The 'spread' trade we laid out between EURUSD and GPBUSD yesterday to take advantage of the dollar's tentative break (while looking to account for the lack of an underlying driver to carry the broader markets to a meaningful trend) played out nicely. With the setup, the objective is to take a long position and opposing short position on a specific currency or between two highly correlated pairs. The difference in momentum, setup for technicals and clever positioning is the best way to make this kind of setup work for you. With the short EURUSD on its rising trend channel reversal of the previous four-day rally gave a clear techncial entry, the right fundamental mix and enough room to run. After entering at 1.4350, the position didn't take long to hit 1.4250 and 1.4150 objectives. To account for the possiblity that the greenback could turn a false break around, the long GBPUSD was set with a 55-pip stop (from the 1.6065 entry) - a tight hold with a much wider profit potentail at 1.6200. This pair would end up hitting its stop.
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This EURUSD / GBPUSD setup played out more quickly than I had expected; and I was happy to hit the sidelines when it ran its course. And, while no one could have foreseen the sharp reversal that resulted from Greece announcing it had filled the austerity gap; our concern that these markets haven't jumped on a common trend was already leaving us in a cautious state. That said, I still think there is great potential with both pairs - there are just a little longer-term in their setup and requirements. GBPUSD looks great with its channel break; and now I'm just looking for a better entry price for a short (1.6050 to 1.6100). Size will depend on what the fundamentals are at the time. I am not as interested in taking a fade approach to EURUSD however. For that pair, a break of 1.40 would be the best setup.
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Elsewhere, the USDCAD / CADJPY setup mentioned yesterday played out as well - though I didn't have that one on. The long USDCAD leg produced a rally into its range while a pending CADJPY long on a break above its wedge resistance never triggered. I still like USDCAD should it show it wants to clear 0.9850 (perhaps bounce of its channel bottom again) while CADJPY still has the potential for its wedge break.
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A few high breakout risk - but requiring a firm fundamental push - pairs are AUDUSD as it eyes 1.4050 and EURJPY with a floor around 114.00 to 113.50. GBPJPY is tentatively bouncing off the bottom of a descending trend channel; but it is best for a specific scenario - a bounce in risk appetite. AUDCAD is starting to break its topping pattern in the meantime. I'm assessing whether this rebound is temporary or permanent.
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