Top Trade Idea For May 15th, 2014 – EURUSD

As the ECB came last week and messed up all the technical charts possible with the bearish statement calling for acting next time they meet in June, it is about time to re-evaluate the situation on the eurusd and check if there is still something there for the eurusd bulls.

Therefore, this scenario should be called, if you want, the last chance for eurusd bulls.

What we are having here is a daily chart that looks at the move from the 1.20 area to the upside and from my point of view it is still possible that the whole corrective wave following wave 1 blue to be a double three running, and this is ending almost always with a contracting triangle.

The triangle that you are seeing there is not a classical contracting triangle but a running variation of it, and the recent 1.3994 rejection comes from the apex of the triangle.

In such a triangle, the e wave should not end below 61.8% when compared with the previous d wave and this should be the stop loss, anywhere in the 1.3550/70 area.

The target on the other hand is more than generous as it implies 1.40 to come in a jiffy, considering the time frame.

And that should be just the beginning of a strong impulsive move to follow.

It remains to be seen if the markets will confirm it.

Top Trade Idea For May 1st, 2014 – EURJPY

It is a while since we didn’t look at the eurjpy pair and I would say that right ahead of the NFP and ECB we are having an interesting technical setup.

What you see on the chart above is the 4h time frame on the pair and one thing that strikes the eyes is an elongated flat right at the beginning of the corrective wave and from that moment on we are looking for a possible contracting triangle as these formations appear as the entire leg of a triangle or only as part of a leg of a triangle.

I would say that wave a blue there is a triple combination that is followed buy a contracting triangle as a b wave blue or a double combination for the same wave. It really makes no difference as the outcome should be the same: two corrective wave should be followed by either an impulsive move to the downside, and in this case it is a flat we are looking for, or another corrective wave that should for the c wave blue of a contracting triangle.

In both cased price should move to the downside on a break of 141.14 level and the first target should be 140, the psychological level, while the second and final target should be anywhere between 138.50 and 139 levels.

Top Trade Idea for April 14th, 2014 – EUR/CAD

While there continue to be mixed signals in the forex market in terms of correlations, there still exist basic technical set-ups.  EUR/CAD being one to consider.

EUR/CAD is likely to run into resistance into the 1.5150 area where short positions make sense.  Stops are tight, just above 1.5184 and a downside target of 1.5080

Top Trade Idea For April 10th, 2014 – GBP/USD

This week being Bank of England’s week, we will have a look at gbpusd or the so called “cable”.

What we have above is the four hours chart and you can call that move to the upside as you wish but no impulsive move. Therefore, we should look for corrections and, at this very moment of time, it looks like a double combination, with an x wave that connects two different corrective waves that point to the upside: a flat an a zigzag.

I would say at the highs there we ended a wave a blue, and now we should head for a b wave blue that should go minimum 61.8% when compared with the previous wave a but we are preparing to book the profits a bit earlier.

Our recommendation will be to sell a move below 1.6600 area with 1.6820 stop loss and three different targets for booking 1/3 at each: 1.6459, 1.6260 and 1.5950 as the final target, just shy above the 61.8% as buyers are expected below.

That b wave ping to the upside is the end of a zigzag and from a technical perspective, we have two possibilities, both pointing towards the same direction:
one would be the market will for a flat and now we should see a five waves structure for c wave pink, in which case our entry will come;
the other would be that this zigag to the upside is actually only wave a of a contracting triangle that should break lower and the whole pattern from the lows will be called a triple combination. In this case our trade will be triggered only after the triangle will break lower as the entry is below the possible second x wave pink.

It remains to be seen if markets will confirm our scenario.

Top Trade Idea For April 8th, 2014 – EUR/USD

Price action on EURUSD has been a real mess lately. Pair however lost around 300 pips from March high but it was not easy to take any action within this downtrend because of some very overlapping price action, and also because bigger trend is still up.

Pair fell down to 1.3671 following the NFP report on Friday, where prices could be forming a bottom now, especially if your primary tool for analyzing the markets is the Elliott Wave Principle. From that perspective we can see a double zigzag from 1.3966 high which is a corrective pattern. In other words, it’s a downward retracement within larger uptrend, and once this move is complete you would expect that decline will be fully retracement.

EURUSD 4hElliott Wave Analysis

Now the question is how to identify end of the pattern. Well, always when you see a five wave move from the low or high you should know that something is changing on that particular market. So in our example of EURUSD we will check the wave structure on lower, hourly chart.

EURUSD 1h Elliott Wave Analysis

As you can see pair has turned up clearly in five waves in impulsive fashion, which means that bulls are again trying to become stronger and that trend is changing from bearish to bullish mode.  Even if market changes a direction just temporary you would expect more gains after wave (b) / (ii) pullback. So from a trading perspective there is room for a trade to the upside.

Based on current market conditions and structure trade could be as follows;

Buy 1/2 of your position size at market

Buy limit for 1/2 of your position size at 1.3720

Stop loss is 1.3670

Target is 1.3870

Trade well!

Top Trade Idea For April 7th, 2014 – AUD/USD

AUDUSD Upside on the Horizon

Given the spotlight that’s been placed on risk sentiment, AUDUSD is set up to provide us with a great opportunity.

The Background

On the fundamental side, we’ve seen the dissipation of concerns in 3 ways: Russia-Ukraine tensions have blown over; China issues are being suppressed and losing their fear status (at least for now); and the RBA has been comfortable with AUD’s recent pricing and sees no need to lower rates in the foreseeable future.

The first two factors are relevant in that they affect broad risk appetite and global growth prospects. With those worries out of the way, money is free to gravitate towards risk assets (like AUD as a commodity currency). Most important is the latter factor as the RBA holds tremendous power in affecting the Australian dollar exchange rate.

Money gets put where the central bank’s mouth is.

 

This most recent ‘neutrality’ coming from the RBA has kept AUDUSD well-bid—since many players were operating under the base-case assumption that the RBA would be leaning towards lowering rates and desiring a weaker AUD—and supports the case for a long position in the pair. This sentiment shift has been strong enough to push this currency past a very notable long-term upper trendline.

Also note that prices solidly held above this trendline after the break.

Technical players typically maintain a keen eye on price action around major levels like this and upon seeing a “clean break” of the level, many technical participants will be excited to initiate new long positions. This motivation will be especially powerful given the lack of additional major resistance levels in front of an upside move.

Taken together, the strong upside bias from both a macroeconomic and technical perspective make for a potentially lucrative trade opportunity on the long side. But as always, success will come down to entering at a favorable level with an intelligent target and a stop loss that offers us a healthy reward to risk ratio. So let’s dig into some charts and data from the past couple of weeks and hash out these details.

The Opportunity

AUDUSD finished last week with a strong rally on Friday. Before going any further it’s important to understand the short-term positioning to get an idea of whether that rally was from shorts getting forced out or fresh longs joining the party and the consequent implications. We can get a good idea on that by looking at the latest futures contract positioning data:

In a single day we saw over a 5% increase in Open Interest (the total number of open futures contracts for the Australian Dollar). From this we can infer that the latest move was caused by market participants opening up new long trades (and not simply old, stale short traders exiting).

Why does this matter? Well, with longs getting a bit crowded in this trade in the short-term, there’s a higher chance of some of them being trapped and forced to exit, pushing price lower, which will allow us a better entry opportunity. Look to get in near the clear bottom trendline pictured on the hourly chart below, putting your opening price around .9220-.9335.

Your first upside take profit from there will be the cluster of stops from people on the other side of your trade. The orange box on the chart is that area where shorts have stops aggregating together for you to exit your winner, right around the .9310-.9315 area.

If you’d only like to take partial profits there or wait for a higher move altogether, set your sights on getting out just below the protective selling ahead of the barrier option at .9350.

A stop below .9200 would offer an excellent reward to risk ratio as you’d only be out 25-40 pips while your take profit would be at least 80 pips and as many as 120. If price does end up dropping below .9200, it’s time to get out for now anyway because the trade idea has been invalidated.

In review, these are the key points:

General risk conditions support AUD
RBA stance keeping AUD strong
Long-term technicals to inspire more AUD longs on top of all that
Look to enter as price approaches the clear hourly trend line near .9220
The first target is a cluster of stops from market participants who are short, just above .9310
Your second target would be just below the barrier option’s protective selling, around .9340

Stay safe out there and good luck!

Top Trade Idea For April 4th, 2014 – USD/CAD

Breakout strategies can be useful leading into a figure like the US Non-Farm Payrolls. Here the idea is to look for a market that’s in the firing line if the figure is outside expectations but also has a defined support and resistance that’s not too far away.

USDCAD looks to fill this bill with an interesting triangle formation in the 4 hour chart. Breakout traders might place stop entry orders on either side of this triangle (buy above the resistance line and sell below the support). For medium term traders it can pay to allow a decent sized filter between the actual support/resistance lines and your order. This reduces (but does not eliminate) the risk of getting whipsawed by false breaks

I’ve shown this on the 4 hour chart

Top Trade Idea For April 3rd, 2014 – EURGBP

This is the daily chart on the eurgbp and what we are looking here is a classical double three running correction for wave 2 green and the thing is that this pattern is always being followed by a third wave extension, so a clear impulsive move to the downside.

A double three running is, like the name suggests, a complex correction that actually it is formed by three different corrections, two of them going against the previous trend and one in the direction of the previous trend, making new lows in this case.

In our situation the first correction is called a double combination, then we have the correction that goes in the direction of the previous trend, and that one is a triple combination, and the second wave green should end with a contracting triangle, which, and attention here, should not end above the lows in previous wave 1 green.

From my point of view we are in the second leg of that contracting triangle on the daily chart and by taking the time it took the first correction to form and projecting it on the right side we have an educated about when this triangle should end.

Therefore, I would like to sell any strength above 0.8310-30 area having three different targets to the downside and booking one third when each target is reached: 0.8204, 0.8000 and 0.7750

Invalidation or stop loss should be 0.8460-80 area and the stop loss should be moved to break even by the time first target, 0.8204 is reached.

Top Trade Idea For March 28th, 2013 – AUD/JPY

Train Leaving the Station

One of the first tips new traders receive is “the trend is your friend”, but even experienced traders can find it difficult to join a well-established move. How many times have you heard a trader say “it’s gotta come back!”?

Overcoming the human mean reversion bias is a lot easier when there is a clear entry signal. This brings us to AUD/JPY.

In April, the Japanese government will lift the retail sales tax rate from 5% to 8%. The rate of money supply increase in Japan has slowed this year, despite the well flagged stimulus program. One plausible explanation is that the BoJ is holding back capacity to better offset any drag from the tax increase – meaning that increased stimulus efforts (and a weaker Yen) may be around the corner.

On the other side of the pair, AUD strength is harder to explain in fundamental terms. Everyone from the Governor of the RBA to my taxi driver last night is expecting a lower Aussie.  It appears market positioning is driving the corrective rally underway. The ongoing cries of disbelief suggest this may have a while to run yet.

Here’s the chart:

Screen Shot 2014-03-28 at 7.06.18 AM

This is a clear break above previous highs. A short term trade may involve buying at current levels, with a stop below 94.50 and a target near the 6 month high around 95.67. However, the 2013 high is above 105 (!!!), and traders seeking longer term, higher value trades may consider a stop loss below the 94.00 support and a trailing stop loss (rather than a target) on any move through 95.67.