No official comments yet, but it is hard to imagine this particular proposal to be received friendly in Athens. They already have to contend with another set of demands that must be met before the next installment of bailout is released. They include cuts in healthcare and defense spending, commitment to eliminate another 150K government jobs in three years and scores of other painful steps. All of this is piling up when even talks with creditors on debt swap are not fully concluded. Forcing Greece to accept all of these measures could easily push this country out of the Eurozone and perhaps even EU. Other members could realize they might be next, which would endanger entire structure of the European Union.

With no currencies forming short-term reversal opening set ups (even though the last one did not work out), I will be looking for gaps in early trading. After that, the beast looks interesting. It already dropped to 120.00, but recovered to some degree. General shape of the price suggests more downside, so I will try to go short here. I have two different sell orders, one at 121.00 and the other at 119.90, each seeking 100 pips.

Another currency pair of interest is the EUR-AUD on the 4 H chart. It is slowly building a bottom reversal, which will be complete on a breakout above the last high. Here I want to buy it at 1.2490, targeting 1.2600. Of course, this price action could develop into a flat consolidation, which would be bearish in nature. If the EUR-AUD breaks out like it last time, with immediate rejection, I will most likely close the trade immediately and tale the loss. That would be a good sign that the price is not developing as planned, so hands off. Have a great trading week!

Mike K.

While it sounds good, to date not one Japanese company took advantage of this source of capital. Interestingly, last year Japanese multinationals went on a largest oversee spending spree in at least 12 years, buying about $90 billion worth of foreign companies. Some analysts say that Japanese businesses simply have surplus of funds and do not need to borrow, while others argue they are simply avoiding cumbersome and time consuming government process. Whatever the reason, this program appears to be a failure. There was talk about expanding it, but since there is no interest, it could expire in eight months or so, leaving Japan with intervention as the most viable way to weaken the Yen.

On Sunday, I discussed a short-term reversal trade in the GBP-USD. I was looking for a bearish reversal candlestick pattern on the hourly chart within first few hours of opening. The price unfolded not exactly the way I wanted, with a bearish sign forming immediately after trading started. Regardless, I sold the GBP-USD at 1.5542, seeking 50 pips. My objective was probably too ambitious, the price only dipped to 1.5516 before turning bullish. Since things were not going my way, the trade was closed at 1.5562 or 20 pips loss.

A week ago, I covered CAD-CHF on these pages, or more to the point, its intermediate term chart. My idea was to go short at 0.9230, with 100 pips objective. The price rallied at first but eventually turned south and triggered my order. I closed it earlier today at 0.9163 or 67 pips profit. It is short of target, however, the price dipped much lower and rebounded, so I thought it prudent to pocket some gains and move on.

With the British Pound very strong today, it will be interesting to see if this continues. Some technical developments suggest it will. On the 4H chart of the GBP-CAD, for example, the price is finding repeated resistance at just above 1.5800. The more often this level is tested, the more likely it is to break with a bullish continuation. I have a buy order at 1.5815 looking for 100 pips. With any luck, it could happen before the end of this week…

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.

These talks are not going well. According to some sources, the Greek government has proposed an even larger “haircut” of 68%, meaning a recovery rate of only 32 cents on the Euro. In addition, future interest payments would be lowered, too. There are plenty of conflicting stories, with some suggesting that the original 50% threshold is still valid. We shall see. Whatever it turns out to be, Greece is simply strong-arming, even blackmailing its creditors into taking losses, with only faint hope of actually recovering anything. According to Fitch, Greek default is inevitable and only a matter of time, and any talk to the contrary, including these negotiations is just posturing.

While that farce is playing out, trading goes on no matter what it actually is that drives the markets. In the last post, I discussed a buy in the GBP-JPY. The premise was to go long on a breakout above the latest minor high, with the exact entry at 118.33 and objective of 100 pips. That is what happened, the beast rallied with most of the gains taking place on Thursday. Perhaps this is a start of larger appreciation, but for that one should use the 4H chart, something I will look at later.

Another trade I covered earlier this week was in the EUR-NZD. Here I used the intermediate term chart, which formed a divergence with the MACD. Still needed a bullish candlestick reversal pattern, though, in order to pinpoint the entry. After a considerable wait, an engulfing line developed, providing entry at 1.5927. My objective was 200 pips, which was reached, if just. Later in the day, the EUR-NZD made another run at the high. For Friday, I will focus on short-term at the start of London session, using USD pairs.

Mike K.

Is it turned out, the Standard and Poor’s itself provided a solution, of sorts. On Monday, the rating agency downgraded the EFSF to AA+ from AAA, reflecting its recent cuts to credits of individual countries. This means that Germany no longer will have to come up with a bigger share of fund. From a practical standpoint, this downgrade is more symbolic than real and should seriously raise borrowing cost for the facility. Just look at the USA, which suffered the same fate few months ago, yet still enjoys historically low costs. On balance, this action will most likely not carry any meaningful consequences, but certainly adds to confusion and increased sense of uncertainty.

This week some currencies created opening gaps. While easy to spot, they were very big, but a few of them were still worth the trouble. I focused on the AUD-USD, because it gapped down, and then continued lower. My ideas was to simply follow the latest high with a buy order using 5m chart and try to get in on a reversal. Eventually, my order was filled at 1.0276. After what seemed like a long wait, the AUD-USD finally reached my objective, bringing 30 pips. Not too bad, given limited potential here.

In the last post, I discussed a possible Head and Shoulders on the 4H chart of the CAD-CHF. It is no longer possible; price action did not form the pattern. However, my sell order remains valid, for now at least. At the same time, also as covered before, the CAD-CHF tested the 0.9400 level again and pulled back. Now I am interested in buying it as well on a move above the resistance. I have buy order at 0.9410, and this trade, if it happens, has a 100 pips objective.

After falling to near the all time low, the GBP-JPY is trying to reverse. On a short-term chart, hourly, we can see a possible rounded bottom under construction. The pattern will not be confirmed until the price moves above the latest minor high at 118.25. With this in mind, I placed a buy order at 118.33, target a 100 pips run. This is just a (possible) short-term reversal, not necessarily the bottom for the main trend. In addition, if the GBP-JPY keeps moving sideways for much longer, even a minor reversal will become unlikely. Prolonged consolidation favors resumption of the previous trend, down in this example.

Mike K.

What I personally find more important is the response of the US Dollar to positive economic news from home. In the past couple of years, the USD used to rally on disappointing domestic developments, acting as a haven. In contrast, good data tended to benefit other currencies, as if signs of recovery in the USA were good for the so-called “risk”. Recently, though, this has been shifting, with stability at home being reflected in rising USD. This means that America is not only viewed only as a safe haven, but perhaps as a bona fide good growth opportunity and holding Dollars is one way to play it. We had signs of this shift few times before, but Friday’s NFP is the most important single fundamental announcement that demonstrated this change. Now we have to see if this has a lasting effect and if it does, next 1-2 years might be good for the USD.

In a usual manner for Friday, I tried to trade early range breakouts on short-term charts. It turned out to be a difficult proposition as currencies essentially froze in anticipation of the NFP report. The GBP-USD had a fake bullish move, resulting in a loss of 36 pips. Normally I would have reversed, going short, but it was too close to the NFP, so I held out. Once the data was released and this market made initial moves, another selling opportunity emerged at 1.5422. This trade was successful and brought 40 pips gain, admittedly some luck was present with exit so close to the daily low. Have a great weekend!

Mike K.

Earlier this week I discussed a simple non-directional play in the USD-CHF. I was looking for a breakout from the tight range the price formed on Monday. The move turned out to be down, triggering my sell order and rapidly reaching the 40 pips objective. Good way to start the year.

There are all kinds of things happening in almost all currency pairs. The uncertainty is great and large moves are possible in both directions everywhere we look. And the volatility is likely to increase. I have a lot trades all over the place mostly using shorter-term charts. One of the new trades I am considering is in the GBP-CAD pair. Here going long at 1.5893 could catch a nice rally, if it happens. My objective is 100 pips, hopefully fast.

Mike K.

It seems that SNB prefers to keep markets guessing, rather than doing the obvious. And why not? Its previous decision of acting unexpectedly in August has been paying off, restoring its reputation after failures of earlier interventions. The 1.20 floor in the EUR-CHF has not only been achieved with relative easy, but more importantly has held for months now. Markets have not really tested bank’s resolve to defend it, as if taking it for granted. This could change after today, but the point is that setting of the initial floor level was unexpected. Swiss authorities will probably try to do it again, but it will not be at an obvious time, like the SNB policy meeting. Chances are, there will be another shock to the markets, when participants are preoccupied with other developments. In spite of Thursday’s non-action, the SNB is not yet done with the Franc.

Here is the GBP-AUD pair I discussed in the post two days ago. The Idea was to go long on a bullish breakout above 1.5525, with entry at 1.5538 to account for the wide spread and few pips of breathing room. Frankly, though the spread in this pair is not as bad as it used to be, commonly dropping to as low as 5 pips during active hours. Originally, I targeted 1.5700, but changed my mind for couple of reasons. The price stalled at 1.5650 or so, and when it failed to move above it on a second try in a few hours, I closed it at 1.5637, for a gain of 99 pips, which happened yesterday. The second reason was more prosaic – I was busy doing other things on Thursday and unable to follow the markets constantly, thus getting out of this trade yesterday made sense to me. For Friday, I will focus on short term trades at the start on the London session, with objectives of anywhere from 30 to 60 pips depending on volatility.

Mike K.

The biggest borrowers remain the USA, Japan and collectively the EU. While at present interest rates are low in these countries, they will not stay at extremely low levels forever, which will again add to general volatility and unpredictability of markets. The recent events in Europe clearly demonstrated what happens when investors demand premium on these instruments. If the same happens to even larger borrowers that Spain or Italy, like the USA, the OECD predicts a major shock to the markets in years ahead. Especially, since borrowing needs are not projected to diminish any time soon.

While we are waiting for another debt-induced calamity to unfold next year, there is the current one to deal with. The British Pound has held up relatively well, at least when compared to other currencies. Chances are it will continue, so I am taking a look at the GBP-AUD pair. This pair has developed a strong resistance around 1.5525 and if the price breaks out above it, I want to be in. My buy order is placed at 1.5538, with a target at 1.5700. Due to high volatility of this cross, we need to pay attention to the latest support at 1.5344. If things turn around here, that could be a good place to go short.

Mike K.

His action prompted talks about UK being isolated and for all practical purposes, having nothing to say about European affairs. Some analysts even say that Great Britain might as well exit the EU altogether because it has burnt all the bridges and will suffer the wrath of Brussels in one way or another. All of this is probably premature, speculation generated by press and not official sources. Eventually, perhaps, EU regulations could bite London financial services, when (if) the long discussed financial transaction tax is imposed. For now, we should leave it to the markets to decide if this supposed isolation is credible, and if so, will it actually hurt Great Britain. A good barometer of this sentiment could be the EUR-GBP currency pair.

The EUR-GBP has been in a massive consolidation for a few months now. While it is moving down, the progress is so slow, that it is painful to watch, never mind trading it. Now, however, bulk of the action is around the support of 0.8525. Given the general bearish sentiment, the price is trying break below the support. If that happens, the markets might be saying that British “isolation” is not necessarily too bad. We should find out this week.

A week ago, I discussed a consolidation in the AUD-NZD. This pair is locked in trading range between 1.3056 and 1.3266, and last week brought no change in this status. I still have both sell and buy orders, waiting for a breakout either way, with an objective of 150 pips. Admittedly, price behavior last week favors a bullish breakout, but that could change, given the time frame involved (intermediate). We can easily wait another week for a conclusion here.

Most of the currency pairs closed on Friday in a way that does not suggest the short-term reversal strategy plays in the early hours today. This means that I will be watching for opening gaps. In addition, the CAD-CHF could present a sell opportunity if the price pulls back to latest low. Right now, I have a sell order at 0.8987, targeting 0.8900. All of the commodity currencies show similar conditions in relation to the European currencies, something I might address tomorrow. Have a profitable week!

Mike K.