Tight ranges going into European session is what I always look for on Friday. During the last couple of weeks, it had not worked out very well, but today the story was different. Currencies moved immediately after the targeted time, with moves, which were sharp in relation to preceding ranges. This translated to quick 30 pips in the GBP-USD and other Dollar pairs, too.

Few days ago, I discussed the EUR-CHF here, looking for another long trade on the 4H chart. By now, the price has enough history to find a possible entry, which is just above 1.2074. It will probably consolidate above the 1.20 floor, hopefully in the 1.240-50 area, before a bullish reversal. This process can easily take several days. On the plus side, risks are small. Yesterday, the Swiss National Bank announced it had zero tolerance for the Franc to appreciate beyond the floor. “The SNB is on watch day and night to ensure the CHF1.20 per Euro level is maintained, and this applies from Monday morning when the market opens in Sydney to Friday night when it closes in New York.” That is a very bold statement and we shall see if they stick to it. Have a great weekend!

Mike K.

European currencies fared better, showing smaller losses. However, they experienced a selloff of their own once the London session started. Once again, the PMI data was the culprit. Preliminary PMI numbers from Germany and the Eurozone disappointed both Manufacturing and Services. Results for all four indexes released today were disappointing, not only below the forecast, but also under results from last month. The Euro, Franc and Pound suffered large losses versus both the Dollar and the Yen. Moves of 100+ pips were the norm.

Selloff of currencies in relation to the Yen played into my hands as I was looking for another short in the GBP-JPY. It happened sooner than expected, but at the anticipated level, or 132.10. After a slow start, the beast went on a prawl following the PMI releases in Europe, and the trade reached its 80 pips objective shortly after. All said, the GBP-JPY lost 350 pips in two days, which could be a start of a larger correction.

By now, the GBP-JPY pulled back to the 130 handle, which offers multiple supports – one is the previous high, and the other is in form of the 100 SMA on the 4H chart. The preferred development would be a rebound from here, confirming importance of this support, which would make eventual bearish breakout more significant. If these conditions are met, the next price swing down could easily be 200 fast pips. It will be interesting to see what currencies do during first half of trading day on Friday. The economic calendar is empty, with no scheduled data releases until the US session, meaning that volatility could be much lower from today. I will try my usual trades following the London opening, with objective in the 30-50 pips range, depending on which currency pair is involved.

Mike K.

The beast started to indicate reversal on the 15 M chart, which I discussed here yesterday. My plan was to sell it at 132.20, with objective of 60 pips. The price continued higher and I kept moving the sell order to just under the latest minor low. At last, in earlier trading today, the price dropped sharply lower, filling mu order at 132.91. The objective remained at 60 pips and it was reached short time ago. Now it is time to look at a little larger-scale chart and see if another selling opportunity presents itself there.

On the hourly chart, the GBP-JPY appears to have found support at around 132.20. I would like to see a small rebound from here, lasting at least several hours. If that happens, new low would indicate shorting opportunity with objective of about 70-80 pips. At the same time, the daily chart of GBP-JPY is showing a possible bearish reversal candlestick pattern, but we must wait for the day to close before taking it into consideration. I will try to cover that development in the next post.

Mike K.

Things changed shortly after, when BHP Billiton, the world’s biggest miner, raised concerns about the possibility of a sharp slowdown in demand from China, its top metals consumer. No hard numbers were released, but all of a sudden, everybody remembered that earlier this month China cut its 2012 growth target to an eight-year low of 7.5%. That was enough to send the Australian Dollar, and the other commodity currencies sharply lower. We still have few hours of trading left, and it will be interesting to see if there is another price swing down.

On Sunday, I discussed a possible trade in the AUD-CAD, looking for a short-term bearish reversal using the hourly chart. I sold it at 1.0504, following first hourly bearish candlestick. The price movement here was relatively slow, but eventually the trade brought a profit of 30 pips. I could have held out for another 10 pips, but in my mind the trade had already been taking too long, so pocketing gains was the right thing to do. BTW, another short trade in this pair in this pair, using the daily chart is still possible.

From a shorter-term perspective, I am looking for a trade in the GBP-JPY. On the 15 M charts, the price appears to be forming a bearish reversal, with the latest low at 132.24. I want to sell it at 132.20 with 60 pips objective. If I am right, this could happen relatively fast, as it often does in this pair.

Mike K.

We have to wait until tomorrow to see what steps, if any, the SNB will take, but following today’s development clearly many traders expect some action. As things stand now, the interim chief Thomas Jordan could be officially nominated the chairman next month. Perhaps it is important that he shows some resolve in this matter. The focus is on the 1.20 floor in the EUR-CHF, which has been threatened lately. This changed today, as markets took the possibility of further weakening seriously and bought this pair heavily, sending it above 1.21.

Earlier this week I suggested a long trade in the EUR-CHF, with entry at 1.2064. Trading ranges here were so tight, that a breakout soon was very likely. I was looking at the latest minor high as the entry level, with the objective at 1.2100. The trade worked out as planned, bringing 36 pips. Now I am going to wait and see what happens after the announcement tomorrow, before making more trades in this pair, or other CHF crosses for that matter.

The GBP-NZD may be finally reversing its long-term downtrend. I had a good trade in this pair last week and not another potential buy is emerging. The price is rising fast, trying to reach the high of 1.9485. In a perfect world, I would like to see another pullback from that level before the eventual breakout happens. Meanwhile, I have buy order at 1.9505, with a target of 300 pips. Since this is the intermediate term chart, this trade can easily take days or eve a couple of weeks.

Mike K.

In spite of the positive news from Germany, the Euro is falling, dragging other currencies down against the Dollar. The Germany’s ZEW survey of economic sentiment rose for the fourth consecutive month in March, gaining 16.9 points to 22.3 points – its highest level since June 2010. The EUR-USD has fallen 100 pips since ZEW was released and 130 pips for the day and the commodity currencies are down, too. Things will probably settle down before the FED. As far as the announcement itself, I will sit on the sidelines, as always. However, I might get in later if trend develop, waiting at least 15 minutes after the news hit the wires. If a clear direction emerges, currencies could keep moving that way for another 1-2 hours. We shall see…

Couple of days ago I discussed a possible trade in the GBP-USD, looking for a short-term bounce. The price indeed showed a promising bullish candlestick on the hourly chart within hours of opening, so I bought it. Unfortunately, the downside had more life in it and the trade was stopped out for a loss of 26 pips. I tried again later and at a lower level. This time I was simply looking to recover the loss, which took about 10 hours in a quiet environment. All said, the final result was a wash.

Mike K.

That leaves the Swiss National Bank. In Switzerland, financial authorities are under intense pressure to weaken the Franc. Recently, though, the CHF became stronger across the board, except the EUR-CHF where it is stuck at just above 1.20. It is the “floor”, which the SNB promised to defend. The central bank is likely to threaten additional actions in order to keep the EUR-CHF above this level. It remains to be seen exactly what the bank might do, but chances are the SNB will act before the other CB’s do.

While on the subject of the EUR-CHF, we can see that it stopped making lower lows. In fact, it the price is drifting slightly higher, suggesting a possible bullish move ahead. The price has been trying to turn north for some time, without much luck. It could happen soon, with the volatility here pathetically low (the ATR on 4H chart about five pips)! I am interested in buying it at 1.2064, with objective of 1.2100. The target is small, but so are the risks, thus making it a trade with some merits.

During hours following the opening, I will look for a possible short-term reversal in the GBP-USD. Friday brought a strong selloff in this pair, closing near the low for the day. A rebound in early hours is likely, triggered by a bullish candlestick pattern on the hourly chart. Objective will be in the 40-50 pips range, depending on details once the set up is formed. In addition, gaps are always possible, something I am always looking for. Have a great trading week!

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.

The rally in the EUR-CAD, which lifted it from 1.2875 to 1.3479, hit an obstacle last week. It came as a combination of things, which included the 100 SMA, previous resistance level and overextended price. Bollinger bands, with the price clearly above, demonstrated that particular aspect. A bearish candlestick pattern, the dark cloud cover, marked the turning point.

By now, the EUR-CAD retreated to 1.3025, where it found an earlier established support. The price movement is likely to slow down now, trapping this pair in a consolidation, also defined before the latest advance. We should expect smaller price swings, within the 1.3025-1.3241 range. Eventual breakout will probably determine the next direction of the EUR-CAD.

AUD-JPY.

Among the best performing currency pairs in 2012, the AUD-JPY, the AUD-JPY has shown significant gains. Last week it reached as high as 87.99, where it encountered a strong resistance. Together with severely oversold RSI indicator, that proved too difficult to cross, at least for now. The price developed a reversal pattern and turned south, touching 84.80 in early Wednesday trading.

While this correction appears sharp, it is of normal proportions, considering the size of the preceding rally. In fact, it might not be much larger. It depends what happens at the next supported level, or the 84 area. We should watch carefully, because the AUD-JPY could resume the uptrend from there. Otherwise, the price will head for the 81 handle, where the main trendline is waiting.

GBP-NZD.

Finally, after a prolonged slowdown, the GBP-NZD started to increase in volatility. The price moved higher, taking cue from multiple divergences with technical indicators. On Monday, in one swift jump, the GBP-NZD broke the minor resistance at 1.9130. It continued to advance on Tuesday, reaching 1.9483, almost the implied resistance of the 1.95 level.

Here things get tricky for this rally. The price developed a large shooting star, which is a bearish candlestick reversal pattern, probably marking the extent of this run up. For a full-blown reversal, we need to see another large bearish candlestick on Wednesday, now in early stages of formation. The short-term direction of the GBP-NZD depends on how the price will close today.

CHF-JPY.

In line with most other Japanese yen pairs, the CHF-JPY hit an important high last week. Its impressive advance pushed the price to 90.23, a resistance level from an earlier high. There the rally lost momentum, and the CHF-JPY started to pull back. In early Wednesday trading, this correction touched as low as 87.67.

So far, the price has not reached any established support levels. Because of that, we can use the Fibonacci retracement levels for some possibilities. The 38% is at 87.00, while the 50% is at 85.70. If the CHF-JPY is going to retain the general bullish sentiment, one of these levels should become a support. If not, this correction could turn into a bearish reversal, but we need to see more price development.

Mike K.