Oh, And GBP/USD

GBP/USD is muddly the past several weeks but is moving in substantial correlation to GBP/JPY with the ebb and flow of risk aversion.  The construction is different, but not unlike GBP/JPY, as an example the 07/23 high clocked at the 78.6% retracement for the decline from 06/30-07/13.  If you’re wondering why I’m attributing so much significance to what can be a highly fickle metric, I’m not; just noting the relative correlation.  GBP/USD is in a symmetrical triangle at the tail end of a 2 week consolidation that may continue to sputter around, but I think could be poised for a decline of similar depth as the Guppy’s.

GBP/JPY: Double Top?

Maybe.  Or not.  I emphatically declare that I am not calling a double top.  But, for the first time since…well, for a couple of weeks anyway, I’m cognizant of short-side potential beyond the quick flick of a countertrend throwback.

In favor of a top we have:

• A rapid return to the 78.6% retracement level of the entire decline from 160 to 147 that played out over the first two weeks of July.  This area around 157 yielded a brief hesitation 07/03-07/06 (holiday weekend ranging?).   A first occurrence last Thursday moved back to the 61.8% before being batted upward once more.
• The 07/23 and 07/27 swing highs occur within pips of each other on a closing basis, creating a violation of the series of 4 higher highs in place since 07/09.
• The Modified Schiff Pitchfork (MSPF) in green (Points: 1) the perpendicular of the 07/22 low and point 3, 2) 07/23 high, 3) 07/25 low) cuts a median line through the 78.6% retracement level where price topped today: confluence reinforces resistance.

In opposition to a top:

• The momentum of a 6 month (still corrective) uptrend favoring further upside.
• A Standard PF (1) 07/17 low, 2) 07/20 high, 3) 07/22 low) with a lower forkline tested unsuccessfully on two and now potentially 3 touches that…
• …looks to produce the lower ascending trend line for an ascending triangle that would break just above 157 (and very soon, I’d add)
• The price objective for the Adam & Adam Double Bottom of 07/08, 07/13 comes in around 158.60ish

But, the converging MSPF median line and Standard PF lower fork line are producing a rising wedge of sorts, which could produce a bearish move down.  Hmm.

(continued below)

Assuming a short confirms: A close below the Standard PF blue line targets the lower MSPF fork at 156, then the 61.8% retracement/07/23-07/25 bottoms at 155.25-50 to move out of a horizontal congestion scenario there.  Also, that would mean a break of the lower ascending trendline for the correction from 07/13, which is itself part of a corrective rising wedge.  Then 154.  And, the price objective measuring peak to trough of the potential double top is ~245 pips from the breakout, coming in right at the 07/22 low in the 152.80 neighborhood.

For now, I watch and wait.  Though I trade against the trend with regularity, dedication to those trades are subject to whatever contingencies arise and are usually cut off if they turn adverse with little leniency.  This trade, if it did fire off would likely play out over a swing timeframe and require a little more perseverance than I’m presently accustomed to.  As usual, trade timeframes open up or contract as each trade evolves.

Overnight Trades for 07/15/09 Closed

Everything I trade with any frequency is moving well into overbought territory on the 1H and just about lapsed into that category on the 3H/4H as well.  What has become a relatively unmitigated corrective move is ticking up in strength, and for the moment bullish sentiment is indomitable.

The market crowd seems happy – if a little too apprehensive to be euphoric – and I think there is a general expectation the “upside surprise” pattern ushered in by Goldman earnings will carry forward through most of the earnings season.  With ~30 S&P companies reporting this week, there should be positive momentum aplenty to entice sideliners to bring some sliver of their gargantuan MM holdings back into the game.

Short-term, I see GBP/JPY to ~155.25 before continuing on to 157.75.

Low on time this morning, so I’ll get to last night’s trade results (which I did not post to Twitter this time) this evening….

GBP/JPY, EUR/JPY: Turning Bullish?

The Guppy has been staging something of a rally on the back of a bit o’ risk appetite seeping back in and ahead of the all-but-certain BoE/MPC rate cut (consensus is held at 50bp from 1.0% to 0.5%), vaulting out of a symmetrical triangle yesterday (about which I almost posted, but life somehow got in the way) from the low 138’s around 24 hours ago to the present level, where the pair is yet again approaching a retest of 141.65.

This session brings with it a retest and tentative breakout from an ascending triangle above 140.75. With room above of 100 pips, the pair should tag the 141.35-141.65 region with little difficulty, but with a rate cut in the offing in several hours a break above this level (in place since early January) is anything but assured.

After 0700 ET I’ll be monitoring for a break above, but wonder if a rate cut will hamper the lift necessary to get over the hump. If that break occurred, the next area of interest lies at 143 and then ~144.50.

EUR/JPY and GBP/JPY have show a tight correlation, with similar consolidative constructions occurring in tandem on both pairs. Not coincidentally, the ECB also has a rate decision today, with a 50bp cut widely expected. The levels on EUR/JPY to break above are at 125.50, followed by 126 and then 128.20, the latter of which would bring the pair back to resistance set in early January, correlating to the 141.75 level on the Guppy. Past 128.20, the field is wide open to ~131, as denoted by the 261.8% fib projection line (purple)/horizontal resistance line (white) in the upper-right corner of the following chart:

Both pairs look poised to continue their corrective action to 141.75 and 128.20, which represents 100% retracement of the January highs to the lows set out in February. A break above there (of which I’ll have no certainty until it sets up on a TF that’s tradeable for me) throws the medium term bearish scenario on each pair into serious question.

GBP/JPY: Inverse H&S?

Thinking, that’s all; without a solid fundamental impetus behind such a move, the case for a break of 800+ pips upside is one I choose not to make; nevertheless it appears plausible and my trades have led off in this direction.  Assuming a breakout above horizontal resistance at 141.75, under this scenario upside targets come in at 145.75, 148 and 150.

Triangle Break – Guppy Long

 Awhile back I picked up the use of 144 and 169 EMAs from the Vegas 1H Tunnel method and have kept them around for reference with the other relics in my tool chest because of how price reacts to them. To them I added an additional interval 25 periods away to create a three EMA series with a 194 EMA (also a highly useful value, as it turns out, even if it doesn’t have any real mathematical significance other being the “smallest Markov number that is neither a Fibonacci or Pell number” – whatever that might mean).

Those are the yellow lines reflected on the following chart:

Triangle Break - Tunnel Break to follow?

This “tunnel” often acts as a field through which price behavior experience some volatility, often spinning off as a reversal, correction or breakout. If GBP/JPY does traverse all three EMAs (194 sits at 126.31), resistance follows at ~127, 127.55, 128, and ~128.70.

01/27 0500 ET: Closed GBP/JPY at 126.65 for +205, EUR/JPY at +120. My thoughts are that the movement toward at least 128.70 (more significant resistance ~130) will resume once this pullback to at least the 194 EMA at 126.31 or somewhere within the congestion zone around 125.45-126 – or things could move back down to 124.67, which remains pivotal short-term.

GBP/JPY Battles the Pink Robots And Wins

Right around 124.67 (the previously, previously discussed 261.8% fibonacci extension line) there’s an ascending triangle winding out that looks to break up or down (but usually up) sometime in early Tokyo. You’ll find the same construction across the board on JPY crosses.

Da' Guppy: Ascending Triangle Breakout?

Listen to the Flaming Lips’ account of the epic altercation here:

Okay, so that isn’t really GBP/JPY they are talking about. But you guessed that already. Right?

That track necessitates inclusion of my favorite song off of that disc, one of my favorite albums (of the last 10 years, at any rate):

Not a bad video, either.

IKH: GBP/JPY – 12/16/2008

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.

Within Cloud, testing Senkou Span-A

GBP/JPY: Conflicted

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.

IKH: GBP/JPY – 12/10/2008

Kind of a harrowing day yesterday with end-of-year several weeks away, so last evening had to settle for this morning. As I mentioned, I intend to do analysis of at least one pair (usually one pair, unless I ascend to a state of analytical ecstasy into which my wife’s voice cannot penetrate) 2-3 times/week with more specific focus on Ichimoku Kinko Hyo than I’ve given in the past.

We’ll work off of a single chart today: GBP/JPY 3H (though I look at several TFs). 4H values vary, but a 3H periodicity gives a fair approximation.

For context: GBP/JPY broke below the cloud on the 1D chart on 08/11/2008 at 206.83. The pair has remained in freefall excepting 4 periods of significant retracement (09/15-09/23, 10/09-10/13, 10/27-10/28, 11/20-11/27) that are each correlated to a general, if temporary thaw in risk aversion. By way of example Kijun-Sen has not been tested by price since 10/13, currently printing about 1100 pips higher. The cloud lay significantly further up the chart.

Collapsing scope to a duration of one week on the 3H, IKH yields a neutral-bearish analysis, breaking down as follows:

The Cloud

Before anything else, how is price interacting with the cloud itself? The position of price relative to the cloud (above, within, below) is important, but also how the cloud itself is directing current price action. This may seem too obvious, but the contours of the cloud are a projection rather than coincident with price. On this chart the cloud has rejected the 12/08 advance at 140.79 as well as yesterday’s mid-day attempt at 137.20 corresponding with a sell-off in equities.

Overnight price did breach resistance, entering an unusually thick cloud some 400 pips in depth. Except in a fast, typically event-driven market where a significant change in net flows blows through any barriers in a pair’s path, the cloud has a stupefying effect on contrarian momentum; in this case, long GBP/JPY.

Senkou Span-A (SSA) remains as the lower bound of the cloud, denoting the ongoing bearish directional bias. But note, SSA and Senkou Span-B (SSB) reverse positions this coming Sunday 12/14 just as Tokyo opens the week. Is this especially significant? Not as a signifier of change in trend, but it does bolster the neutrality picture.

Chikou Span

The Chikou Span is probably the most neglected aspect of IKH, if for no other reason than because it doesn’t have any immediate connection with the other lines that comprise the overlay, and because it is casts information backward in time. Nevertheless it serves a couple important functions, working as an efficient and accurate map of local support and resistance and an indicator of price’s current position relative to 26 periods previous.

Price is currently higher than the Chikou, signaling bullish, and is testing resistance around 137.50 with 138.00-138.50 (12/01-12/03) the next area of contention. As always, though, it’s wise to take each component of IKH in tandem with the others.

Tenkan/Kijun

There’s a lot to elaborate on here: Tenkan and Kijun are the most common and most easily systematized aspects of IKH because of their simplicity and compact delivery of data.

As usual, rather than taking the signals I evaluate what signals different methods generate as indicators in themselves. For example, the Kijun cross (where price crossing over Kijun – the red line – signals long/short) suggests equilibrium, or a neutral view: nothing tradeable there. Then, there’s the widely-used Tenkan-Kijun cross (Tenkan – the blue line – yields a long/short signal with its shorter periodicity when crossing above/below Kijun-sen). Tenkan has signals short, but it’s oscillation around a flatlined Kijun also signals neutral.

There’s much more to get to in the way of combining this with other points of analysis, but I’ll have to follow-up later this evening. And I’ll have to develop a more succinct approach, and post a clearer chart.

Trades: flat, but contemplating long (for other reasons) from 137.30-137.50.