On similar note, financial markets in most countries are closed on Monday, but we still have data scheduled from release, including couple of important pieces. The Trade Balance from Japan certainly has the potential to move currencies, especially the Yen. In addition, the Consumer Price Index from China could create a spike in volatility, particularly among the commodity currencies. As always, the Australian Dollar should be most active. I am perfectly content to wait this out and start on Tuesday, with the exception of the JPY, where I might place some sell orders.

Before my hiatus, I discussed a possible sell in the NZD-JPY at around 66.50. Since then, the price rallied but kept returning to this level, making an even more compelling case for shorting this pair. There was a minor breakout on Friday, which I ignored for the reasons mentioned earlier, but now I have a sell at 66.40 looking for at least 100 pips. That said, I would still cancel this trade if conditions remain very thin, meaning very wide spreads. Anything above 10-12 pips suggests lack of participation, the type of environment when whips are possible and even likely.

Another potential trade covered on these pages was a buy in the EUR-CHF. My idea was to go long above 1.2070. The price missed the entry by about two pips and kept falling, eventually testing the 1.20 floor. In response, the SNB promised to defend it with “utmost determination and unlimited Euro buying”. We shall see just how committed they are but I bought the EUR-CHF on Friday at 1.2010. Objective right now is the 1.2070 resistance, risking 30 pips. Realistically, I am prepared to sit on this as long as 2-3 weeks.

Daily chart of the AUD-CAD was suggesting a bearish breakout under 1.0335, which finally materialized. This was not a smooth trade, with the price action less than decisive, but last week it reached 1.0118, just short of my 1.0100 objective. Two more days, which brought a hammer and a doji, convinced me to get out at 1.0224 for 106 pips gain. The main trend remains bearish, but I am done here for now.

Mike K.

Markets clearly do not have much faith in Spain, fearing higher than promised deficit or even possible bailout. In the past two weeks, Spain has had a higher yield than Italy, which just a month ago was the economy most at risk following the bailouts of Greece, Ireland and Portugal. On Friday, the Italian 10-year yield was 0.4 percentage points below Spain’s at 5.14%. This happened in spite the fact that European banks have plenty of capital from the LTRO and were expected to use it for sovereign bond purchases. After all, at 5% these are attractive yields in the low-rate environment across the globe. We should watch the 5.5% yield level, as a move above could spell real trouble for Spain and the Euro, perhaps as early as this week.

Last week I discussed trades in the GBP-JPY, and now it could be a good time for more short trades in Yen crosses. The NZD-JPY, for example, might be a decent sell under 66.50 using the hourly chart. Since the price closed well above 67.00 on Friday, it could take some time before this trade happens. As for shorter-term activities, I will look for gaps at the opening, and try to play them, if they develop. Have a great trading week!

Mike K.

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.

Recently, officials from Australia started to complain about strength of the Aussie. No threats of intervention yet, but it was a change in attitude, following months of no comments on the subject. If Mr. Stevens expresses some concerns, the AUD could respond with a selloff. This would be in line with short-term technical picture in some of the AUD pairs. The AUD-CAD, for example, advanced about 170 pips in the last two days and could be ready for a correction (AUD-USD is virtually identical). On this chart, I would like to see a bearish reversal candlestick pattern to provide entry, with objective of 30-40 pips. That would be a case of fundamentals lining up with technicals.

From a longer-term perspective, the AUD-CAD just completed a major correction, falling from 1.0781 to 1.0335. Now we need to see if this is a major reversal or only a big pullback within the uptrend. That will be decided when (if) the price returns to 1.0335. A bearish breakout there will probably send the AUD-CAD towards the parity, or at least 1.01. Of course, this will take some time, so in the meantime I will also look for a potential bearish reversal on 4 H chart, which , so far, does not show anything of value to me.

The Swiss Franc reacted in manner contrary to what most would expect. It got weaker before the SNB meeting, but recovered after the announcement. The central bank confirmed its intentions to defend the 1.20 level and the EUR-CHF promptly pulled back to that general area. I would expect the price to start moving much slower, in tight ranges and quietly form a bottom before another price run up. There is no trade here yet, but I will be on a lookout for one. In addition, opening gaps are always possible and could create opportunities. Have a great trading week!

Mike K.

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.

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.

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.

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.

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.