On the other hand, markets need “food” and this was another bone for everybody to chew on. Canadian Dollar appears to be benefiting from this news and USD as well, but to a smaller degree. I’m not very active these days, don’t want to be stuck with bunch of trades before the break, but I’m following with moves covered in this blog, because they are high probability set ups.  I have been bearish AUD-CAD for some time, with one positive trade taken earlier. Now second trade was closed.

I waited for price to go through the low formed around exit to the first trade, which happened at 0.9430. My original analysis of daily chart indicated possibility of move to 0.9320. Earlier trade brought 71 pips, another leg down suggested another 100 pips. Actual exit produced 98 pips. This concludes my interest in AUD-CAD, for now at least. Situation I was following played itself out and I have to look and/or wait for another one elsewhere.

One more trade involving Australian Dollar have been featured here recently. I’m tracking EUR-AUD with price action trade. Today stop/loss was moved to new minor low established during the weekend. This current level is at 1.6047. It will be adjusted/moved again when next low is formed. Using intermediate term chart, 4H, this means days. Most likely this trade will last for some time with updates as warranted.
Last Forex trade presented here and under way, long CHF-JPY,  will be updated tomorrow, before holiday break. Well deserved one, at that, and if somebody disagrees, I don’t really care.

Mike K.

Today these expectations were put to a test, by none other than RBA. Deputy governor, Ric Battellino, said the overall monetary position was back in the “normal range”. He pointed out that the spread between commercial lenders’ rates and the official rate had increased and was now wider than at the start of the crisis. In his words this reduces the need for the official policy rate to rise. As it is typical of central bankers, no details of any kind were disclosed, but this statement reveals what it is they pay attention to while formulating decisions. This lowers the chances of most immediate rate hike during next meeting, but probably doesn’t change the fact that AUD will be the highest interest bearing of the major currencies. Today’s Australian Dollar drop is blamed on these comments, even though the slide started yesterday, well before Mr. Battelino’s remarks. Go figure.

In reality it doesn’t matter who says what or why is something or other moving. What is important is the fact AUD has indeed lost ground today. It is even more important to me, because that’s exactly what I have been waiting for. Price action trade using EUR-AUD was discussed yesterday. Weakness in Aussie was need for the trade to become live. Here’s what happened.

Price moved up rather significantly, going through my buy order at 1.6158. Trade is active now. Initial stop is at 1.5958, just under most recent low. It will be moved higher as soon as another minor low is established. Intermediate term chart was selected for the trade, it could easily take few day weeks for trade to be over with. Frankly, the longer the better, because it would mean transaction is behaving as expected. All updates will be can be found under the “Price action trades” category.

Most of my trading today was focused on British Pound. Over last few days I accumulated quite a few GBP orders all of them bullish, like this buy in GBP-NZD. Entry for this trade was at 2.2520, with an objective of about 2.2780-2.2800. Price moved nicely my way, getting well above 2.2700 and I decided to get out at 2.2720, for 200 pips. Couple of reasons. It is late in trading day for me and I would hate to see this turn around, especially with FED announcement on the horizon. Besides, I had so many Pound trades that some gains had to be taken.

Another Pound pair discussed here is EUR-GBP. This trade is still under way and I’ll go over it in next post, but almost identical, only reversed positions was taken in GBP-CHF. Had to do it in another account, because concentration of Pound trades was too big for one. Here my entry point was at 1.6800, with a target of 1.7000. Trade produced 200 pips. BTW, EUR-GBP is under 0.8900 and I’m thinking about closing it too, before FED meeting.

This post is becoming exhaustively long, so more abbreviations now. NZD-CHF looks ready for a correction here. Last week I had a good long trade in this cross. Now I want to try it on the short side.  Entry is intended at 0.7427, with modest objective of 70-75 pips. Now I can relax, wait for FED decision and watch markets respond. While nobody expects rate change today, language of the statement will be under magnifying glass. Who knows what markets will do? BTW, just closed EUR-GBP trade, at 0.8893. Details in next update.

Mike K.

On a similar note, Moody’s Investors Service issued a statement that Aaa rated countries will probably have to start cutting their budget deficits before economic recovery is guaranteed as borrowing costs rise. This sounds like a very sound general opinion, something just about everybody shares, but it could mean something else. Vague warning to countries like U.K. and U.S. that public debt levels might warrant lowering of ratings for them. Very significant development under normal conditions, but once again markets were quiet. Probably December effect in its incomprehensible ways, as well as waiting for the event of the week - FED policy announcement tomorrow.

Right now most of the currency pairs seem to be in a holding pattern within larger price swings, something best visible on intermediate term charts, like 4H. Especially Yen crosses, something that one of the readers called “coiling like a snake”. To make matters even more complicated, JPY is not the influencing factor of late, so all the charts look a little different and must be analysed on its own. Some are looking for direction, like EUR-JPY, while others seem to be building bases for a bullish run, NZD-JPY for example.

I would like to see to about 65 or a little more. Exact level is not as important as a pull back after that. If this happens, any move above that point is a buy. Should price drop to 64 or lower, emergence of bullish reversal pattern would signal a buy also. In this scenario I’d like to have a tight stop , about 100 SMA or so, because any negative news could easily send the price down in a hurry and change my view from bullish to bearish. Clearly there is more waiting here.

With the dominant market swings unclear, I’ve been playing with Beast on the long side. Recently I have been bullish British Pound, with couple of other trades under way. No exception here. Two trades have been taken. First one shook me out by undermining my confidence. Breakout was not unfolding as expected and I settled for a minor gain of 13 pips. Second one was a very nice trade, which produced 50 pips, targeted number. On the subject of Yen - FED announcements had strong influence on JPY recently, something that might happen tomorrow.

Some time ago I covered  Price action Forex trading. By that I mean using nothing but the price for entry and stops and no objective for the trade. For details see the original post, and see how those trades worked out. Another set up suitable for this tactic is starting to show on intermediate chart of EUR-AUD. It calls for long entry above recent high, or 1.6158. Stop would be just under the low. If price makes new low, entry will be lowered to new latest high, which appears to be about 1.6075. This will be updated every time adjustments are made. Meanwhile we wait for FED tomorrow and for Christmas next week.

Mike K.

New Zealand Dollar, Kiwi, became favored currency of the day. NZD opened very strongly. In fact it left large gaps in most crosses which are visible on many trading platform. Even AUD-NZD pair had large jump, or rather drop, something that doesn’t happen very often. For the record, Canadian Dollar, was also very active and strong. This increased interest in Kiwi coincided strangely with my own trade in EUR-NZD, which I started to follow some time ago, to illustrate principles of trading Forex using only price action. Yesterday I adjusted stop on the long trade. Turned out to be just in time for NZD move, which took this pair down, putting an end to my trade.

Right after trading started price moved through my new stop at 2.0320 and I was out of position. This trade produced 290 pips. Both situations from original post have now played out, the other one was GBP-JPY. That post was to show that trading doesn’t have to be complicated. I’m leaving it alone right now, but will probably return to it in the future, using another cross and maybe different time frame. The concept is applicable to charts of all magnitudes.

Kiwi created gaps, something that I always see as trading opportunity on Sunday. Unfortunately for me, very few of NZD pairs made the counter moves to close the gaps. GBP-NZD was one of them, it did exactly what my strategy expects when gap is being closed. But I wasn’t in on it, following 4 other crosses and passing on these one. By this time of the day, I don’t expect gaps to be filled very soon. It can easily take a week for that to happen now. Good news is, that we have good, solid objectives for any trades betting on weakness of NZD. We just don’t know when. I’ll be tracking hourly charts of NZD-JPY, EUR-NZD, NZD-USD…..

Yesterday I covered GBP-AUD, looking at a potential short trade on 4H chart. I had no standing order, but was watching 1.8000 level. Earlier in the day price undercut it slightly, creating additional support point at that level. Just now price fell to about 1.7975. Problem is, since I used 4H chart for my analysis, 100 SMA on this chart is expected to be an obstacle and a bounce is very likely. With this in mind, I placed a sell order at 1.8070. If this happens, I’ll want to take some pips before current support and then establish another position below it. Of course there is always a chance that the price just keeps falling here, in which case I’d miss a trade.

Mike K.

Of note was British Prime Minister Gordon Brown’s call for urgent consideration of a global fund to rescue troubled banks, possibly financed by a tax on financial transactions. This is a version of the so called “Tobin tax”, a flat tax on international currency transactions named after the Nobel Prize laureate James Tobin. Details of what and how would be taxed were not announced, but it would most likely include international speculation as well as other banking activities. Proposal received tepid response from other delegations, for now at least. We can understand that Mr. Brown doesn’t want to spend public money on bailouts of bank, but there is another solution to the problem- stop the bailouts. Vast majority of financial institutions got in trouble because of mistakes made by executives, and not external forces. They deserve to fail. Perhaps some of these people should have extended vacation in prisons for mismanagement and breach of fiduciary obligation? Start holding the fat cats responsible for their greed and short sightedness, not levy a punishment on everybody else for excesses of few.

Australian Dollar has once again gotten stronger last week. It had experienced some weakness before, which had looked like a beginning of somewhat larger correction. Now most AUD crosses show indecision  and leaning towards resumption of bullish run for the Aussie. Personally I don’t think we will witness new highs for this currency, but charts are conflicting from time frame to time frame.

This chart of GBP-AUD shows recent run up of a little over 1000 pips, which looks like a legitimate trend reversal on daily time frame. At least the beginning of one. Intermediate chart, however, is already showing exhaustion of this move and is forming topping pattern., which looks promising at the moment. Noticeable support developed at around 1.8000. I’ll be watching this level closely but have no standing sell order, rather try to get in at market if I’m convinced move is for real, with an objective of 1.7750-1.7700, but I doubt new low will established.

I am also adjusting stop for the price action, EUR-NZD trade. It was moved to 2.0320 level, to guarantee almost 300 pips for the trade. In principle I should wait for a new high to form above “A”. However, this trade has already lasted long time and I thing it would be a shame to stick to the 100 pips gain which is locked right now. So I’m moving it up a little bit, making the outcome a little more attractive. Hopefully, new high will be made and trade can keep on rolling.

The G-20 meeting produced nothing extraordinary, but as always gaps on the open are possible. I also have some orders from last week still pending, so should be busy during next few days. We all better take advantage of what opportunities we can find now, before some kind of Tobin or Brown tax is assessed on us. Russian Finance Minister Alexei Kudrin said he it best:”Gordon Brown is well known as the person who raises taxes all the time.” He may have been right.

Mike K.

Comparison table of the interest rates among major central banks. RBA stands out with the highest percentage. Dates of policy meetings for other CB’s are also indicated here. Notice that we have more of these events scheduled for this week. FED is next followed by European Central Bank and Bank of England on November the 5th. Nobody expects surprises, but you never know.

With interest rate differential widening, one could argue for appreciation of Australian Dollar on account of the carry trade. AUD has already managed impressive gains this year, but seems to be stalling on technical merit. I covered it to a degree in Commodity currencies turning post, using NZD-JPY as an example. Large scale charts were used, so not much changed in them from yesterday, but it certainly looks to me that first stages of a corrective move are under development. later on this week I will return to that theme, once we see a little more price “painted’ on charts.

Last post also had a mention of me closing a trade in AUD-CHF, originally introduced in a post about SNB and its interventions. In principle, this trade is still valid, but I don’t like how the price is behaving. Intermediate chart formed fairly tight, nice reversal pattern. The breakout, however, was anything but. Price became wide, lacking direction and any conviction. And I lost mine. After original move out of base this cross moved right back to 100 SMA, which acted as a ceiling. In most instances, I’d look to either take losses there or place another order. I did neither, lost my focus and any conviction I had. Sunday evening position was closed for a minor gain. Moving on.

Here is something I have not posted in a long time- short term trade in the beast. I use 5M charts for that and trades are most of the time bullish, so some days are without a trade. Today GBP-JPY presented a nice buy set up, with an entry at 147.33. Target was set at 148.00, which was reached.  Not much else to add. Over next 1-2 days I will try to take a look at EUR-GBP again and look for trades there. Plethora of announcements from CB’s could create very choppy environment, but I don’t think longer term charts will be effected. We’ll find out soon.

Mike K.

Profitability is assured now, if only by 100 pips. Of course I think this pair will continue higher and the stop would be moved several more times before position is closed. Market will decide that, which is the intention of price action trades. As little interference from me as possible. 
Commodity currencies appear to be coming under pressure, something I’ll try to discuss in one of the future posts. Meanwhile there is AUD-CHF trade alive and one can always look for a Sunday evening set up. Should be back home in the afternoon and become active trading in the evening.

Mike K.

Let’s not forget Japanese Yen, which responds to all other currencies volatility. JPY crosses had sharp moves in both directions, ranging over 300 pips per day in some pairs, like the beast. While these are good size swings, they must be put in a perspective. I wanted to see  this recent activity compared to what happened in the past, namely a year ago. In October last year Yen was also the star of Forex trading world, only conditions were even more extreme. The post Panic was written day after GBP-JPY plunged 2000 pips in a day and then recovered 1200 pips or so just as fast. That happened during the height of financial crisis. It seems to me, that recent tone of press coverage gets more alarmist and about all financial markets are getting increasingly volatile, resembling last year’s conditions. Only the magnitude of fluctuations is still smaller and I hope it stay like this. Once GBP-JPY starts moving over 500 pips per day, and other markets increase by corresponding ratio, things get a little uncomfortable. It may seem like fun when you are on the right of the move, but it also could be an “Ouch”. Big one at that.

Today, Friday, currencies seem to have taken a breather after the fast pace of earlier days. Frankly, it is just fine with me, since I want to be done early today. This also gives me a chance to over some unfinished business, like the EUR-GBP analysis and trade. It was last discussed at some length in the Next move post, showing a daily chart, dominant time frame for me at this stage. My line of thinking was that market could find support around 0.9000 or just under and bounce, after which I could resume my selling. Well, it didn’t and just kept on moving lower only at much slower pace.

What’s one to do? Risk missing the trade altogether, or settle for much bigger stop than would like to? I went short at 0.8990 with only half the position size that would be approriate. It would be just fine, if the pace of decline kept its original momentum. Unfotunately, it slowed down, increasing chances for corrective move to the upside, something I’d like to see anyways, just…. So I simply closed the trade about an hour ago, taking 48 pips.

Here is how the 4H chart looks like. I’m getting a little confused so it is time to step away, and review it again in couple of days. Surely fresh new plan will emerge by then. Regardless, it has been a very good stretch for me shorting EUR-GBP over last 2 weeks and I don’t think it is over yet. Just a break for now.

Another cross followed here for a while is EUR-NZD. As mentioned before, it had a great day earlier on. This trade is attempting to use only highs/lows to stay in for as long as possible, just like another Pound trade did before. When price moves above the high at point “A”, lowest point between them will become my new stop loss for the trade. Given the fact that 4H chart is used, this process will likely take some time. I’ll keep you posted.

There will be no update tomorrow, I’m going out of town for the weekend, leaving in couple of hours. Given my masochistic sleeping patterns, though, I’ll likely post something Sunday morning before markets open. Unless the mountains make me tired, not so much hiking, as watching them from a nice hotel suite.

Mike K. 

I do not trade NOK on regular bases. Every now and then trades are taken using longer term charts, most recent one covered here was a sale in CAD-NOK, profitable trade. However, move by NB was important, because it suggests more central banks will follow. During last couple of years cutting interest rates was rewarding to currencies. This trend has stopped earlier in the year and is reversing now. From now on we should expect currencies with increasing rates to be appreciating in relation to others. AUD set the tone earlier this month and I think NOK pretty much confirms it, or at least it will over coming weeks a return of historically more typical trend. Those who are trading fundamentals should take it into account before all policy setting meetings in foreseeable future.

While big time fundamentals are very important and influential, they lack the precision which I think is necessary for active trading. For that technicals are used, charts to be exact. They have own limitations and shortcomings, of course, but as far as I’m concerned trading with any frequency would be difficult without them, even if the are extremely simple. The way I kept the graph of EUR-NZD.

I’ve been tracking this pair for a few weeks now, with intention of buying it on upside breakout. Entry has been adjusted few time and surely anybody who followed it with me either fell asleep or lost interest long ago. I updated it most recently in New China scare post, just couple of days ago. Today order was triggered at 2.0030, on large adverse Kiwi move. Market will decide length of this trade, I only chose stops. Initial one is at 1.9680, and hopefully, it will be moved up soon.

I was looking at a possible beast trade yesterday, which didn’t happen. If you saw today’s headlines, you know why- “risk aversion”, “safety of the Yen” etc,. Yeah, yeah, yeah, whatever. JPY indeed had a strong day, but not as strong against GBP as other currencies. The same hourly chart of GBP-JPY I was looking at yesterday, started to build a reversal pattern, with a small cluster of bullish  candles. I went long at the market, which happened to be at 148.63. Most recent minor high gives me a target of about 100 pips, where I want to close half of the position and then try to hold on within the rest for another 80 pips or so. Maybe by tomorrow everybody forgets about safety and becomes intrepid, or reckless, and dumps the Yen.

Mike K.

Speak of the devil. Even my local paper got in on the act last week, publishing an alarmist story about USD. Subject was the 1.5000 level of EUR-USD. Now, currency is not a subject of daily or even regular coverage in local press, it starts to surface when it becomes a “hot” topic. This goes for all other financial markets outside of stocks, such as commodities, normally after a prolonged move. When people who clearly have no business talking about something, all of a sudden become “experts”-  watch out. This could mean that market of interest could be very late in its move. Our paper has fantastic record of developing interest in “hot” markets at precisely the wrong time. It happened to Canadian Dollar two years ago, grains, oil at the top last year and bottom this year and many others. Perhaps it is time to start looking at weekly charts of Dollar crosses, using Seattle Times story as a contrarian indicator?

Joking aside, opening for currencies was relatively docile, But things changed after Europe opened. Not dramatically, but enough to get noticed. Looks like after Friday beating, Pound is reversing again. GBP has been rising all day, seemingly expecting bad economic data from last week to get better. This remains to be seen, but last few hour have been promising.

The Euro-Cross received good amount of coverage from me, including the SNB post from yesterday. Focus was on daily chart of EUR-GBP, with a remark of possibly switching to 4H graph if needed.  Well, price appreciated after opening, but ran into heavy resistance at around European open, forming bearish engulfing line, strong reversal pattern and a sell signal. I used it as a short entry. Heaving a signal on larger time frame would be better, but the way price is unfolding, it could be a late entry with too large of a risk. As is, the stop was at just above preceding candle, or about 32 pips. But this situation has its shortcoming also. Going for target of 0.9000 could be a little over ambitious. We can see massive bullish candle dominating the landscape. Very often, middle region of out of proportion candles creates support/resistance. I will have to watch 0.9080-0.9100 zone and probably close the trade there, if it even gets that far. For now short trade is on.

It is time to return to my original price action trade. Two different trades were suggested at the beginning, one of them, GBP-JPY came to a successful completion, while the other lingers in obscurity. Well, I’m going to renew the quest.  Buy order for EUR-NZD had be to lowered few times and currently stands at 2.0030. Once again, no objective is set. If executed, market will decide how far this trade gets. Stops will be moved under latest lows, just like it was done with the beast position.

Mike K.