Forex Trading Opportunities

Written by Michael Wright, Currency Analyst and Christopher Vecchio, DailyFX Research

The currency markets are faced with various types of traders. There are market participants that apply complex quantitative strategies, Elliot waves, and fundamentals amongst others. However, simplistic trading is sometimes overlooked. We will look at intraday trading opportunities using basic methods that some traders shy away from.

GBPCHF 1 Hour Chart

Source: FXCM’s Strategy Trader – Prepared by Michael Wright

The GBPCHF has worked its way into an ascending four hour channel that has remained intact since December 30th. Though a clear channel was not identified until price action tested the lower bounds of the area a second time, it’s worth noting that the pair made three more attempts at the base of this area. Each time that the pair tested the lower range, our user defined slow stochastic indicator was/near oversold levels. The crossover of percent K above percent D also coincided with a crossover of the MACD, providing confirmation of a long position. As the pair continues to be supported by its rising trend line, long GBPCHF traders should keep their positions open. However, the sharp rally that the markets were faced this past month is warranting some concern that a slight correction in the British pound may be in the horizon. Not to overlook, the Bank of England minutes will be released January the 26th. As the central bank stands ready to respond in either direction, a shift by another policy maker will likely be the next key driver for the pound.

Strategy, remain long with an open target; reverse position if price action manages to close below this area; target 80 pips.

EURCAD 4 Hour Chart

Source: FXCM’s Strategy Trader – Prepared by Christopher Vecchio

For the better part of the last 2 months, the EURCAD has been in a descending channel, testing both the upper and lower bonds multiple times. The channel became clear at the turn of the year, when a second test of the upper bound was halted which led to Loonie strength over the next week; had this swing been identified, traders would have collected nearly 500 pips in profit. Similarly, after touching the bottom part of the channel in the 1.280 area between January 7 and 8, the EURCAD has since rebounded back towards the upper bound, nearly another 400 pips in profit to be had. Fundamental data has certainly helped the Euro’s appreciation against the Canadian dollar during this time; however, as sentiment wears off from the Portuguese bond auction and investors reexamine ECB President Trichet’s hawkish commentary, there appears to be fundamental support for downside pressure once again for the EURCAD pair. Should the EURCAD continue to adhere to this descending channel as it has for the past two months, then traders should look to collect another few hundred pips to the downside, with a target of 1.290.

AUDUSD Hourly Chart

Source: FXCM’s Strategy Trader – Prepared by Michael Wright

The AUDUSD is worth noting due to the recent fundamental and technical developments. First and foremost, traders have been looking for a breakout in the pair. Many individuals speculated that the U.S. nonfarm payrolls would be the catalyst to provide a break below its rising trend line dating back to June. Payrolls in the world’s largest economy disappointed and aussie bulls won the tug of war. Meanwhile, the aussie employment report was released subsequent to the U.S.’s labor force. Though the labor force change in Australia was dismal, the decline in the unemployment rate was the main driver to push the Australian dollar higher. In turn the AUDUSD worked its way into a rising channel while slipping above a falling trend line that was in place for a little over a week. In turn, entering into a long position showed follow through as depicted above.

Strategy, remain long; however look to enter into a short position if price action breaks its hourly rising channel as daily studies point to losses.

GBPCAD 1 Hour Chart

Source: FXCM’s Strategy Trader – Prepared by Christopher Vecchio

Over the past four weeks, the GBPCAD pair has found itself in both acutely-falling and then sharply-rising channels. The last two weeks of December highlighted Canadian dollar strength, while the first two weeks of 2011 have been noted by a general uptick for the Sterling. Nonetheless, in the near-term, upside momentum looks to be halted as the GBPCAD has recently hit the upper bound of its two-week ascending channel. The outcome of the last time the GBPCAD touched its upper channel on January 4 – a 280 pip depreciation – provides some insight to a trade: with similar technical levels playing out, one could expect another rally in favor of the Loonie. Given the nature of ascending channels (higher highs and lower lows), traders should not expect the GBPCAD to rally below the 1.540, though the 1.544-1.542 range remains certainly possible over the next week.

NZDCHF 4 Hour Chart

Source: FXCM’s Strategy Trader – Prepared by Michael Wright

The NZDCHF is currently trading in a narrow rising channel dating back to December 23rd after the pair managed to break above its descending trend line. Indeed, the user defined slow stochastic indicator crossed to the upside when price action was testing the lower bounds of the channel, signaling for gains in the pair. It is worth noting that on the daily chart, the MACD crossed to the upside on December 23rd, and has yet to reverse course. Using the broader (daily) to confirm direction of a trend bodes well and should not be overlooked by swing traders. Identifying the directional movement allows market participants to avoid unforeseen losses and take advantage. Going forward, look to take advantage of the congested area; break below this area warrants concern.

AUDNZD 1 Hour Chart

Source: FXCM’s Strategy Trader – Prepared by Christopher Vecchio

The exotic AUDNZD pair has been in a clear descending channel since the start of 2011, and technical indicators on the 1-hour chart have proven to be successful signals as to time trades. The AUDNZD has touched the lower bound of the channel three times during this time frame, while touching the upper bound twice; on all the occasions, pivotal levels reached by the RSI, MACD histogram, and Slow Stochastic indicators signaled buy and sell opportunities. The sell signal issued on January 5 after the pair touched the upper bound of the descending channel led to over a 200 pip gain; the most recent sell signal on January 12 has already yielded 100 pips to traders. Going forward, as the pair is already descending within its channel towards the lower bounds, traders should look in the 1.29 area for a buy opportunity, should the AUDNZD continue to adhere to the pattern it has displayed in the past two weeks.

Written by Michael Wright, Currency Analyst and Christopher Vecchio, DailyFX Research Let us know what you think about this report. Contact Michael at mwright@fxcm.com