Forex Analyst Picks & Strategies
August 27, 2015
My Picks: Looking to sell USD/JPY on strength
USD/JPY and most other ‘risk markets’ seem to be coming up on an important near-term juncture in both price & time. If Monday’s meltdown under the 161.8% projection of the June – July decline in the exchange rate was indeed some sort of important low then we should find out in the next week or so of trading. Looking at the cyclical picture, the ideal time to see near-term downside forces try to re-assert themselves is around the early part of next week. Immediate attention pricewise looks be on 125.65/80 (and with good reason as there is a lot of stuff there including the 200-day moving average and the July closing low), but if USD/JPY does have a little more upside left then it will be hard to see this zone holding up so we can’t rule out a push to Gann resistance at 121.45 or even 122.55. Assuming USD/JPY does peter out then this is where things will get interesting as it should lead to some sort of retest into a more important cyclical pivot around the end of next week/start of the week of September 7th. A couple of things to be on the lookout for is if USD/JPY doesn’t stall out by the middle of next week as this would argue a low is already firmly in place and that a meaningful retest is unlikely. Similarly only a modest 1-2 day pullback early next week followed by a quick break back through the anticipated high would also severely undermine retest chances. We will revisit how things are shaping up heading into the more important turn window if spot exhibits the weakness that we are expecting.
Looking to sell USD/JPY between 121.50 and 122.50 early next week. Traction over the latter forces re-think.
Stop profit hit in EUR/USD short.
August 27, 2015
My Picks: Short USDJPY
Market Condition: Retracement
Target 1: 100% of Daily ATR
Target 2: 200% of Daily ATR
Invalidation: Bullish Breakout
USDJPY 1Day Chart
(Created using Trading View Charts)
The USDJPY has continued to break down through key values of support from last week’s Inside Bar trading pattern. This includes dropping as much as 433 pips, below the July 2015 low at 120.41, to a low of 116.08. From this low price has retraced back to previous support, which is now acting as new resistance. If prices remain under 120.41, this can provide traders to sell with the markets prevailing direction on a retracement. Initial targets may be set using 1x current ATR, which today sits at 130 pips.
Alternatively, if prices rally through resistance, this raises the possibility that the USDJPY is setting up for a broader retracement against this month’s previous decline. This would tentatively delay the execution of any new sell based positioning.
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August 25, 2015
My Picks: Long EUR/USD
Yesterday’s pivot high in the EUR/USD occurred at a strong confluence of wave relationships. When analyzing through the glass of Elliott Wave Theory, it appears the move higher is incomplete. Therefore, we look to identify key levels of support which would generate positive risk to reward ratios.
Bullish in the 1.1350-1.1450 zone.
Stop loss no greater than 100 pips.
Target the 1.17-1.18 zone.
Yesterday, we identified 1.1450 as the top of a price zone that would be an interesting price juncture for a bullish pivot. It represents the former breakout zone above the May 15 high and the June 18 high, plus it includes wave measurements as well.
We think the current sell off represents a small wave ‘iv’ and therefore, prices should comfortably remain above Aug 12 high of 1.1215. Bleeding down below 1.1450 is ok with this wave picture and the discomfort in analysis wouldn’t begin until we test 1.1350. Therefore, look for a meaningful pivot in the 1.1350-1.1450 price zone.
Targets lie in the 1.17-1.18 handle depending on where wave ‘iv’ terminates. Therefore, look for bullish candle reversal patterns or positive divergence in an oscillator to suggest a bottom is forming and we’ll want a stop loss no greater than 100 pips. This should yield a better than 1:2 risk to reward ratio.
The EURUSD SSI reading has been interesting over the past 48 hours of trading. We saw the SSI figure crater to -3 and soften a bit to -2.6 as prices jumped higher yesterday. As the EURUSD has continued to fall, SSI has moved to the current reading of -2.1.
If the SSI begins to shift towards more sellers, then that could also indicate a near term bottom is close at hand.
On a side note, if we do see EURUSD bump higher and retest the highs, then that likely coincides with another sell off in US stocks. Here are some levels I’m watching in the S&P500.
August 24, 2015
My Picks: Bearish JPN225 Toward Wedge Target
Nikkei(JPN225) Collapse Breaks Through Wedge Support
Bias: Bearish JPN225 Toward Wedge Target
Point to Establish Long Exposure: On Bullish Bounce
Target 1: 17,265 Double Top Downside Target
Target 2: 14,500 Wedge Support
Invalidation Level: 19,100 The Double Top Neckline (Not Hard Resistance)
At what point do central banks admit failure? 3 years after Abenomics was officially announced, a risk remains this week that we see inflation drop to negative year over year. Considering that Abenomics was released specifically to target inflation, which really only developed in assets like equities, it’s fair to say QQE may need to be scaled back. Additionally, Institutions continue to cut their view of Chinese demand and potential output of iron ore and other key metals.
What’s key to note is what happens next in terms of Central Bank action. It seems as though the big risk is what central banks don’t do. In other words, it’s expected that the central banks will come in and shore up markets. However, there are too risks. First, it’s not enough, again. Second and a larger risk, their credibility to help is diminished to the point where their action has a much weaker impact than hoped.
Markets that are tied to the Japanese economic, like the Shanghai Composite, dropped 8.5% and the German DAX is also falling aggressively through prior support. Some are already calling it, Black Monday. However, when looking at the JPN225 chart, you can see two bearish price patterns.
First, the double top pattern. The double top shows that upside momentum has slowed and could reverse should the prior low made before the nearly equal 2nd top.
The double top developed around 20,900 with a neckline of nearly 19,100 which I have as the invalidation point of the bearish trade even though that is not hard resistance or invalidation of the downside. The target takes the price range of the neckline to the double top and then extends that price to the downside. Given the sharp drop, we’re very near the double top target near 17,265.
The other bearish pattern is a longer-term pattern known as a bearish rising wedge. A rising wedge is bearish because it denotes less variance on the way up and that momentum is would up like a coil. A break below the lower trendline on a wedge favors the signal. The target of a rising wedge is two-fold. The first target is a 61.8% retracement of the wedge range and the second target is that the entire range will be retraced.
August 14, 2015
My Picks: Range Trading EURUSD
We've been tracking the near term picture closely in USDOLLAR (equal parts EUR, GBP, AUD, and JPY) in order to help us trade EURUSD this week. The following comments were published to SB Trade Desk this week and should give you an idea of how we've navigated the recent chop.
8/11: The Chinese revaluation killed commodity currencies (AUD in particular) but sent a number of Europe / commodity crosses into upper parallels (support for AUD and NZD). Gold broke near term resistance. The DXY (ICE USD Index) experienced resistance at old support and has declined in 5 waves from last week’s high. In other words, the market is still setup for a bigger turn in the USD. Ironically, the Chinese revaluation may end up contributing to the clean up of the recent technical mess in the USD and elsewhere.
8/12: The general theme presented during the webinar today was that the USD could bounce here but if the trend has turned down (at least for a few more days) then we’ve got levels in mind that should provide resistance. Here are the best (cleanest) USD levels from my vantage point.
For EURUSD, the zone for support if the move is still higher is 1.1088-1.1113. This zone is marked by recent highs and slope lines. The top of the zone could be support during early European hours. There is a confluence for the bottom of the zone during early US hours.
In summary, the dip on 8/13 got us long EURUSD but we're willing to flip to the short side on signs of USDOLLAR support over the next few weeks. For more analysis and trade setups, visit SB Trade Desk.
July 31, 2015
My Picks: Long USDCAD at 1.2649
I bought USDCAD at 1.2649 and have since booked profit on half of the position. The rest of the trade will remain open to take advantage of any further gains ahead. The stop-loss has been moved to the breakeven level.
Near-term resistance is at 1.3002, the 14.6% Fibonacci expansion, with a break above that on a daily closing basis exposing the 23.6% level at 1.3090. Alternatively, a reversal below the 23.6% Fib retracement at 1.2872 clears the way for a test of the 38.2% threshold at 1.2729.
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July 15, 2015
My Picks: Sell gold on close below 1150
Gold is testing a key trendline as it's remained in 'neutral' territory for its longest stretch since 2010. A breakdown targets a much larger decline and a resumption in the multi-year downtrend. I like getting short on a daily close below $1150 with initial targets at March, 2010 lows of $1040. Max risk on the position would be a daily close back above key trendline support at $1150.
Comment and view the chart live update here at this link: http://www.dailyfx.com/charts/tradingview/view?id=kuPrcaGM
June 23, 2015
My Picks: Pending: EURUSD, EURJPY, GBPUSD, USDJPY, NZDJPY
Looking across the Dollar, Euro and Yen majors; there are plenty of pairs that look well positioned from a technical perspective. Yet, once again the fundamentals may act as a barrier for follow through. With uncertainty or the focus pushed forward, expectations could pump the break on what looks like otherwise clean technical setups.
For the Euro setups, there are good looking setups; but resolution on Greece - for better or worse - is necessary. EURUSD in particular is in a diminishing wedge below 1.1500, but needs a decisive outcome from the debt standoff to have a fighting chance for follow through. A clear fundamental outcome would be good for either direction, but I prefer a scenario where the deal falls through and it clear 1.1250. The same is true of EURJPY, which could easily clear 138 congestion floor if a Greek crisis proved contagious.
For a Euro long view scenario, one of the better positioned pairs is EURCAD which puts a listless Canadian Dollar against a theoretically motivated counterpart. Clearing a 16-month channel resistance around 1.40 would be the key technical move, but fundamentals are crucial here.
For the Yen crosses, a clear risk view is necessary and we are as lacking of conviction there as anywhere else. A USDJPY move towards 125 on a clear risk appetite drive could be an opportunity but it has a narrow window and dubious support. I'd prefer seeing risk aversion pull down equities and the Yen crosses. USDJPY below 122.50, 121.50 and then 120 are the key stages. I am also partial to NZDJPY given it broke a major neckline on a six-year rise and head-and-shoulder pattern. A staging from a retest at 85.50 or projection below 84 may prove viable levels to work with.
From the Dollar crosses, focus on rate forecasts is still strong but the wait-and-see mentality is not as magnetized to the future as it was last week leading into the FOMC decision. That may ease trend development on pairs that aren't 'distracted' by upcoming event risk. I'm watching GBPUSD as it turns from its 50% Fib of the July 2014 to April 2015 bear phase around 1.5900. Without something to hold it back, perhaps this pair finds follow through more readily.
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