That’s a little on the melodramatic side. But, I do stay away from EUR/USD.
It is the most often-analyzed and highly traded pair by volume, making technically pure comprehension of its chart more difficult. Fundamentals are interesting for their own sake, but I care little for them day-to-day and they are never decisive for a trade aside from avoiding event risk. EUR/USD is covered heavily by pundits, analyst bloggers, talking heads on Bloomberg TV and CNBC. I like to stay mostly clear of that ick but don’t find my way around it entirely, so the excessively-discussed and regrettably sullied EUR/USD suffers from neglect by association.
And usually I don’t like EUR/USD’s price action, probably because it doesn’t seem to have the technical insularity of some other pairs. This is my own subjective perception, also reflecting an appetite for greater short-term volatility than EUR/USD typically experiences. Through experience, I’ve found I have better fortune elsewhere, so I rarely lend much scrutiny to it.
Lately I’ve been following the pair, though, tracking the symmetrical triangle evolving from the beginning of June, denoted with red and green diagonal lines here. The triangle has very good uniformity and clarity; touches are nicely spaced and the distance to the apex suggests a breakout is approaching.
EUR/USD Daily: Symmetrical Triangle
The second chart has a lot of things going on (trend line saturation point!). The yellow horizontal lines resembling a trident are an Andrew’s Pitchfork. Notice how price is support by the lower fork line, while the rally stops short of touching (or breaching) the median line at 1.4162. In Pitchfork (PF) theory that usually (over-simplification, but not by much) presages a fall, which in this case would probably extend back to 1.3915, which coincides with the 50% fibonacci fan extending from the February low ~124.50 (above) and the lower ascending trend line of the triangle itself.
The upside has two major immediate barriers: 1) the .786% retracement at for the 06/03-06/15 range of 143.38 to 137.48 @ ~141.90, tagged on 07/01. Next, 2) the top of that range itself: 143.38 . I’m not looking for a return to these levels until another low has been put in, at least.
One other, contrary item I see is the craggy yet conspicuous inverse H&S: left shoulder at 07/06 at 138.77, head 07/08 at 138.33, and right shoulder at 138.78 on 07/10. The neckline is drawn in white, to which you’ll find a return move in the early morning hours today. If that pattern doesn’t fail, it targets ~142.50 as an initial price objective, which is the level of the left and right shoulder of the H&S top set in early June.
EUR/USD 3H: Pitchfork, FibRet, Inverse H&S?
Maybe, just maybe, I can persuade myself to take a position….
The corrective pullback channel that the JPY crosses have been working through is just about at an end. And now I’m just looking for some solid technical justification to prove that intuition isn’t horribly wrong.
What do I see?
Longish lower wicks on 0300-0500 1H denoting bearish exhaustion
(At least temporary) floor beneath price at fibonacci retracement levels, dynamic support (e.g. GBP/JPY at 153-153.25)
Not enough. So I’ll sit on my hands until what amounts to an arbitrary directional bias is something more. Then I’ll be back with the details.
I’ve already forsook the modest goal I set of two or three IKH analyses a week. Doesn’t seem outrageously ambitious; but these past few weeks once the house begins to settle after 9 p.m. I’ve got very little left over. In fact, I began one of these last night, but was cajoled into watching the 1970’s-era Wuthering Heights (a novel which I’ll secretly admit to liking) and nodded off almost immediately (really must quit making a habit of that). But, before I start bemoaning my sorry lot in earnest:
GBP/JPY - Ascending Triangle?
The IKH picture here is somewhat changed from a week ago.
The cloud-flip (Senkou Span-A and Senkou Span-B reverse position) on 12/14-12/15 mentioned on 12/10 as a neutralizing component on an otherwise bearish chart brought an upside breakout with the cloud’s lack of density.
The series of candles following the overnight bottom on 12/12 lifted the (blue) Tenkan above the slower-moving (red) Kijun as 12/14 turned over into 12/15, giving portent to significant rally through 12/15.
Tenkan emergence above the cloud following a cross beneath it upgrades a weak bullish signal into a moderate signal, but movement of Kijun above the cloud. By early morning ET on 12/17, the final two red candles of 12/11’s decline will fall off (recall Kijun’s original setting is 26 periods), which ought to significantly raise the line, perhaps out of the cloud altogether.
As we noted, last week’s cloud was very thick; by way of comparison, now notice the change in density and series of flips for this week. This denotes neutrality again, and suggests ~137 is a near-term fulcrum point but is neither firm resistance or support. Price last week and this has borne that out.
The Chikou Span hovers around the 78.6% retracement from 140.79-132.61, pointing out the latest failed salvos against the ~139 resistance zone. Notice the clarity with which the Chikou conveys price action around fibonacci levels.
Then there are the white lines drawn in. There is an ascending triangle, but lower marks for uniformity give legitimate misgivings about the upward breakout capability of the pattern. Be that as it may, ~139 has continued to serve as a pivotal area, which the horizontal white line indicates:
Fundamentally, I feel like arguing against an upside breakout because I just can’t shake the overshadowing pessimism merited by all of this month’s data, not least of which the FOMC announcement earlier today. Apparently, the equity markets disagree (“It’s finally priced in”, blah blah etc.), but does GBP/JPY?
With the pair coiling tighter, I tend toward a further retracement to 100% again (140.79), where the next true resistance level arises. Medium-term sentiment remains bearish-neutral until something arises technically to prompt otherwise.
0700 12/17/08: There was a breakout, to the downside, with a decline of roughly 250 pips overnight. Looks like the upside-averse intuition about fundamental weakness slackening risk appetite was a sound one.
Now price has returned to and is testing Senkou Span-A at the bottom of the kumo. If a break occurs there, a push down to 134-134.25 would follow; maybe back to a retest of the recent lows. There is a confluence of support between the 23.6% retracement (for 140.79-132.61) and SS-A in the 135.50-135.75 region. A close held below the cloud would lock a further move to 134, perhaps back to the 132s.
Here’s a brief followup on yesterday’s abbreviated IKH post:
As discussed briefly yesterday, the cloud usually exercises a momentum-mitigating effect. This is because in IKH theory the area between SS-A and SS-B comprising the cloud represents price equilibrium, disorienting weak trending or capping counter-trending moves. When price lies above the cloud, this is a field of support; when below, a field of resistance.
Here, price did squeak out a counter-trending rally to 138.37 mid-day, but in keeping with the neutral-bearish bias gave back those gains through the NY close. Mid-day Tokyo retested 12/10’s high, but could not attain a close above 138. Now price has sold off again, retesting the week’s low at 135.90 where a morning star was put in on 12/09.
Chikou Span suggested resistance (printed on 12/03, not pictured) with a top around 138.40. Price current sits below price at the Chikou around 12/08’s high at 139.60.
Tinkan and Kijun still maintain their sideways march with no substantive divergence, suggesting neutral sentiment remains in play.
Here’s the GBP/JPY 1D chart referred to yesterday:
As you can see, price remains firmly in a mode of decline in IKH terms.
Looking elsewhere: is that a falling wedge, giving portent of a bullish reversal? There is horizontal support in the 135.50 area, but pattern clarity for a descending triangle is weak. There was previously support around 139 for a descending triangle with much better clarity, but price has wandered aimlessly just below that line.
Back on the 3H, the long lower shadows the pair continues to turn out suggest possible maintenance of a bottom on the retest here. Bolstering this idea is support the .618 retracement line (for 133.29 on 12/05 – 140.79 on 12/08) is offering at 136.10.
Price is moving out of the cloud below it, and while that is bearish, the kumo does pull back to ~138.84, where the .382 retracement for 133.29-140.79 sits 5 pips away.
Trades: yesterday’s long from 137.17 missed its target by a few pips, closed out manually last evening for a negligible gain. I may sit today out because of conflicting input – we’ll see.
And yes: that is me after a botched trade. The guys in the band were thinking of simply calling the album “Supermad”, but they decided they wanted to pay me a tribute for posing for the photo. Thus, a last minute change to the title as released. Bet you won’t find that little factoid in Wikipedia!
I’ll quit calling off these blog moratoriums (pl. moratoria? Hm.) because life is watching and appears to have a remarkable talent for encroaching on small, barely mentionable moments that involve anything nominally trivial.
In other words, I’m the subject of a Truman Show-like experiment set on a hamster-cage island where some unseen, hegemonic puppeteer exhibits their preternatural knack for moving me about ceaselessly.
What that looks like is hard to imagine, and hard to describe. Suffice it to say I am constantly fatigued (although there is a little water bottle feeder nearby), but have been given the power to defy gravity and am invulnerable to fire ants. To compensate, I suppose. Regrettably, the smell of mayonnaise remains as repugnant as ever.
Now, to business. What does this chart say to you?
To me, it says indecision. Apprehension. Nonpluss-ed-ness. A conundrum. Something that makes me feel like an amateur ichthyologist.
You see, anyone trading GBP/JPY is really acting. That’s right, you’re that guy Quint from Jaws.
Some days you’re this Quint, spinning anecdotes of all the big fish you’ve bagged, ripping the heads off of motion-sick, non-calloused land-lubbing noobs with that crooked-mouthed, snaggle-toothed, smelt-stained Captain Ahab schtick of legend you’ve been mocking around with for years:
You can almost hear him now: “I’m talkin’ ’bout SHARKIN’!” …And so forth.
Sure it works the tourists over pretty well, and that sonorous rendition of Spanish Ladies you belt out after some cheap Irish whiskey hits your gullet all but lulls sperm whales into your net. You’re a siren, really, luring the fish in with an arcane, Bacchic/Dionysian-inspired hypnotism. Harpooning semi-comatose Leviathans almost becomes boring when it’s done at will and so effortlessly, all except for those few who wake up from their mind-controlled lethargy because of the malodorous underarm smell emanating from the boat. This runs counter to the popularly-held position that because Old Spice’s logo features a ship, it is standard issue with commercial boating licenses.
But then, there’s the other Quint: you get in a little over your head (and the male pattern baldness hiding beneath that cap), a little hubristic, a little too liquored-up in the cabin pulling out your fake teeth and showing them off like they’re old war wounds, and suddenly a fish appears you can’t fend off:
That machete’s like putting on a stop loss order when you’re a dollar away from a margin call. Too little, too late, Cap’n. This time you’re going down, rumpled denim button-up shirt and all. With teeth like that, you know the market has no mercy.
A trader’s goal is to take the good qualities of the first Quint (let’s be reasonable with the sideburns, though), but combine them with some humility and analytical rigor in order to avoid the fate of the second.
Now let’s have a look at that again:
Take it like a man would, Quint! We all know that was a ketchup packet in your mouth, anyway.
I reversed my Guppy long (from 204.20, not aforementioned here) @ 208.61, but am watchful for a reversal. A tentative short, then. Here are some details about my back-and-forth concerning direction:
On the long side:
Upside break of ascending channel this morning at 207.88.
RSI bullish: H4 looking oversold, though D1 has room to breathe.
DI+ maintaining uptrend with an uptick in strength, but looking plateaued on H4, may be exhausting on D1.
This is the fourth touch in the ~209 area since 04/18/08. The last rejection resulted in a 1000 pip drop, but (corrective?) uptrend since mid-March continues.
In fact, with that drop, we have the making of an ascending triangle where 209 forms the horizontal. Upside breakout?
On the short side (some of this will look redundant):
This is the fourth touch in the ~209 area since 04/18/08. The last rejection resulted in a 1000 pip drop, but (corrective?) uptrend since mid-March continues. How much pushback can bullish pressure sustain before it wears off?
RSI: going oversold on H4. Bearish? Not necessarily; but….
Fib Retracement: the level the Guppy is bouncing off of is the 78.6% retracement line – typically a formidable level for advancing trends that generates a disproportionate number of reversals…square root of the Golden Ratio and all that.
I think I have a pitchfork chart around (doing my homework, Birdt!) that shows we’re nearing a trigger line…or maybe it’s the median…ah, I can’t remember; but I think it was important.
Otherwise, it’s been a so-so week. The last several months have seen approx. +5% each week. When a run like that happens, it’s exciting, even if it isn’t tenable over the long-term. This week will be comparatively modest, but should finish out a winner.
A few notes from among what I’m watching this evening:
EUR/AUD: Well, the breakout I was looking for didn’t materialize above 1.6481, which for a 3rd time in 4 days proved a firm point of resistance on the pair. So, we’re stuck in yet another sideways patch. The framework here is a fib retracement of the extension from 1.5912 to 1.7412 Currently, we’re lulling between the 61.8% (@ 1.6481) and 78.6% (@162.70) retracement levels of that upward move. Because of it’s coincidence with .786, which functions as a typical reversal level, 1.6270 is a pivotal level, as we’ve just seen. So, We’ve seen a bounce off of 162.70, and now 3 separate attempts to breach 164.81 with higher lows along the way. The ascending trendline is sitting at 1.6395, 15 pips from here. No guarantees, but I do see an ascending triangle here that is about break tension with upside potential. I’m buying in SA2 @ 1.6420. Unless something averse occurs, I should be carrying this trade into tomorrow.
AUD/USD: I see the same chart pattern on AUD/USD. Extension from .8505 to .9505, price retraced 50% to .9009 (January 14/15 resistance) during March 20-24, and has been on extension back to resistance since. I’m looking for a break of .9425 to test the .95 level again. That said, I am concerned about the moderately inverse correlation coefficient between EUR/AUD and AUD/USD: just about. -.5 (think of this as “the pairs do opposite of one another 3 out of 4 times”) on the hourly, and about -.73 (“pairs do opposite almost 7 out of 8 times”) on the daily. As a result, I’m sticking with the EUR/AUD trade. If downside potential on AUD/USD presents itself, I may take a trade off of it in SA1 to complement the EUR/AUD.
GBP/JPY: The Guppy is backed up against 204.20 with nowhere to go. In the scope of the full decline of 212.86 to 192.01 (basically 2100 pips) we just saw a revisit of extension from 208 (23.6%) to 200 (61.8%) and now a retracement since Sunday back to the current level shy of 204.00, with 204.81 (38.2%) acting as our next retracement barrier; but again, 204.20 is presenting some interference to that advance. I’m long @ 203.64 in SA1 expecting movement north.
EUR/AUD is revisiting resistance on fib retracement @ 1.6481 once again after two rejections on 05/09 and 05/11. Any break held at this level targets 1.6640. No trades taken on EUR/AUD at the moment.
Well, GMT time, anyway. Just a note that I sold GBP/JPY again, but this time in SA2 (a derivative trade of the initial downside move caught in SA1 from 206.78 ) @203.22 Yesterday’s 20:00 ET candle began a short-term descending triangle from 204.76 to the fib retracement level at 202.54. Shopping for further downside below that fib level.
Currently at +42 with +10 locked for good measure. Below 202.54 I’m looking for further retracement to the 200.50-201 region.
Also, short EUR/CAD @ 166.68 (probably could’ve waited until London) in SA1, though my stop isn’t too far out @157.10. Looking for an (initial) downside extension to 155.23.
To figure out what I mean by “SA1″ and “SA2″, check the Brokerage Account Structure page in the sidebar.
With the occasional, orderly 100-150 pip retracement off support at whatever fibonacci level to the one previously violated, vacillation in that channel for a few days and then resumpyion of it’s downward march to yet another near-term low, EUR/AUD has meandered 1000 pips south over the past 5 trading weeks.
While the pair seems undaunted in it’s intent to revisit 2/18’s 1.5934 low, and I avoid the seductive draw to pick bottoms on trading decisions as a rule (no statistics available, but I can tell you coin-tossing probably provides higher win probability), I’ll stick my neck out a bit this time: EUR/AUD is finding a tentative bottom in the 163.30 area. True, price is behaving similarly between fibs @ 162.58 and 164.61 as it did between 164.61 and 166.20, but we’re now seeing support from the 23.6% fan (170.84 to 159.49) w/RSI dipping deeply into oversold territory on the daily.
That’s an admittedly flimsy rationale in support of a buy at this point, which is why I’m not placing a discretionary buy in SA2; but this pair – with which I have an ambivalent trading history – in my estimation reads potential bullish reversal. I’ll be keeping a close eye on it, holding out desperate hope for a long positive marubozu monstrosity to engulf the 7 (!) consecutive bearish daily candles preceding today’s. Wouldn’t I come off smelling like roses after a post like this? Too bad Kathy Lien isn’t reading: I’d like statistical data on how many cases since the inception of the EUR a positive candle appears on this pair after 7 consecutive negatives….
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