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.

Euro has been rising most of the week, as if market participants expected a solution and some stability in the common currency. Realistically, the EUR was due for a rebound; it had been oversold against most currencies. This run-up was a combination of a technical bounce and the anticipated good news from Greece, and in case of the EUR-USD, it reached 1.2986. It will be interesting to see how the Euro reacts to that, but one should consider the possibility of “buy the rumor sell the fact”. Meaning, the EUR could fall again once the supposedly good news is finalized.

My Friday trading was focused on short-term transactions at the start of the London session. As it turned out, the EUR-USD presented a good opportunity, with nice trading range established just before the session started. The first move of the day was down, triggering a sell order at 1.2951, under the minor support. Turned out to be a good trade but it did not maximize the potential here. Alls said, though, it was a good end to a good week. Have a great weekend!

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.

Now Japan feels the threat of similar action. Her prime minister, attempting to build support for painful fiscal reforms, said Saturday that the country should be alarmed by ratings cuts in Europe and must tackle its massive public debts to avoid becoming the next target. Noda says Japan urgently needs to reduce its debt burden as the nation ages and its labor force shrinks, putting a greater burden on the social security and tax systems. He has promised to submit a bill by the end of March to raise the 5 percent sales tax in two stages, to 8 percent in 2014 and to 10 percent by 2015. To be fair, most of Japanese debt is held internally and not internationally, but another downgrade could be painful and seemingly official feel the heat.

Meanwhile in France, the Prime Minister Fillon said Saturday his country would push ahead with cost-cutting measures. The downgrade confirmed his conservative government’s plans for more reforms to bring down debts, despite worries that more austerity measures could suffocate growth. However, the government would not adjust the budget yet, saying it had been devised with an assumption of higher borrowing costs. This is typical of what we have been hearing from Europe in the last two years – plenty of talk but very little practical steps. In the end, Friday’s downgrades provide Germany with even bigger clout than before which could have a profound impact on what the EU will do to combat the problem (if they ever do anything).

Few days ago, I discussed a weekly chart of the EUR-NZD, which showed a strong possibility of MACD divergence. For a while, the weekly chart almost produced a reversal pattern, but a steep selloff on Friday closed at almost the weekly low. However, this choppiness created another probable MACD divergence, this time on the 4H chart. The divergence itself is almost guaranteed now, as long as the price makes a new low, but the EUR-NZD still needs to show a bullish reversal pattern. I would like to see a hammer or a bullish engulfing line, which would act as the trigger here, with at least 200 pips objective.

Meanwhile the CAD-CHF has consolidated, building a potential Head and Shoulders reversal on the intermediate term chart. For the pattern complete, the price must move under the latest low of 0.9238. I have a sell order at 0.9230, targeting 100 pips if it is initiated. Should the advance continue I would look for signs of resistance at 0.9400. Another pullback from that level could create a buying opportunity on a follow up breakout. As for immediate concerns, opening gaps could form and those are often exploitable. Have a great trading week!

Mike K.

Chances are that the summit in Brussels on January 30 will not produce agreement on this issue. In such case, Mr. Sarkozy will try to impose the Tobin tax unilaterally before the April presidential election in France. French business was quick to distance itself from the idea. Paris Europlace, a financial markets association, warned that unilateral application of this tax would drive banking, insurance and asset management business out of Paris, and benefit of other large financial centers. It could even hurt Sarkozy’s reelection bid. Ultimately, though, it will further sour European unity at a time when it is most needed.

The USD showed strong gains on Friday, especially against the Canadian Dollar, which fell of confusing employment numbers. While the Net Change in Employment improved with 17.5K new jobs, even higher than the projected 15 K, the Unemployment Rate somehow increased during this time to 7.5% from 7.4%. How is it possible? Beats me, but the USD-CAD had a nice rally and closed at 1.0283 just shy of the daily high. This, it turn, sets up a short-term reversal trade, a sell in this case. I want to see a bearish reversal candlestick pattern on hourly chart, looking for a 40 pips correction.

After a bullish spike on the first trading day of the year, the Euro fell for the rest of the week. Fundamentally, there are few, if any reasons to by the common currency, but it could be getting oversold for now. Such is the case in the EUR-NZD. At 1.6287, the price is approaching the previous low of 1.6201, creating a possible MACD divergence on the weekly chart. It is a chart to watch for me, in case the divergence actually develops. That would be confirmed by a strong bullish reversal pattern. Because this is a weekly chart, we have to wait at least a week for the next candle to form, maybe even longer. If it does, the price could easily recover to 1.70 or so.

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.

Let us pay attention to the right hand side of the 1hr chart for the EURCHF. We can see clearly that the multiple rejections of further upward moves at R3 indicate that a full reversal of the initial bullish run is about to take place at that level, providing a very strong sell signal. A short entry at R3 is definitely not out of place.

A short entry at R3 should have R2 (acting as a support) as a first target. In this example, the price action got to R2, stalled a bit, confirming it as a first exit target, good for 130 pips. After downward rejection at R2, a very strong bearish candle ensued which tore through R1 and closed above it (an indication that a further downward move was very possible). The next few candles attempted to retrace back to R1, but any further upward retracements were stalled at that point. R1 could serve as a second exit target, or indeed, another short re-entry for those who took profits at R2. The downward momentum continued beyond the central pivot point before dying out at S1.

There are some things that are obvious here. When you have your pivot points plotted on the chart, they immediately show you key levels of support and resistance, and because many traders are watching these levels and respect them when placing orders and exiting positions, they tend to hold.

Furthermore, the behaviour of candlesticks at these key points give a good hint of what the price action is likely to do next. If the momentum of a candle takes it beyond a key level (e.g. strong bearish candle closing below a resistance point), a further move in the candle’s momentum is very likely. If there is any retracement at all, it will usually be to the key level that was surpassed before the price action resumes the momentum in the trend of the strongly trending candle. We saw this very clearly when a bearish candle ripped through R1 and closed below it.

If you know how to use pivot points in the way we have described, they will make easy pickings for you in the Forex market.

Written by Alexander Collins, who is an owner of PipBurner Forex blog where you can download free Forex trading tools. Do you know Pivot Point calculation formula? Want to find out? Read article about Pivot Point calculation.

Details will have to be worked out later, as well as agreement and eventual ratification by member states. It seems that goal right now is get a tentative approval to this “plan” during the EU summit, if only to indicate that something is getting. That, in turn, could be enough for the ECB to respond with a QE action, another bond purchase program or whatever steps they can conjure up. However, this party was ruined shortly after by the S&P, which threatened to cut its credit ratings on 15 euro zone countries, including Germany, France and Austria which have been considered Europe’s safest sovereign debt issuers. To confuse matters further, several EU member states are urging Germany to drop its demands for changes to the EU treaty, arguing that deeper fiscal integration on the continent can be achieved without overhauling the EU’s fundamental law. We can expect more announcements like this, perhaps even every few hours all week long. Bottom line – uncertainty and discord are as strong as ever.

Yesterday I took a look at the USD-CAD, where possible trade set ups were forming. I considered shorting it first, but did not see convincing enough evidence to enter a trade. A little later, however, the price dipped to what I considered a buy zone. Once a bullish candlestick pattern on the hourly chart emerged, I went long and the trade brought 40 pips. The other set up mentioned yesterday, straddle in the AUD-NZD, is active, but that will likely be the extent of my involvement in currencies until Friday. News from Europe are unpredictable, there is no sense of progress only growing confusion. Combined with all the policy meetings by central banks, this is a good time to take a break and try to watch the proceedings with some detachment. Best of luck to all those who are trading this mess.

Mike K.

Meanwhile one of Italian newspapers, La Stampa, reported that the IMF has prepared a rescue plan for Italy. According to the article, loan of between 400 billion and 600 billion Euros is in the work, which would give Italy a window of 12 to 18 months to implement budget reforms. Interest rates on these loans would be in the range of 4% to 5%, making it easier for Italy to refinance maturing debt. Due to the enormous volume of the loans, the IMF would need help from the ECU and possibly other sources. So far, this is a rumor, not much more than “market talk” and still needs to be officially confirmed by the IMF. We will find out more this week.

A week ago, I looked at the NZD-USD on the daily chart, because it was approaching the main support at 0.7630. I did not intend new trades, just wanted to see how the price reacts around that level. So far, the NZD-USD moved under it, but in the last couple of trading sessions the speed of decline slowed down considerably, creating a divergence with the MACD. The commodity currencies showed strength relative to their European counterparts, suggesting that this particular bearish price swing might have see its best days. A rally in “risk” could be around the corner. To be sure, there is no technical reason to buy the NZD-USD yet. However, if a strong bullish candlestick pattern emerges here, this pair could easily climb to 0.7750 or so within few days.

Unlike the Euro, the AUD-USD did not make a new low on Friday, but rather developed a flat consolidation area. While the trend is bearish, the price could move either way from this range. The size of this consolidation indicates a 100-120 pips swing after the breakout, regardless of consolidation. I will treat this situation as a stop and reverse play, because there is always a possibility for a fake breakout.

The British Pound made a new low against the Dollar on Friday, and close near that extreme. This sets up a short-term reversal trade in early trading. For that, I need to see a bullish candlestick reversal pattern on the hourly chart. Since I am looking for short-term play here, objective will be small, about 50 pips, depending on how exactly the action unfolds. On balance, while the USD is strong now, chances for a “risk” rally or a rebound, this week are good. Have great trading week!

Mike K.