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.

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.

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.

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.

Today Spain delivered another surprise. The country announced that the budget deficit for 2012 would likely be as high as 5.8% of the gross domestic product, exceeding the target of 4.4% agreed with the EU. In 2013, however, it should drop to 3%. The larger than expected deficit is a big deal, because Spain could be next in line for bailout or some other sort of financial assistance. To make matters worse, Spain continued to lose jobs at a fast pace in February, suggesting the local economy continued to contract in the first quarter. According to data released by the country’s Labour Ministry, February jobless claims rose by 112,269, or 2.44% from January, likely pushing the country’s 23.3% unemployment rate even higher. Total jobless claims stood at just over 4.7 million, the worst reading in at least 15 years. In response, the yield on Spanish 10-year bonds increased to 4.92%, higher rates on Italian securities. There were some negative comments from the member states and the Euro kept falling most of the day.

Couple of days ago I discussed a buy in the AUD-NZD pair. The idea was to buy it on a move above the latest minor high, with the order at 1.2865. My objective was 65 pips. The price indeed went in the right direction, reaching my target. Well, almost reaching it. On this platform, it only climbed to 1.5929 on the bid, one lousy pip short of my target, and started to fall. I closed the trade a little later for 39 pips gain. Better to take profits than to wait until Monday. Have a great weekend!

Mike K.

No surprise meant no big moves. The immediate impact was limited, with small rally in Euro and other currencies. Things did change during Ben Bernanke’s Q and A and Capitol Hill. Probably the most important part, or at least the one that moved currencies, involved more easing. FED Chief said that current policies were highly accommodative, so no new easing steps are expected in the near future. This proved to be good for the Dollar, which gained broadly, in some cases as much as 100 pips in short order.

I did not pay real attention to Mr. Bernanke, as his speeches had little impact recently. However, the markets froze of sorts before that, with bullish breakouts not really going anywhere, so I decided to short the EUR-USD in one of my secondary Forex accounts. Entry was at 1.3465, with a loose objective of 40-50 pips. After seeing how currencies behaved, I decided to sit on it for a little longer. About an hour later, I closed it for 99 pips gain. Unorthodox trade for me, but it worked, although the size was too small…

The AUD-NZD is trying to reverse. It is a slow process, following the long downtrend in this pair. On the 4H chart, the price made several attempts, but failed every time. Now this chart shows a minor top at 1.2856, which could be a good entry if the reversal indeed happens. I have buy order at 1.2865 in case the AUD-NZD makes a run here. There are couple of possible objectives here, with the lower one more likely to be reached. It is about 65 pips above the entry.

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.