I discussed the possibility of bullish reversals in the GBP-NZD and the GBP-AUD. Both of them looked very similar, approaching likely breakout levels. Because the GBP-NZD was the first to breach its resistance that was the trade I took. I estimated here the potential here to be as much as perhaps 1000 pips, yet I closed the trade for only 300 pips gain. Why? For a simple reason – time.

Because this particular set up developed on the intermediate term chart, reasonable expectation for the trade to achieve its full potential is measured in weeks. Chances of a corrective move of consolidation during such long time span are high. Am I willing to sit through it or should I pocket smaller gains if they happen fast? Since I was in the black 300 pips within one day, I decided to take these pips. Admittedly, there was element of luck involved, because the rally continued only for another 50 pips before the current correction kicked in. However, this is precisely what I was trying to avoid. Even though I still think the GBP-NZD will go higher, there is no telling when. Of course, it does not always work out so well, but on longer-term charts, it makes sense to me to forgo some profits for the benefit of time.

Mike K.

Analysts link Aussies’s growing popularity to its Chinese connection. Many traders supposedly use the AUD in order to trade data from China, since the Yuan is not a floating currency. Others point to the comparably high interest rates, as reason for the carry trade. However, the carry trade is more of a buy and hold approach, so it does not add much in terms of day-to-day volume. These and other explanations are not satisfactory to an average trader, who is looking for good trading vehicle in day-to-day activity. So, let us take a look at other characteristics of the AUD-USD, and see how it compares to, say, the GBP-USD.

First of all, costs of trading the Aussie have gone down in recent years, and by costs, I mean the spread. Not that long ago the AUD-USD was typically quoted with 4-5 pips spread. Not anymore. These days most reputable brokers offer the Aussie at 2 pips or below, virtually the same as cable. At times, even during the most active London hours, the spread in the AUD-USD is lower than cable, making it a very attractive instrument to trade.

Another measure of a good instrument for active traders is intraday volatility. Using a simple 10-day ATR, we can see that over last several months the AUD-USD has been moving as much. And at times even more than the GBP-USD. At present, in the midst of consolidation, the Aussie moves less, with ATR a little above 90, while the cable’s reading is just over 100. On balance, these results are comparable. For as long as the AUD-USD is close to parity and above, it should retain good intraday volatility.

When it comes to around the clock activity, the Australian Dollar certainly holds its own, too. All currencies are active during the London and New York sessions, but that is not necessarily the case in early trading. That is when the Aussie stands out. Obviously, these are Australian business hours, when market-moving events take place. However, even on days without scheduled economic announcements, the AUD-USD presents trading opportunities in early hours. The charts above are from last Friday, 03.02.2012, when the calendar was empty, yet the AUD-USD moved about 35 pips, while the GBP-USD managed only roughly 25.

One could argue whether the Australian Dollar is truly a “major” currency and present all kinds of reasons that it is not. Nonetheless, from a trader’s perspective, the Aussie is as good instrument as any, and should not be discounted as a secondary option. It presents as many opportunities as the other big names in Forex.

Mike K.

For the last two months, the GBP-AUD has been in a consolidation, still in historic bear market. This downtrend has lasted for, well, almost forever, since late 2008, with very few corrective rebounds along the way. In mid February, the price made another all time low at 1.4621, but for all practical purposes, it is drifting sideways. The question is, are we dealing with another consolidation, before another leg down, or is it a slow-building rounded bottom. Rounded bottom could be confirmed on a breakout above 1.4900, suggesting a rally to about 1.55 within weeks. The best thing about rounded bottoms is their staying power. Once properly formed, they tend to hold for a long time, meaning that a rally from here should last for weeks or even months.

The GBP-NZD is in almost identical situation to the GBP-AUD. The main difference is that the February low of 1.8629 is not the all time extreme. That took place last year at 1.8542. Otherwise, the picture is the virtually the same, a consolidation within the downtrend or a rounded bottom. For the GBP-NZD, the key resistance is at 1.9130. If the rounded bottom materializes, this pair could certainly rally to 2.0200 or so relatively fast. Of course, the reversal process is not complete, but worth watching.

While on the subject of the Kiwi… The NZD-USD sold off last week, especially on Friday. Because the price closed near the daily extreme, I will be looking for a short-term reversal on Monday, much as I did a week ago in Yen pairs. Using hourly chart, I want to see a bullish reversal candlestick pattern, one that stands out. The target here must be proportionate to average price swings, so it will be on a small side, 25-30 pips. In addition, gaps are always possible, possibly creating trading opportunities. Have a great trading week!

Mike K.

This time around, we could expect more extensive participation of banks from other countries. Even banks that do not need additional capital may be tempted with the prospect of borrowing money at 1% rate and using it to purchase bonds yielding 3-5%, depending on the country. Most expect tomorrow’s operation to be similar in size to the first one, or about EUR 0.5 trillion, although opinions vary widely, including some projections of EUR 1 trillion allotment. The ECB is believed to be accommodating all requests, as long as banks provide proper collateral. This collateral is secured through the bank’s own national central bank, meaning each country vets the collateral for the loans given to their banks. Since these requirements have eased somewhat from previous offering, we could see more borrowing.

Combined LTRO and MRO (main refinancing operations) by the ECB to date.

Markets anticipate this even on par with interest rate decisions from central banks, meaning it is important and could create massive volatility. Reaction in currencies will depend first on how much money is borrowed and then by which banks. If the ECB distributes similar amount to the previous operation, in the EUR 400-600 billion range, the reaction could be muted. Should the banks borrow less than expected, say EUR 300 billion, the EUR-USD could fall. On the other hand, subscription above the projected upper range, EUR 700 billion and above, is likely to start a rally in the EUR-USD and spill over to other currencies.

Personally, I will treat this event like interest rate decisions from central banks and sit it out. I consider reaction to this type of announcement as unpredictable, with rewards not worth the risk. At the same time, should new trends emerge, I will probably join in that direction. That however, must be no sooner than 15 minutes after the release, and maybe as long as 1 hour. After all, if results are surprising, the new trend for real, it should last longer than several minutes offering more opportunities. I might even consider using binary options for a short-term play, if the move has legs.

Mike K.

1. Plotting Fibonacci retracements on a short time frame.

This is perhaps the greatest mistake made by traders when using Fibonacci tools such as the Fibo retracement tool. Why is this so? In Forex, the market activity in a short time frame such as the 15- minutes or 1-hour time frame is too short to effectively determine the trend of a currency. What the trader may see as a strong downtrend on a 1-hour chart or a 4-hour chart may actually be a retracement on a daily chart. Trying to plot a Fibonacci retracement tool on the shorter time frame will only end in disaster. The trend pattern of currencies on a longer time frame such as the daily chart is usually a better determinant of the trend. The best thing to do here is to use the longer time frame to determine the trend, apply the tool and then switch to the shorter time frame to make your entry determination.

2.Over-reliance on the Fibonacci tools

In Forex, it is a bad practice to use only one indicator to carry out your technical analysis. Confirmation of the entry is best done using two or three indicators that supplement each other, and the Fibonacci tools are not an exception.
To give an example, let us assume a currency pair is undergoing a downward retracement following a particularly strong uptrend. Where do you possibly think the retracement will halt, especially given the fact that there are five possible retracement levels (23.8%, 38.2%, 50%, 61.8%, 100%)? This is where you have to turn to other indicators such as the Stochastics, MACD or RSI for help. For example, if I get a Stochastics cross at an oversold level (i.e. Stochs crossing upwards at

Always confirm entries with more than one indicator.

3. Misapplication of the Fibonacci Tool

Many times, traders simply misapply it. What does misapplication mean? Fibo tools are best plotted from the swing high to the swing low. If the trader does not use the highest or lowest points on the chart for tracing the tool, an inaccuracy has set in and this is a clear example of misapplication. Another example is tracing the tool from a candle shadow to a candle body or vice versa. A trader must be consistent. For the best results, always trace from the tip of the upper shadow (the wick) of the candle making the high, to the tip of the lower shadow of the candle making the swing low.

These are the common mistakes made by traders when using the Fibonacci tools. Avoid these mistakes to get the best results possible from your Fibonacci tools.

Article was written by Alexander Collins who started his own Forex blog recently. Need Fibonacci, Camarilla, Pivot point calculators? Download all these Forex trading tools at PipBurner.

If new laws do not pass today’s vote, Greece will most likely default in March, which many term a “disorderly default”. As a result, Greece will probably abandon the Euro, either by choice or by force. It would be replaced by a much cheaper Drachma, making Greek products less expensive abroad. This would give exporters a competitive edge, although it would take a long time for this to make a difference. On the other hand, exiting the Euro would create chaos in Greek banking system. Sudden introduction of much cheaper local currency will jump start inflation. Greek government, companies and banks would have extreme difficulties borrowing money. This, in turn, could cause a depression, worse than what Greece is suffering now. By some estimates, Greece’s economy would shrink by up to 50% if it left the monetary union. Neither option is very appealing and will not end the crisis.

Mike K.

Many think it is not a temporary situation and Japan will find itself in trade deficit for years to come. With multinationals opening more factories abroad than they are at home, domestic production is not expected to increase either. These are strong fundamentals working against the Yen. There is more – continues account deficit would spell trouble because it would mean the country cannot finance its huge public debt without overseas funds. Currently Japanese investors hold about 95 % of Japan’s government bonds, which lends some stability to an otherwise unsustainable debt burden. Once starts raising money abroad on larger scale, many believe the Yen will suffer.

However, the fundamentals of the Japanese Yen have been weak for a long time now, yet it continues to at least hold its ground. While certainly, they will eventually catch up with this currency, one should be prepared for a prolonged wait before that happens. In order to short the JPY with more confidence we would have to combine fundamental analysis with technicals, and those are simply not showing a reversal yet. Of particular interest should be a long-term chart of the USD-JPY, because we are talking about the main trend.

While the JPY deteriorated recently in relation to some currencies, the main chart on everybody’s list is the USD-JPY. Here we still see the price in a downtrend. It is consolidating now, between 75.50 and 79.50, but this does not mean a reversal. For the price to change direction, it must rise to at least above the latest resistance. With the USD-JPY very close to the all time low, we could easily experience another spike down. Therefore, even though fundamentals are lining up against the Japanese Yen, the technicals will not confirm it unless the price starts to test the 80.00 level.

Mike K.

Now Japan feels the threat of similar action. Her prime minister, attempting to build support for painful fiscal reforms, said Saturday that the country should be alarmed by ratings cuts in Europe and must tackle its massive public debts to avoid becoming the next target. Noda says Japan urgently needs to reduce its debt burden as the nation ages and its labor force shrinks, putting a greater burden on the social security and tax systems. He has promised to submit a bill by the end of March to raise the 5 percent sales tax in two stages, to 8 percent in 2014 and to 10 percent by 2015. To be fair, most of Japanese debt is held internally and not internationally, but another downgrade could be painful and seemingly official feel the heat.

Meanwhile in France, the Prime Minister Fillon said Saturday his country would push ahead with cost-cutting measures. The downgrade confirmed his conservative government’s plans for more reforms to bring down debts, despite worries that more austerity measures could suffocate growth. However, the government would not adjust the budget yet, saying it had been devised with an assumption of higher borrowing costs. This is typical of what we have been hearing from Europe in the last two years – plenty of talk but very little practical steps. In the end, Friday’s downgrades provide Germany with even bigger clout than before which could have a profound impact on what the EU will do to combat the problem (if they ever do anything).

Few days ago, I discussed a weekly chart of the EUR-NZD, which showed a strong possibility of MACD divergence. For a while, the weekly chart almost produced a reversal pattern, but a steep selloff on Friday closed at almost the weekly low. However, this choppiness created another probable MACD divergence, this time on the 4H chart. The divergence itself is almost guaranteed now, as long as the price makes a new low, but the EUR-NZD still needs to show a bullish reversal pattern. I would like to see a hammer or a bullish engulfing line, which would act as the trigger here, with at least 200 pips objective.

Meanwhile the CAD-CHF has consolidated, building a potential Head and Shoulders reversal on the intermediate term chart. For the pattern complete, the price must move under the latest low of 0.9238. I have a sell order at 0.9230, targeting 100 pips if it is initiated. Should the advance continue I would look for signs of resistance at 0.9400. Another pullback from that level could create a buying opportunity on a follow up breakout. As for immediate concerns, opening gaps could form and those are often exploitable. Have a great trading week!

Mike K.