DailyFX Analyst Picks - John Kicklighter

Long CADJPY

Unknown Field-Author — Fri, 20 Nov 2009 15:44:51 GMT

I have been watching the commodity bloc and yen crosses very closely the past week. Both sectors of the currency market are heavily influenced by risk trends; and the sentiment is heading towards a meaningful breakout in the very near future. To trade in today's markets, we first have to make a decision on when the markets will break and whether risk appetite or aversion will come out ahead in the end. I have been of the mind that a significant retracement in risk appetite is soon to come. However, considering we are now in the countdown to the weekend liquidity drain and next week will be truncated by an extended US holiday; the burden of a breakout seems too high (though I will watch the markets closesly because major breakouts have been known to develop under such circumstances in the past).

Looking through the list of pairs that have technical and fundamental appeal for such a broad scenario, we have quite a few options. However, CADJPY is one of the more appealing setups. For a fundamental background, the Canadian dollar does not carry with it the high-yield status that its Australian and New Zealand counterparts maintain. This may help reduce high volatility and prevent false breakouts. This leaves us to a very clear technical setup. A rising trend line from March that finds confirmation at July, September and October finds further support from a prominent 61.8 percent Fib and 200-day SMA around 83.00/25. There is risk in this position though, so I will go in at reduced size at 83 with a stop 125 points lower (necessary considering the size of tails when the pair has tested its trend). My first objective will be one and a half times my stop. I'll keep the second objective open to gauge momentum.

Short USDCHF and Short GBPJPY

Unknown Field-Author — Thu, 19 Nov 2009 15:43:34 GMT

The setup to two positions that I have drawn up in the past 24 hours are both playing out. They just so happen to be a pound and franc-based pair (our focus currencies for Thursday). My first setup was the GBPJPY breakout that I have been waiting for for more than a week now. A quickly diminishing wedge formation, that by yesterday was only 100 points wide, was too constrictive for a pair that is as volatile as this yen cross. With a medium/low time frame close (60 minute candle) outside of the zone, I was entered at 149 and my stop was placed 120 points higher. A first target that is one-and-a-half times risk is well within reason; but the level of volatility in this pair can easily cover more than this given enough time. I was initially considering a primary objective between 1.5 and two times the risk; but if risk aversion does not maintain momentum. I will simply take profit at the closer point.

In contrast to this breakout move, my USDCHF short was developed through my range setup from yesterday. A very consistent congestion zone has set up for this pair over the past two weeks with a ceiling at 1.0200 and floor near 1.0030. Looking to keep the probabilities in my favor, I stuck to playing a bearish reversal from the highs as that level happened to also coincide with a well-tested bearish trendline developed in the highs of the past 5 months. With further support from fib congestion, moving averages and a clear pivot from the past two months; there was plenty of reason to believe a test here would hold all but a serious shift in underlying sentiment. My initial stop is set close at 1.0245 and the first target compensates at 1.0095. If the series of slighly higher daily lows progresses however, I may raise my objective level.

Pending Breakout GBPJPY

Unknown Field-Author — Wed, 18 Nov 2009 15:05:47 GMT

There are three different, general situations for the yen crosses. USDJPY is unique given its unusual fundamental influences through the back and forth of funding currency status. Then there are the pairs like EURJPY, CHFJPY, AUDJPY and CADJPY that are carving broad ranges. These pairings have short-term support and resistance levels that could spark a short-lived burst of volatility in one direciton or the other; but the follow through is naturally limited by the more prolific boundaries. Finally, we have a couple yen-based crosses that have leveraged potential for a significat breakout. NZDJPY has a larger, rising trend channel (similar to the range patterns on the aforementioned pairs); but the it is easier to establish a position considering the tight congestion band and ample room to run. My interest though is in GBPJPY though.

The British pound has been quite volatile this past week; and yet GBPJPY has worked its way consistently into an asymmetrical wedge pattern. This dominant pattern (which calls resistance in a trendline that began on the 8/10 swing high and connects 10/23 to 110/9; while support is established in the risng trendline that connects lows from 10/7 to 10/13 to 11/2 to 11/12) is fast approaching its apex. Often times these patterns can end in a breakout without follow through should the market not have a clear bias on a underlying fundamentals. This is a distinct concern when drafting a strategy; but the tight 100/150 ranges from the past four days suggests the market is aware of the stakes and is waiting and willing to forge a breakout should there be a drive for it. I will look for a close (on the medium time frame charts) above 150.50 or below 149.25 for entry. A stop can be placed on the other side of the congestion pattern and the first target will be set twice to risk. In reference to the need for a true shift in fundamental currents to keep this pair moving into its breakout, I will take a reduced position should this pair (or even the yen crosses in general) move by itself. However, if there is a clear change in risk appetite for the broader market that supports the GBJPY break, the position will placed at full size.

Pending EURUSD Breakout (Bearish)

Unknown Field-Author — Tue, 17 Nov 2009 15:34:27 GMT

It is a low probability scenario; but one that would define the convictions of the market's most liquid and controversial currencies. While the dollar has only just recovered from 15-month lows set yesterday; the world's most fungible security is just steps from a meaningful technical reversal. From a fundamental standpoint, this is not so unusual. For the the better part of a month now, the dollar and its major pairings have more or less carved out congestion patterns at the end of a bearish greenback trend. Driving the dollar to this low has been the unnaturally steady rise in risk appetite and the questionable status of its status as the ideal funding currency. Both propositions are bound to become unraveled with time as yields and fundamentals are severely lagging asset appreciation while US market-derived rates start to recover before the Fed actually moves to hike its benchmark.

The fundamental components are there; but we need a catalyst to get things moving. It is difficult to say what the trigger for such an elemental shift in the markets will be; but a general reversal in sentiment will be the most probable cause and will certainly be the driving force on follow through. Looking across the currency market, there are many places that this underlying current can be played. The majors, the yen crosses, the Australian and New Zealand dollars are all viable opportunities. However, I'm looking to avoid volatility and looking to pure trend in EURUSD. The epitome of the dollar's struggle, this pair has maintained its rising trend from the March reversal. The collection of the 50-day SMA and the primary trend sets a turning point at 1.48. I will look for a confirmed break of this level (a medium to high time frame bar close below the trend) to begin building a position. Considering the various pivot levels that could step in as congestion below, it is best to build into a position as it grows more and more obvious that the market is indeed reversing. Confirmation will further come from similar sentiment changes in equities and other risk-atuned markets. I will leave stops and targets open until it is clear where my entry will be. In the meantime, I will keep these orders open for a week and then reevalutate the situation should they not be triggered.

Short GBPCHF

Unknown Field-Author — Mon, 16 Nov 2009 16:53:12 GMT

There is a lot of pent up volatility for the currency market at the start of this week; however, there isn't a lot of heavy-hitting economic event risk scheduled for release. This could play out in one of two ways. The first scenario sees the lack of a major fundamental catalyst leaving the market to congestion (in risk appetite and specific currencies). On the other hand, a lack of data could also be considered a lack of an anchor on price action. Often times, the presence of a prominent indicator or event scheduled for release (like US NFPs or the BoE rate decision) later in the week prevents traders from taking large positions and/or forging breakouts as it poses the threat of an unfavorable reversal. It is difficult to say which scenario will play out this week; but considering those markets highly atuned to risk appetite are taking to congestion at the very extremes of their respective trends for the year, the impetus for a significant move one way or another is there.

There is no lack of breakout or range setups for the FX market. For a breakout setup, a bearish NZDUSD setup (should risk aversion take hold) or bullish EURUSD position (should the bulls refind their footing) offer transparent technical and fundamental arguments. However, I'm focusing in on congestion-based setups as it requires less kenetic energy to play out. While there are many ranges among the liquid majors and crosses; I'm particularly interested in GBPCHF. Fundamentally, the argument for the pound being a yield-bearing currency is growing more and more flimsy given the evolution of growth and interest rate forecasts for the UK. The questionable carry aspects of this pair will discourage major trend development from this pair on the foundation of sentiment. The techncial scene offers clear levels to work with. Over the past three weeks, a clear range has developed with resistance holding back a series of daily swing highs with the help of Fib congestion around 1.6950. For a floor, the confluence of a pivot and Fib congestion sets up at 1.6665. I will look for a short between 1.6925/35 with a stop set just above 1.70. My first target will be 140 points below entry - around half of the range. The second objective I will leave open to see how momentum develops as I trail the stop.

Pending NZDUSD Brearish Break

Unknown Field-Author — Fri, 13 Nov 2009 15:55:57 GMT

The markets have put a floor under the sharp selloff from yesterday; but that doesn't mean that a more meaningful retracement in sentiment - and thereby the markets - has been completely avoided. With the weekend liquidity drain fast approaching, the likelihood of seeing true trend developement before the close is rapidly diminishing. However, the markets will pick up exactly where they left off come the early Asian session open on Monday; and we need to look ahead to develop strategy and gauge attractive trade setups. For me, despite today's modest rebound in risk appetite, the markets still need to make a critical decision on whether we will revive the dominant bull trend of the past 8 months or finally reverse course. While it is the safer course to hold with the larger trend, I am actually looking for a potential setup that is a good measure for reversal.

Depending on your brand of technical analysis, NZDUSD has already taken the first step towards drawing its rising trend to a close two weeks ago when it broke the rising trend that connected lows from April, July and September together. We have since risen back above this level; but the rebound has fallen well short of retesting the the Oct 21st high. Rounding out a second, lower high this past week, around 0.7450/75, we are now testing the influence of this level as resistance and a well-tested pivot at 0.73 as support. I am looking for a confirmed break of this floor (on a lower time frame chart like 60min) to enter a short. My initial stop would be the mid-point of the small range and the first target would be set above the early-November swing low. A true reversal will breech this 0.71 support as well; but by then we should see a significant turn developing in many other key currency pairs and various markets. If that is the case, a second objective can be set much lower and my stop can be trailed at a distance.

Pending GBPUSD Breakout (Bearish Bias)

Unknown Field-Author — Thu, 12 Nov 2009 16:16:17 GMT

The dollar has found considerable strength as Thursday's trading session has progressed. There is little doubt that this strength has leant itself to GBPUSD's evolving reversal from three-month highs set at the beginning of this week; but then again, this pair is not fully dependent on the dollar for direction and pace. Whereas the US dollar is typically treated as the opposing side ot all shifts in market sentiment; the pound arguably holds more dour fundamental background. This makes for a unique response to the primary driver for the broader markets - risk appetite. If GBPUSD was indeed overbought from a speculative standpoint after its surge last week, then the safe haven appeal of the dollar or fundamental instability of the pound could both drive the pair down in the coming days.

As for a position, I don't have to blindly jump into a fundamentally-derived position. I can instead wait for a technical cue to signal the next leg for price action. Looking at a short-term frequency chart (15min) we can see GBPUSD has worked its way into a descending wedge with a falling trendline (along with some moving average congestion) defining the past week's highs at 1.6565. Support is founded on a double bottom/pivot around 1.6525 with the 20-day simple moving average adding legitimacy. This is a tight range; and will certainly break soon. The market can go either way; but I have no interest in an upside break because there is too much congestion resistance above and the proximity of long-term highs means there is limited expectations for follow through. A bearish resolution is far more appealing. It wouldn't take much encourage a meaningful retracement of the past four week's rally as it would essentially be range trading. I will look for a confirmed move below 1.6525 and set a stop at 1.6585. My first taget will be 1.6410; and trailing the stop on the remaining portion of the position, I will gauge momentum but be open to a move all the way down to 1.61 if we can get there within a week's time.

Pending GBPJPY Breakout (Bearish Bias)

Unknown Field-Author — Wed, 11 Nov 2009 17:14:55 GMT

Most of the yen crosses (at least those like EURJPY, CHFJPY and CADJPY that have appealing and consistent wedge formations) are currently settled anchored to the very middle of their respective ranges. And, though there is breakout potential for these technically appealing pairs through recent congestion, the risk/reward profiles look far less attractive. Considering the recent chop that has developed for these handful of pairs, there are clear opportunities for a breakout. However, these are ranges that are set within broader ranges which would likely curb any developing trends - and the room to run looks relatively constrained when compared to what would be considered a reasonable stop.

However, I won't write off the yen crosses off altogether. A range opportunity I pointed out not long ago, GBPJPY looks like it could also be positioned for a possible breakout. This pair has held loosely below its 153.25 pivot; but the real definition to trend followed the 200-day SMA which is now at 151.75. Spot is currently testing the rising trendline that began with 10/7 and connects 10/13 to 11/1 to 11/3 as well as the 61.8% Fib of the 10/28 to 11/1 bear wave at 148.65. Should the markets hold steady, this represents a decent range setup (played with reduced position size). The more appealing setup though is a confirmed break below this zone support that opens up a run to 146 and perhaps 140. I will wait for a medium time frame bar close below 148.50 and set a stop above the mid-point of recent congestion. My first target will be equal to one-and-a-half times the initial stop (which will fall before the Nov 1/3 swing lows). The outlook for the remaining half of the position will depend upon momentum. I don't intend to trade a bullish break above 151.75 - at least not yet.

Flat on the Euro Crosses

Unknown Field-Author — Tue, 10 Nov 2009 18:36:57 GMT

Some of the euro crosses have been driven the edges of their respective congestion zones (EURUSD, EURAUD, EURCHF). This provides an opportunity to speculative on a breakout or reversal; but that would require volatility - something that may not be naturally derived from the market before heavy event risk turns a technical trade into an event-risk setup. I will hold off on taking a position in the euro until after Friday's regional GDP numbers. The Euro Zone and its largest member economies will release the first readings of 3Q figures; and this data is considered critical for gauging whether the area is on track for a recovery that can keep pace with its largest counterparts. In the absence of an unforseen market force (most likely risk appetite), the euro will likely be anchored by the presence of its event risk. I'll wait until after the data is out to start looking for positions that are setup to last at least a few days.

Long USDCAD

Unknown Field-Author — Mon, 09 Nov 2009 15:14:17 GMT

The dollar has started the week of with a sharp decline that threatens much larger implications for trend and pace. In the process of this quick move, some of the majors have already pushed significant levels - most notably GBPUSD. However, while the rest of the majors have pushed notable dollar-support; they have not yet managed to surpass their respective 'last lines of defense.' Momentum on the equity rally through the Asian and European sessions is imparative to feeding the dollar's decline. If the US session decides to let up on the accelerator, sentiment will likely stabilize and the majors will maintain their composure - for now.

There is little doubt that this outlook is highly risky as it works against momentum and a long-established trend. However, I feel congestion is now the market's modus operandi; and volatility like we are seeing today will quickly be snuffed out to further develop congestion zones or confirm false breakouts. It is difficult to establish a setup to survive these conditions; so position size and considerable stops are necessary. There are good opportunities across the board; but I am looking at USDCAD. I will look to fade this morning's plunge with a long positon calling for entry near the confluence of the 20-day SMA and 50% Fib retracement (of the 10/15 to 11/02 advance) at 1.0550/75. The stop will be set 50-75 points below support and the first target will look for at least 1.0675. The second objective can call for more of the range but should depend on momentum at the time.

Pending USDCAD, NZDUSD and AUDUSD Breakouts

Unknown Field-Author — Fri, 06 Nov 2009 16:44:54 GMT

I have had some success with the ranges that the commodity bloc-based majors have produced this past week. Most notably, my analyst pick from last week for a short USDCAD setup would hold the descending trend of highs and play out relatively quickly. More recently, the short-term (and risky) congestion outlined in Thursday's range trade report would find a supportive fundamental backdrop to quickly drive an open position to its first target. The wedges and horizontal zones of chop that have developed over the past few weeks is still strong with the Canadian dollar-based major as well as its Australian and New Zealand counterparts. However, just like underlying market sentiment (which has stalled), these pairs will have to find direction sooner or later. And considering the consistently high levels of volatility and bolder efforts at defining early (false?) breakouts on long-term trends; a significant turn looks as if it develop sooner rather than later.

In looking for breakouts from any of these pairs, the primary catalyst is almost certainly going to be risk appetite. This is a sweeping economic driver that will likely force all three at the same time; so it is best to pick and choose rather than leverage exposure by trading all three in the same direction. However, AUDUSD, NZDUSD and USDCAD each have their own unique fundamental and technical appeal. USDCAD is somewhat buffered due to its close economic links while NZDUSD and AUDUSD are freer to repond to sheer speculative flows. For USDCAD, their is a descending triangle formation with the falling trend (8/17 to 9/3 to 9/28 to 11/2) now at 1.0850 and pivot support at 1.0600/20. NZDUSD managed to push below its steadily rising six-month trendline so the short-term wedge that has develoepd this past week can quickly find momentum. In contrast, AUDUSD has maintained its consistent rising trend for the year (now at 0.8950); but congestive price action and a larger resistance at 0.93 lend the sense that a break is approaching. I don't want to take a predefined bias for either a dollar bullish or bearish break; but a dollar rally has the greater room to run. I will look for techncial (a close beyond one of the aforementioned levels) and fundamental (a defnitive shift in sentiment) to confirm entry on whichever position looks best at the time.

Pending GBPUSD Short, Long USDCHF

Unknown Field-Author — Thu, 05 Nov 2009 15:32:29 GMT

Whether its tight, ill-defined chop or a span of reversals, most of the currency market's liquid pairs are cutting congestion patterns. One of the most attractive of these patterns in my mind is still the broad range between 1.67 and 1.58. The back and forth between two of the most fundamentally despised currencies in the market today is held in place by the UK's extended recession, the BoE's forced hand on loose monetary policy, the safe haven status of the dollar and the general desire to diversify reserves away from the greenback. These fundamental dynamics can and will change; but for the meantime, they are primary concerns and will not be easily shaken. For a position, I will maintain the same setup from last week. A short entry will be placed at 1.6665 with an initial stop of 100 points to cover false breakouts from the past. An initial target of one-and-a-half times risk at 1.6515 is well-within reason of a single day's volatility.

In the meantime, I am also looking took the congestion that has developed with USDCHF. More or less the reflection of EURUSD, this pair goes where the dollar leads it. Yesterday, the dollar was forced lower after the FOMC rate decision, though the event was hardly remarkable from a fundamental standpoint. Nonetheless, a clear dollar support level was breached (1.4865 for EURUSD and 1.0155 for USDCHF) and the technical outcome is a blurred picture for direction. Nonetheless, I believe congestion will prevail even without solid levels to confine price action. This is a relatively risky venture ahead of NFPs and a short-term view. As such I will look for a reduced size long entry near yesterday's lows and place a stop 50-75 points below entry. My first objective will be 100 or more; and I will keep timing in mind as well as the effects NFPs can have before and after its release.

Flat on the Yen Crosses

Unknown Field-Author — Wed, 04 Nov 2009 15:24:09 GMT

Last week, when I was scanning the yen crosses, the Japanese currency was still on the rise and the boundaries to very distinct wedge formations was in sight. Finding significant follow through, my EURJPY short would end up hitting its second objective; but my NZDJPY setup proved hasty. The short-term rising trendline that defined support for the past two months would ultimately break and the pair fell all the way to the bottom of its much larger congestion formation.

Looking at how various yen crosses have played out over the past week, it is clear that large technical ranges and anchored risk appetite have worked in favor of definable swings and therefore unique trading opportunities. However, it is not a good time to jump into any specific pairs right now. The most appealing congestion patterns (CHFJPY, NZDJPY and EURJPY) have already tagged their respective support levels in multi-month rising trendlines and are now in the middle of their subsequent ranges. Other pairs like USDJPY and GBPJPY offer unique potential; but without remarkable levels and considering their is significant event risk in the near-future, they do not make for high probability setups.

Pending EURUSD Short

Unknown Field-Author — Tue, 03 Nov 2009 15:27:17 GMT

Investors have throttled back on their 'high-yield' exposure this morning and subsequently bolstered the dollar in the process. It would seem the RBA's rate decision would be an isolated, fundamental event; but in fact, it stands as the benchmark for how bullish the outlook could be. And, though the central bank would indeed hike, the commentary that followed the decision raised doubt that the authority would maintain a consistently hawkish bias. This knocks speculative down a peg as it shows the the most aggressive policy group is still limited by economics; and it also reminds us that most other central banks are on pause for the indefinite future. Without rising interest rates and trimming stimulus, market rates will remain inordinately low.

Naturally, the loose policy has its positive impact for some asset classes and increases the amount of cash that can be used for investment; but capital has already flooded into the markets and the possibilities for further gains are limited. This is a complex scenario; but nonetheless it is one that defines the future of general market sentiment. Applying this backdrop to the EURUSD break below 1.4675 this morning (which is where the rising trend from March's lows and the 50-day SMA was currently residing), we are looking at a major technical break. However, does the fundamental picture support such a meaningful reversal? That is debatable. I have been medium-term dollar bullish for some time now; but I have not been willing to hold a position on this conviction until there is a clear (bearish) reversal in risk appetite or change in the dollar's relationship to underlying sentiment. If we serious selling pressure for equities and commodities develop during today's or tomorrow's (there can be some time before a true drive is fueld) US market, I will look for a short EURUSD position. If my conditions are met, I will look for entry near the breakpoint of 1.4675 and I will place a stop above the range highs 1.4850 - naturally this requires position size adjustment to control notional risk. As this could have the makings of a new trend, my first target will be set near 1.4225.

Pending AUDCAD Breakout (Bearish Bias)

Unknown Field-Author — Mon, 02 Nov 2009 15:51:33 GMT

AUDCAD has risen pretty consistently for most of this year, fully retracing the dramatic plunge that developed through August and October of last year during the worst of the financial crisis. Both the sharp bear swing and bull swing that succeeded it were driven by risk appetite. Against its more tame counterparts, the Canadian dollar is considered a high-yield asset thanks to its relative stability through the financial crisis when compared to the US, its high level of exports and the economy's global appeal as a commodity producer. However, when we match the loonie up against an economy with similar (or better) traits, we are reminded that actual market yield also has its influence on the fundamental picture. The Australian dollar for example is backed by a benchmark lending rate that far exceeds Canada's. What's more the growth of (and therefore demand from) of Asia as well as the extraordinarily strong domestic scene highlight one of the brightest fundamental pictures among the majors.

However, there is always a level of balance or equilibrium where the most optimistic or pessimistic forecast for a pair is priced in and needs additional input to keep the exchange rate moving to new extremes. Looking at the chart of AUDCAD, we may be near such a critical point. The congestion between 0.9840 and 0.9660 over the past two weeks is interesting; but it is the fact that this represents a possible, broad triple top going back to 2002 that makes it truly interesting. The chop that we have recently seen will not hold for long. Either, the underlying trend will hold out with the economic outlook shifting in the Aussie dollar's favor and we will get a positive break. Or, the current extreme and the ability of the Canadian economy to close the gap with Australia will encourage a bearish break. I favor the second outcome; but I will not maintain a stubborn stance. I confirmed close above or below this congestion band will be a signal for a position to me. I could use a stop on the otherside of the range regardless of direction; but that would require reducing position size to limit risk and making the first target more distant (not desirable). I will have to watch momentum as it comes. Another point, if we do indeed see a bearish break, the rising trend channel from July 27th could stall a promising development earlier than I would like.

Short USDCAD, Pending USDCAD Breakout

Unknown Field-Author — Fri, 30 Oct 2009 14:33:20 GMT

Activity for the broader market is settling into the weekend following the tense build up and shock of volatility surrounding yesterday's US 3Q GDP report. Looking back at the fallout from this event risk and an otherwise active week, we can see many of the majors have put in for the most convincing trend reversals that developed in months. And yet, the technical stability of the larger trends is still intact. In effect, we are now stuck between a trend revival and potential reversal. There are a number of dollar-based pairs that offer considerable opportunity (NZDUSD, AUDUSD and EURUSD among them); but my interests lie with USDCAD.

This morning, a disappointing August GDP report sent the loonie tumbling; but the data itself was not particularly market moving (it was only a monthly report) nor was it too far from expectations (a 0.1 percent contraction versus expectations of a rise by the same amount). Therefore, with the broader market subdued and the weekend approaching, there is a good chance that this pair will itself stall and perhaps reverse. Retracing the initial runup this morning is a short-term opportunity developed around technicals. Just below yesterday's swing high of 1.0820, we can also see resistance developed through the falling trend of highs from 9/2 to 9/25 to 10/2 to yesterday's high. These conditions offer a short-term setup in a short position with entry at or above 1.0805, a stop 50-60 points higher and a first target 75-90 points down. There is a limited time frame for this setup though. I'll likely close this position by the end of the day unless it shows considerable potential for follow through on Monday. For next week, I will stick with this pair but instead look for a breakout. A push above the aforementioned trend (confirmed close above 1.0825) or a move below 1.0640 (a pivot going back to July). I suspect that won't come until next week.

Short GBPUSD (Pending)

Unknown Field-Author — Thu, 29 Oct 2009 16:36:18 GMT

Despite a sharp reversal in risk appetite at the beginning of this week, GBPUSD was holding relatively stable. This can be attributed to the dour outlook for the UK and thereby the mixed positon the dollar holds as a safe haven when the US actually holds better prospects. Nonetheless, when the better than expected US 3Q GDP reading crossed the wires this morning, the burst in risk appetite had a distinctly bullish impact on the GBPUSD. However, when the volatility passes and the fundamentals behind sentiment trends are laid bare; the dollar's health will once again come out on top. However, despite these dominant considerations, the swells in risk appetite and aversion can still force this pair in unexpected directions.

Nonetheless, the fundamentals and technicals are in our favor when we consider the range that GBPUSD has carved out since June. The pivot at 1.6650/90 (this zone held up as resistance on swings back on 6/3, 6/30, 8/13, 8/21, 9/11 and 10/22) offers a battle-tested barrier for bulls to reconsider their confidence. Considering the consistency of this level, breaking it would be tantamount to a trend revival and therefore would require substantial conviction. Otherwise, should the markets revive the dollar's rebound or even maintain their general pace, GBPUSD will hold to its broad congestion pattern. For a setup, I will place a short entry order at 1.6665 (aggressive but necessary) and an initial stop 100 points higher to cover the aggressive tails from 6/30 and 9/11. My initial target will be one-and-a-half times the initial risk at 1.6515.

Remain Short EURJPY, Pending Long NZDJPY

Unknown Field-Author — Wed, 28 Oct 2009 15:02:28 GMT

After the steady and aggressive trends against the Japanese yen over the previous two weeks, a retracement of the extraordinary loss was a reasonable expectation. Three day's into its recovery, the currency maintains its bearing and still has plenty of room to run. However, we need to balance expectations on follow through. While technically it seems there is considerable headway for the crosses, without a fundamental engine to this advance, the market may stall. In fact, the economic docket may work to cull the yen's advance early. The advanced US 3Q GDP report may seem to have a week economic link to far east currency; but given the data's influence on risk trends, the response could be critical. The GDP data is due tomorrow in the morning hours of the US session. This could temper price action on risk-related pairs even if said crosses aren't necessarily moving on the behest of sentiment. What's more, the outcome for the data could easily stir volatility.

For positioning, I have already met my first two targets on the EURJPY range reversal set up last Friday. The remainders of my position will be guided by an assessment of market momentum and a trailing stop. Meanwhile, I am looking forward to finding some stability for these hyper-volatile crosses. Falling back into the general pace of congestion that the rest of the currency market and underlying sentiment have maintained during the yen's bout of activity; we have strong technical and fundamental opportunities among the crosses. NZDJPY fits the bill on both accounts. Though the RBNZ is late to the game on the revival of rate hikes, the substantial yield advantage and investment appeal of the New Zealand currency maintains a clear benifit even when risk appetite recedes. For the chart, the steady rising trend channel from the February reversal sets the pace. What's more the floor of this larger formation matches a notable pivot and Fibonacci retracement confluence near 65.00. Looking to establish a position, I first must see evidence that the market is stalling and will eventually turn at support. With that critical point, I will look for entry between 65.00 and 65.75. My initial stop will be set below the rising trend of lows with a comfortable buffer for volatility (approximately 64.20) and the first target will be at least one-and-a-half times the risk. This should setup by next Tuesday at the latest or I'll cancel all orders.

Short EURJPY

Unknown Field-Author — Tue, 27 Oct 2009 14:15:50 GMT

Last Friday, I set up a somewhat risky range trade for EURJPY. Closing the week with a 12th consecutive daily advance, we were looking at one of the most consistent trends for this highly liquid and volatile pair in some time. Trading against such momentum is a gamble; but with each additional advance, the likelihood of a retracement grew that much more. What's more, after that impressive run up, we were coming upon major resistance in an exaggerated triple top that helped form a horizontal top on a long-form rising wedge formation. With momentum strained and a technical ceiling established overhead, the market looked primed for reversal.

Ultimately, the consistent drive of daily gains would run out of steam at the 138.50/75 top; and a pull back is now underway. Technicals offered the catalyst for the reversal; but to found a true reversal will require fundamental support. Clearly, the yen has run astray of simple risk trends over the past few weeks (the Japanese currency has tumbled despite relatively stable levels of sentiment, with an underlying bias of bullishness); but the free drift will not likely hold should risk aversion rise as there are few viable currencies for safety and repatriation flows. I will maintain this position. At this point, I have already hit the first target at 136.50; therefore, I have trailed the stop on the remaining half of the position and the next objective is 134.25.

Maintain AUDUSD Breakout Setup, Trade USDJPY Trend Channel

Unknown Field-Author — Mon, 26 Oct 2009 14:48:26 GMT

We open this week the same way we ended the previous one. Volatility is relatively sedate and trends maintain their direction but without the authority of the past. Investor sentiment on the whole is quiet and this has left the dollar and yen-based pairs to chop along. Given these conditions, I have found a pair that offers an opportunity to take advantage of the congestion (with definable technical boundaries and a disconnected fundamental foundation) and one that is positioned for the inevitable revival in activity.

The breakout setup is the same one from last Friday. AUDUSD has developed an unnaturally tight range at the end of a two-week bullish burst in an already prominent 7-month bullish trend. The pitch of the 20-day and 50-day moving averages show that this pair is still well-backed by momentum; and a breakout is inevitable. Choosing direction isn't nearly as difficult or important as maintaining reasonable expectations for follow through on the break. This pair has developed a horizontal channel loosely between 0.9300 and 0.9190 for the past week. A push to the upside would hold with the dominant trend and taking out the floor could cover significant ground in a much-needed reversal. However, neither outcome would amount to much without an underlying shift in underlying sentiment. Without this elemental support, we could easily see an break that was unique to AUDUSD snuffed out by an untimely shift in risk appetite in the opposite direction.

Waiting for a AUDUSD breakout is a wait-and-see game. In the the meantime, there are some opportunities for congestion-based trading. USDJPY strikes me as a good counterpart to the breakout scenario. This pair has developed a rising trend channel since the 10/20 reversal. With plenty of room to recover lost ground and a uniquely detached relationship to risk appetite, would be best for avoiding the straightforward break in risk trends. I will follow the back and forth in the week-long channel and generally keep with the rising trend.

Pending AUDUSD Breakout

Unknown Field-Author — Fri, 23 Oct 2009 14:24:56 GMT

If we look at the past eight months of AUDUSD price action, we see one of the most consistent advances the currency market has to offer. And, while speculation played a considerable role in pushing spot up to its current level; there is perhaps more tangible justification for this pair's direct move than many of the other aggressive rallies or plunges that have develped this year. For the pairing, there is a wide divergence in interest rates, policy stance, economic activity and fiscal health. In each case, the Aussie dollar has the advantage over its US counterpart. However, there is only so much premium the market can award one currency in relation to another. Eventually, we will reach an extreme and the forecast for the Australian dollar will be too high and the US dollar too low. Trying to say that time is now is trying to call a top - a low probablity endeavor. Instead, we need to be aware of this fact and watch for a catalyst to disrupt the solid trend. The most likely and influential driver: risk appetite.

Forecasting the potential driving forces behind risk appetite is difficult; and knowing ahead of time what could force direction isn't really necessary with this specific pair. What we need to know is that the pair is in a very steady bull trend and has develped a very unstable ascending wedge pattern over the past two weeks. With a clear and consistent rising trend of swing lows best seen on the 240 minute chart for the past week, the pressure into a range of daily highs around 0.93 is obvious. This pattern is now approximately 75 points wide; so a breakout is likely very soon. I will not maintain a rigid bias for the breakout - obviously the longer-term trend is bullish; but a significant reversal of the very aggressive rally so far this month offers significant retracement potential. I confirmed move below 0.9180 or above 0.93 (a low to medium time frame bar close) will be my signal for entry. A stop set on the other side of the range would be optimal as long as my entry isn't too far away from the congestion pattern. THe most important condition for this setup is follow through. We don't need to know what the market's driver is ahead of time; but we need to know that whatever nudged price action can keep it moving.

Pending Short GBPUSD

Unknown Field-Author — Thu, 22 Oct 2009 14:29:36 GMT

The British pound has proven itself to be one of the best performing currencies over the past two weeks. Yet, we should never, blindly jump into a trade because we may feel we are missing the trade. A critical assessment of the sterling's strength leaves me skeptical. Gauging the life of this rally and the medium-term direction, I have to consider the fundamental strength underlying the advance. Last week, the BoE's Fisher said that he believes the MPC was going to put a pause on its bond purchasing program. This could be construed as a sign that monetary policy had finally bottomed and would finally edge its way towards an eventual hike. However, speculation was heavily involved in this outlook because there has been no action on the bank's part and the minutes of the last meeting said the group would wait until its November meeting to review the need for policy when they had new growth and inflation forecasts in hand. Even if they do finally cap the stimulus infusions, the UK's economy and markets still severely underperform its counterparts.

For a trade setup, I'm following the same logic in my range setup from yesterday. The technicals come into play here with a possible trend exhaustion on limited fundamentals that could produce a turn at the shoulder of a head-and-shoulders pattern that has developed over the past four months between 1.6640 and 1.6740. Before I ever enter against such progressive price action, there must be signs of consolidation and a reversal. Also, I remain wary of Friday's advanced 3Q GDP number. If much better than expected, this data could help out an otherwise depressed currency. However, if the data is reasonably inline, there is buffer room in the aforementioned zone. When the signs of a top and fundamentals support a short, I will look for short entry within the range, place a wide stop around 1.6850 and look for targets that are well within the long-term range.

Long EURJPY, Pending USDJPY Breakout

Unknown Field-Author — Wed, 21 Oct 2009 14:43:05 GMT

The yen is depreciating against nearly all of its major counterparts; and we need to ask whether this is due to a rise in risk appetite or is it a unique fundamental weakness of the currency itself. This may seem a irrelevant question if the currency is already on the move; but it is vital to determining whether the Japanese unit will keep its pace. If we are seeing a move that is uniformly linked to sentiment trends, then the current tumble will be just as filmsy and volatile as market confidence has been recently. On the other hand, if the yen is perhaps faltering through economic conditions, financial worries or the revival of its funding currency status; then we may be looking at a move with a greater degree of follow through. In my opinion, the advance in the yen crosses' today is one primarily founded on the rise in risk appetite that can be measured in many different asset classes. However, there is a unique desire to push the currency lower as well considering USDJPY has risen the past few weeks and the dollar is now vying for top funding currency status.

Relying on risk appetite is a concern for my EURJPY position that was setup Monday and has played out this morning. A stop set below the range developed over the past three sessions is a reasonable buffer; but the necessary 180 point target (one-and-a-half times risk) at 137.80 seems very far away if we don't have genuine momentum on our side. I may move my stop up should progress falter through the end of the session. In the mean time, I'm also interested in a potential USDJPY breakout. While I can see a setup for a break below 90; the follow could be limited considering the previous swing low is at 88. Instead, I would like to see a confirmed break above Friday's high of 91.25 (which also happens to be a notable Fib) and a stop will be set below the breakout candle's low and a first target will be set at least one-and-a-half times risk.

Pending EURJPY Breakout, Maintain EURUSD Breakout Setup

Unknown Field-Author — Tue, 20 Oct 2009 15:44:01 GMT

The euro is more or less establishing short-term congestion against its more stable counterparts (this excludes EURAUD and EURCAD which have seen a significant burst of volatility thanks to fundamental catalysts. It comes as a surprise that two pairs that have a well-known link to market sentiment (EURUSD and EURJPY) have developed ranges. However, this should not be interpreted as a long-term pattern; rather it looks like a temporary stall for an otherwise strong trend. Whether we break higher or develop a reversal though is a different matter altogether.

Considering how tight congestion is for these two liquid pairs; it is reasonable to assume that a breakout will come relatively soon. And, though it should not take much to force one boundary or the other; the ultimate breakout will most likely come from a shift in risk appetite. As with any other trade, we need the promise of momentum to provide follow through and reasonable objectives; so a either a fundamental driver will be needed or a clear cross-market move for the euro. Accounting for scheduled event risk, there are few foreseeable catalysts for either scenario so it will be important to remain vigilant. As for setups, I will maintain the EURUSD breakout (a confirmed move above 1.4965 or below 1.4825) and will also look to EURJPY for a potential setup. This yen cross is working on a ninth consecutive bullish close; but the past three sessions have shown reserved volatility and none of the progress that the previous week-and-a-half developed. Buffered at 135.90 and 134.80, this is an extremely tight pattern that demands a break sooner rather than later. I will look for a confirmed break from this pair as well.

It is important to note that I will choose between the two if they produce side-by-side breakouts to avoid leveraging risk. However, if they offer opposing breaks, the pair would work well to partially offset each other.

Pending EURUSD Breakout (Bearish Bias)

Unknown Field-Author — Mon, 19 Oct 2009 14:45:49 GMT

The dollar has stalled in its decline against its primary counterpart the euro; but this is only a temporary break from activity for this roiled pair. The dollar has a direct link to market sentiment with the currency now considered the top funding currency in the growing appeal of the carry trade. However, the greenback does not have the long-term characteristics to support a steady build in interest collecting positions. While the economy is flush with cash - and will be for some time as officials struggle to withdrawal stimulus - benchmark market rates will not be held at extreme lows for very long. The Fed has vowed to maintain its overnight target at its range above zero until the middle of next year (and speculators do not doubt that); but we are concerned with the market based rates that we can actually borrow and invest at. On this front, the record low three-month Libor (used as a proxy) will not be held down for long as capital continues to pour into the market.

Looking out over the long-term, it is reasonable to assume the dollar will abondon its role as a primary funding currency. Yet, we could easily see this trait maintain its influence over price action for days, weeks or even months. And, as long as risk appetite is shifting with reasonable momentum, the dollar will respond in kind. For now, I will watch risk trends as a guide for the greenback. My interest is in EURUSD as a proxy for the single currency and with a relatively stable response to underlying sentiment. Currently, we are in a congestion between 1.4965 and 1.4840. A break to the upside may very well revive the long-term trend; but I am for a meaningful reversal to produce greater headway. Either direction offers opportunities. I will look for a confirmed break in either direction (a medium-term bar close beyond). Risk should be a decent percentage of the range.