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Identifying Trade Setups with Technical Events and Key Levels

Identifying Trade Setups with Technical Events and Key Levels

2012-10-19 20:23:00
Jamie Saettele, CMT, Sr. Technical Strategist
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Equities across the globe plunged Friday but the FX world was relatively stable. Irrespective of the dichotomy, the trend for the next several weeks in many markets will probably be determined by what happens in the next few days.

SPX 500

Daily

Identifying_Trade_Setups_with_Technical_Events_and_Key_Levels_body_spx.png, Identifying Trade Setups with Technical Events and Key Levels

Prepared by Jamie Saettele, CMT

Observation: The SPX 500 made a JS Thrust (JST) to the downside today. A JST is defined as the largest range over the last 20 days. Red bars are days that meet that condition and close below the open. Blue bars are bars that meet that conditions and close above the open. The closes in particular are useful as reference points.

Trading It: This is the 4th JST of 2012 with a down close. The previous 3 indicated short term bottoms. Don’t assume anything however. JSTs with down closes in 2011 occurred at the beginning of large declines. In other words, what happens in the immediate aftermath of a JST often dictates whether the market will extend (weakness) or reverse.

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR)

Daily

Identifying_Trade_Setups_with_Technical_Events_and_Key_Levels_body_usdollar.png, Identifying Trade Setups with Technical Events and Key Levels

Prepared by Jamie Saettele, CMT

Observation: The USDOLLAR staged a late week rally, slicing through the 61.8% of the decline from 9949. Daily RSI (not shown) held 40 at the low and is just above 50. The last line of resistance before 9949 is 9925.

Trading It: I wrote last Friday that, “the weight of evidence suggests that the USDOLLAR is headed lower from current levels. 9820 and 9771 are interim supports over the next few weeks but expectations are for fresh lows and a test of the 61.8% retracement of the 9322-10323 rally, at 9704. A daily close above 9949 would negate the bearish outlook.” Little has changed although Friday’s rally has shifted reward/risk in favor of bears against 9949 once again. 9870/80 is potential early week support. A break above 9949 should be respected in light of daily RSI holding 40 at the most recent low (possible shift in momentum profile of this market).

Euro / US Dollar

Daily

Identifying_Trade_Setups_with_Technical_Events_and_Key_Levels_body_eurusd.png, Identifying Trade Setups with Technical Events and Key Levels

Prepared by Jamie Saettele, CMT

Observation: The EURUSD failed at the top of its range late in the week but the Friday decline has stalled at expected support. 12990 is the line in the sand for the bullish interpretation of structure from the 10/11 low. Weakness below there would bring more bearish counts into play.

Trading It: Last week’s comments remain valid. “The risk profile is bullish above 12802 for a test of the September high and perhaps even extension towards 13283-13384. Supports are now 12921 and 12887. 13115 may get in the way as interim resistance.” I am looking higher as long as price is above 12990 although one should now expect resistance at 13058/85. Weakness below 12990 would warrant a change in short term bias to bearish, albeit on strength, towards 12931 and 12886 (again).

British Pound / US Dollar

Daily

Identifying_Trade_Setups_with_Technical_Events_and_Key_Levels_body_gbpusd.png, Identifying Trade Setups with Technical Events and Key Levels

Prepared by Jamie Saettele, CMT

Observation: The GBPUSD failed at a trendline Wednesday, before the high of the month and within the 9/28 bearish JS Thrust (JST) range. The GBPUSD is currently testing support.

Trading It: I turned bearish on Tuesday but am looking for a market response at nearby levels. The presence of 5 waves down from 16177 warns of a corrective rally into 16066. Reward/risk would once again favor bears above 16066, against 16180, and towards 15898-15912 (former resistance and 38.2% retracement of rally from 2012 low) and 15845 (100% extension of decline from the top).

US Dollar / Japanese Yen

Daily

Identifying_Trade_Setups_with_Technical_Events_and_Key_Levels_body_usdjpy.png, Identifying Trade Setups with Technical Events and Key Levels

Prepared by Jamie Saettele, CMT

Observation: The USDJPY is trading into significant levels, from a price and momentum perspective. From a price perspective, the current level is defined by high day closes on 8/20 and 6/25. From a momentum perspective, daily RSI is at 67.

Trading It: Simultaneous breaks above 60 in RSI price resistance would warrant a breakout strategy. At this point, RSI has traded through 60 but the top of resistance is 80. One need not wait for 80 to make a decision however. Today’s inside day following the strong Thursday qualifies as a technical event. Thursday’s range (7991-7946) provides reference points to trade from.

Other pairs of interest remain the AUDCHF, AUDNZD, AUDUSD, and NZDUSD.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

Subscribe to Jamie Saettele's distribution list in order to receive actionable FX trading strategy delivered to your inbox once a day.

Jamie is the author of Sentiment in the Forex Market.

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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