Daily Technical Outlook

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EURNZD Countertrend Setup (Feb 3, 2015)

EURNZD is forming a rising channel on its 1-hour time frame but seems prime for a countertrend play, as price is testing the range resistance. The pair has consolidated around the 1.5550-1.5600 psychological levels and may be due south if euro bears take over price action.

A bearish divergence can be seen, as stochastic made lower highs while price made higher highs. This could be indicative of a buildup in selling pressure, which could eventually take EURNZD down to the bottom of the channel near the 1.5200 major psychological support.

Stochastic is moving out of the oversold region for now, suggesting that another test of channel resistance is possible. Shorting at market with a stop above the channel around 1.5800 and a target of 1.5200 could yield a good return on risk for a swing trade. Bear in mind that this pair tends to get volatile and moves by more than 300 pips a day so it makes sense to have a wide stop.

In terms of fundamentals, the euro zone is in a weaker state compared to New Zealand, although their central banks are both in a dovish stance. The ECB just cut rates in a couple of instances last year and implemented a massive bond-buying program while the RBNZ dropped its hawkish bias and opened the door for a rate cut.

Waiting for further bearish momentum below the 1.5500 handle could be a prudent strategy, as this could confirm that euro bears have enough energy for a southbound move. Event risks for this trade today include the New Zealand dairy auction and the release of the employment figures in the next Asian trading session.

New Zealand is expecting to see a 0.8% uptick in hiring for Q4 2014, which might be enough to bring the jobless rate down from 5.4% to 5.3%. Stronger than expected data could reassure traders that the economy could stay resilient even if price pressures keep falling, hence supporting the Kiwi.

By Kate Curtis from Trader's Way

 

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AUDUSD Descending Trend Line (Feb 4, 2015)

Yesterday’s surge in risk appetite drew Aussie bulls back and triggered a sharp correction for AUDUSD. Price is testing the falling trend line on its 1-hour time frame, which lines up with an area of interest and the 38.2% Fibonacci retracement level.

Stochastic is still pointing up, hinting that further gains are possible. If so, an upside break from the trend line could take place and spark an AUDUSD rally. On the other hand, if the trend line continues to hold as resistance, price could test its recent lows near the .7600 major psychological support.

A higher pullback might last until the .8000 major psychological resistance, which is a key area of interest on longer-term time frames. This could hold as a ceiling for any potential gains, with an upside break likely to signify that the downtrend is over.

The path of least resistance is to the downside since the RBA just cut interest rates earlier this week. The central bank cited a weak growth outlook, a lower inflation forecast, and a potentially higher jobless rate as their reasons for lowering rates. Meanwhile, the FOMC indicated in their statement last week that they are foreseeing more improvements in the US economy and that they are considering tightening monetary policy.

The rebound in commodity prices is also shoring up risk appetite and higher-yielding currencies for the time being, as traders also took the opportunity to book profits off their recent long dollar trades. Event risks for this trade include the NFP release on Friday this week, which might indicate a slower gain in hiring.

Stronger than expected jobs data could renew demand for the US dollar, as this would confirm that the economy is doing well and that it can survive even with higher interest rates later on. On the other hand, a disappointing result could lead to more dollar weakness if traders speculate that this could delay Fed tightening.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDCAD Retracement Play (Feb 5, 2015)

AUDCAD recently broke below a key support zone at the .9800 major psychological level and appears to be pulling up for a retest. Price just bounced off support at the .9600 major psychological level and my need to gain more selling pressure before creating new lows.

The 50% Fibonacci retracement level lines up with the broken support area, which might act as resistance moving forward. If so, AUDCAD could test the recent support at .9600 or perhaps head lower to the next support area at the .9400 level.

Stochastic is moving down, indicating that Aussie sellers might take control of price action soon. However, if buying pressure persists, the pair could head to the previous highs around the 1.0000 major psychological level.

Fundamentals are both bearish for the Australian dollar and the Canadian dollar, as both the Reserve Bank of Australia and the Bank of Canada have decided to cut interest rates. However, it seems that oil prices are starting to bottom out, which might lend more upside for the Canadian dollar in the near term.

Earlier today, Australia reported a weaker than expected retail sales figure, as consumer spending rose by only 0.2% in December versus the projected 0.3% gain. Take note though that Canada has also recently seen a weaker than expected report, as its Ivey PMI figure slipped from 55.4 to 45.4, indicating industry contraction.

Canada is set to print its trade balance later today and possibly show a wider deficit of 1.2 billion CAD from the previous 0.6 billion CAD. A weaker than expected reading could push AUDCAD higher while a stronger than expected report could allow the selloff to resume.

By Kate Curtis from Trader's Way

 

[katetrades]

EURJPY Ascending Trend Channel (Feb 6, 2015)

EURJPY has been slowly treading higher, creating an ascending trend channel on its 1-hour forex chart. Price has just bounced off the bottom of the range around the 133.00 major psychological support and looks ready to test the top around the 136.00 major psychological resistance.

Stochastic is already indicating a pickup in selling momentum, as the oscillator has started to make its way down from the oversold area. The pair might resume the selloff from here, although it could still find a bit of support around the mid-channel area of interest at 134.50-135.00.

In that case, another test of channel resistance might take place before euro bears push the pair lower. Trend-following traders can wait for an actual test of channel support and stochastic confirmation before going long.

The path of least resistance is to the downside, as fundamentals suggest a weaker economic picture for the euro zone compared to Japan. However, the short-term return in risk appetite spurred by several central banks’ easing moves could lead to upside for this pair.

Bear in mind that the ECB has already implemented a large-scale bond-buying program and that they might wait for the impact of their latest QE program to kick in before taking more action. Meanwhile, the BOJ has been holding off any additional stimulus recently, although data from Japan suggests that they might need to ramp up easing once more.

With that, there could be a chance for an upside break sooner or later, once the BOJ starts admitting that further easing is needed. There are no event risks from both the euro zone and Japan today, although the upcoming US NFP release might have a strong effect on overall market risk sentiment. Strong figures could keep risk appetite in play, which might keep EURJPY supported.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Resistance Turned Support (Feb 9, 2015)

GBPUSD recently broke past the 1.5200 major psychological resistance and rallied up to the 1.5350 minor psychological mark. Price is now pulling back to the broken resistance area, which lines up with the 38.2% Fibonacci retracement level based on the swing low and high on the 1-hour time frame.

Stochastic is pointing up, indicating that the 1.5200 mark might hold as support moving forward. Price could climb back to its previous highs at 1.5350 or perhaps create new ones all the way up to the 1.5500 major psychological level.

In addition, a bullish divergence has been playing out since stochastic made lower lows while price made higher lows. This adds support to the likelihood that GBPUSD could keep heading higher.

On the other hand, if the support area gives way, price could head back to its previous lows around the 1.5000 major psychological level. The 50% and 61.8% Fib levels might still hold as support though in case volatility picks up.

There are no event risks lined up from both the UK and US economies today, indicating that the current trends might persist. Bear in mind that the US just released a stronger than expected NFP report last Friday, suggesting that the dollar could stay strongly supported.

However, if this means a pickup in risk appetite, the British pound could still end up outpacing the lower-yielding dollar. In their latest rate statement, the BOE hasn’t indicated a shift to a more dovish tone despite the downturn in inflation. This means that the UK central bank is also slightly hawkish just like the Fed.

Later on in the week, the UK manufacturing production report is due and might show a mere 0.3% uptick. BOE Governor Carney is also scheduled to submit an Inflation Report and possibly provide his outlook for the economy, which might be key in dictating pound trends in the longer run.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPAUD Long-Term Ascending Channel (Feb 10, 2015)

GBPAUD is testing a major resistance area on its daily chart, as price is hovering around the top of the ascending channel around the 1.9500 major psychological resistance. Stochastic is moving down from the overbought area, indicating a potential buildup in selling pressure.

In that case, price could make its way down from the top of the channel until the bottom at the 1.8500-1.8700 levels. Weaker selling pressure could lead to a selloff until the mid-channel area of interest around 1.9200 only.

Event risks for this trade setup include the BOE Inflation Report mid-week, which is slated to shed more light on the central bank’s economic assessment and outlook. So far, UK officials seem confident that the downturn in inflation could translate to stronger consumer spending and economic growth, which has kept the pound afloat. However, a shift in bias could lead to a sharp decline for the pound.

As for the Australian dollar, the currency could find a strong directional catalyst from the upcoming jobs release. For the month of January, job losses of 4.7K are expected and this could bring the unemployment rate up from 6.1% to 6.2%. Traders are also likely to keep tabs on the participation rate, which might indicate improving confidence in the job market.

Stronger than expected headline jobs figures from Australia and upbeat underlying data could lead to significant gains for the Australian dollar since these would ease expectations of another RBA rate cut. Recall that the central bank recently decided to lower interest rates in order to spur economic activity and ward off weak inflation.

Weaker than expected results, however, could spark an upside break from the channel resistance and lead to more long-term gains for GBPAUD. Bear in mind though that this pair tends to be volatile so wide stops are recommended.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Retracement Setup (Feb 11, 2015)

GBPJPY looks ready to resume its longer-term selloff, as price is completing its retracement on its 4-hour forex chart. The pair has recently bounced off support around the 176.00 levels and pulled up to the 50% Fibonacci level on the latest swing high and low.

The 50% Fib might hold as resistance, as this coincides with a broken support level and the 182.00 major psychological level. Stochastic is still pointing up and hasn’t crossed down from the overbought region, indicating that pound bulls are still in control for now.

The 61.8% Fib might act as the line in the sand for any potential rallies, with any gains past this point potentially indicative of a reversal. In that case, price could head further north to the highs around 188-189.00.

If the pair resumes its drop though, GBPJPY could make its way back to its previous lows near 176.00 or perhaps create new ones later on if selling pressure is strong enough. Event risks for this retracement setup this week include the BOE Inflation Report, during which BOE Governor Carney could explain their economic assessment and outlook.

Recall that the BOE is one of the more confident central banks these days, as officials noted that the downturn in inflation might actually help shore up consumer spending. This is because lower prices could improve the purchasing power of individuals, allowing households to stretch their budgets and use more of their disposable income for other purchases.

As for Japan, there are no major reports lined up, leaving risk sentiment as the main driver of yen price action. Data from Japan has been mostly weak recently, as spending and inflation have continued to decline. This could keep the BOJ on the dovish side, which might mean more losses for the yen.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDJPY Ascending Triangle Breakdown (Feb 12, 2015)

AUDJPY broke below its ascending triangle support on the 1-hour time frame, indicating that further losses are possible for the pair. Price could fall by as much as 200 pips, which is roughly the same height as the chart pattern. With that, a move towards the next support area around 91.00-91.50 is possible.

Stochastic is already in the oversold area but is still pointing down, indicating that there’s a bit of selling pressure left. In that case, a deeper selloff to the 90.00 handle is likely if rate cut expectations continue to weigh on the Australian currency.

The economy lost 12.2K jobs in January versus expectations of a 4.7K decline in hiring. This was enough to bring the jobless rate up from 6.1% to 6.4% - its 10-year high – for the month, even as the participation rate held steady at 64.8%.

Recall that the RBA already cut interest rates in this month’s interest rate statement, citing that unemployment could peak higher than initially estimated and that the economy could undergo a degree of spare capacity. With the recent jobs disappointment, analysts expect the central bank to lower rates again in March or in April, earlier than the next anticipated rate cut in June.

Risk aversion could also keep this pair weak, as geopolitical tensions prevent traders from taking on higher-yielding holdings. This is in favor of the lower-yielding Japanese yen for now, although Japan has also seen its share of weak figures.

Inflation figures have continued to disappoint in Japan, as weaker oil prices have made their battle with deflation more challenging. It doesn’t help that household spending and retail sales are still on the weak end, as consumers haven’t recovered from the April sales tax hike. Talks of potential easing from the BOJ might lead to a bounce for this pair.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDUSD Double Bottom (Feb 13, 2015)

AUDUSD could be in for a strong long-term reversal, as price appears to be forming a double bottom pattern on its 4-hour chart. As you can see, price bounced a couple of times off the .7700 major psychological support and is on its way to test the neckline around .7850.

A break past the neckline resistance might mean a move up to the .8000 major psychological resistance, as this would mark a 150-pip climb – the same height as the chart pattern. On the other hand, if the .7850 mark holds as resistance, price could make another move towards support at .7700 and create a triple bottom pattern.

Stochastic is still moving up, indicating that there’s enough buying pressure left to trigger a potential upside break. However, the oscillator is also nearing the overbought zone, which means that Aussie buyers might be getting exhausted.

Weaker than expected US retail sales data released in yesterday’s New York session led to a massive dollar selloff. This was enough for the Aussie to erase its losses during the earlier Asian session, as Australia printed weaker than expected jobs data then.

The pickup in risk appetite also seems to be supporting the Australian dollar, as commodity prices have also rebounded in the past week. Central bank easing has also carried the prospect of stronger global demand, which could keep higher-yielding currencies supported later on.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Descending Triangle Pattern (Feb 16, 2014)

USDCAD has formed lower highs and found support at the 1.2400 major psychological level, creating a descending triangle chart pattern on its 1-hour forex chart. For now, price is hovering around the formation’s bottom, while stochastic is edging towards the oversold zone.

If the oscillator starts moving out of the oversold area, price could make a bounce off support and head back to the top of the triangle around 1.2600. If this continues to hold as resistance, another test of support is possible.

However, major events for this week might lead to a breakout in either direction. Among these are the FOMC minutes, which should shed more light on what the US central bank has in mind in terms of policy changes. Hawkish remarks could renew speculations that the Fed might hike interest rates later this year, which could lead to a strong bounce or potential upside break for USDCAD.

On the other hand, cautious comments could support risk appetite, as this would assure that easy US monetary policy might continue to keep global growth afloat. US banks are on holiday for today though, which means that a bit of consolidation is possible before any strong moves are seen.

Later in the week, Canada is set to release its retail sales figures and possibly show weak readings once more. After all, their latest jobs data turned out to be a disappointment, which might have weighed on consumer spending for the same period.

Risk appetite is also likely to play a major role in price action for the week, as higher-yielders have recently drawn support from subsiding geopolitical tension in Russia and the pickup in commodity prices. Should this behavior be reversed in the coming days, the Loonie might stand to lose ground against the dollar once more.

By Kate Curtis from Trader's Way

 

[katetrades]

EURGBP Descending Channel (Feb 17, 2015)

EURGBP is moving inside a descending channel on its 1-hour time frame, indicating that the pair might be in for more losses. At the moment, price is testing support at the mid-channel area of interest and may make its way down to the channel support.

A countertrend setup at the bounce off channel support at the .7350 minor psychological level could lead to a move up to the top of the range around .7400. However, a downside break from support might also be possible if Greek debt talks continue its standstill.

Bear in mind that the negotiations between the new Greek government and the European Union haven’t produced a deal on Monday, as the anti-austerity camp refused to sign a deal that would allow the current bailout to carry on. This led to speculations that Greece would be unable to secure enough funding and may be forced to default on its debt.

Should this situation persist until the end of the week, the shared currency could suffer further selling pressure. A break below .7350 for EURGBP could mean a long-term move all the way down to the next support at .7000.

Other event risks for this setup include the BOE minutes which are set to be released mid-week. In their latest statement, the BOE seemed confident that the downturn in inflation could be translated to stronger spending and growth. They also indicated in the Inflation Report hearings that their next likely move will still be a rate hike, although they expressed openness for a rate cut if needed.

If the minutes reveal that policymakers are unanimous in projecting better times for the UK economy, the pound could draw more buyers in and push EURGBP lower. On the other hand, opposition from dovish members might also keep the pound’s gains in check and possibly lead to a move towards channel resistance or beyond.

By Kate Curtis from Trader's Way

 

[katetrades]

EURUSD Consolidation Ahead of Greek Ultimatum (Feb 18, 2015)

EURUSD has been forming lower highs and higher lows, creating a triangle pattern on its 1-hour forex time frame. At the moment, price is testing the top of the consolidation pattern and may be due for a move lower. Stochastic is heading down anyway, indicating a pickup in selling pressure.

This could mean a move towards the triangle support at the 1.1350 minor psychological level, as traders await the results of the debt negotiations between the new Greek government and its creditors. In the latest meetings, Greece refused to accept the arrangement to extend its current bailout since this would mean more austerity measures for the country.

If Greece puts its funding at risk though, it could be in for a euro zone exit and more economic woes. As for the euro zone, a Greek debt default would mean financial weakness for other member nations that are exposed to those bonds. This could lead to overall euro weakness, with a potential downside break from the chart pattern.

In that case, EURUSD could be in for around 300 pips in losses, which is the same height as the chart pattern. This could lead to a test of parity, which might hold as a key support zone and trigger a sharp correction for the pair.

Similarly, an upside break could lead to a 300-pip rally, although this seems to be a less likely scenario. The FOMC minutes to be released in today’s New York session could be a major catalyst for a breakout in either direction, as their monetary policy bias might determine the longer-term trend for the US dollar.

Bear in mind that volatility could be higher in the latter half of this week, as most traders might be off on a Chinese New Year holiday. The lower liquidity could mean larger price reactions to key events and potentially hundred-pip moves among dollar pairs if any significant announcements are made.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDUSD Rising Wedge Pattern (Feb 19, 2015)

NZDUSD is moving inside a rising wedge pattern on its 1-hour forex chart and is currently testing the top of the range. A bearish divergence can be seen, as price made higher highs while stochastic had lower highs, indicating that selling pressure might pick up.

If the top of the wedge holds as resistance, price might move back to the bottom around the .7500 major psychological level. Increased bearish momentum could trigger a downside break of support and a longer-term selloff for NZDUSD. This could last by around 300 pips, which is roughly the same height as the chart pattern.

Bear in mind though that the latest FOMC minutes indicated that officials aren’t eager to hike rates just yet, citing external threats and potential risks associated with tightening monetary policy too soon. After all, economic growth in China has been slowing down and may lead to a downturn in the global economy.

Meanwhile, inflation reports from New Zealand have been mixed, as producer input prices marked a worse than expected 0.4% drop while producer output prices indicated a better than expected 0.1% decline. Earlier in the week, New Zealand printed stronger than expected quarterly retail sales figures.

Risk sentiment has been in favor of the higher-yielding commodity currency recently, as geopolitical tensions appear to be subsiding in Russia and Ukraine. However, the lack of a debt deal for Greece so far this week has been keeping gains in check. Any positive developments on this situation could lead to an upside break from the pair’s rising wedge pattern and further gains for NZDUSD.

On the other hand, a continued standoff between the EU and Greece could usher risk aversion back in and drive the Kiwi lower against the dollar. No other major reports are lined up from the US and New Zealand economies for the rest of the week.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Triangle Resistance (Feb 20, 2015)

USDCAD recently bounced off the bottom of the descending triangle on its 1-hour forex chart and is making its way to the top. Price could test the resistance near the 1.2600 major psychological level and make its way back down.

Stochastic is almost in the oversold region though, which means that sellers are exhausted and that buyers might take control of price action. If buying pressure is strong enough, the pair could make a break past the triangle resistance and go for more gains. In this case, the rally might last by around 400 pips, which is roughly the same height as the chart pattern.

Similarly, an increase in selling momentum could lead to another test of the triangle support or perhaps a break lower. If that happens, the resulting selloff could last by around 400 pips as well.

The main event risk for this setup today is the release of Canada’s retail sales figures, which might post downside surprises due to the downturn in hiring recently. Headline retail sales could show a 0.3% decline while core retail sales could see a 0.7% drop.

Larger than expected declines could lead to a strong upside break from the triangle resistance, although demand for the US dollar has also weakened lately. The recently released FOMC minutes showed that not all officials are confident that the US can sustain its strong recovery. Some cited external risks stemming from China, the financial uncertainty in Greece, and the conflict in the Middle East.

Nonetheless, the path of least resistance is to the upside since the Fed isn’t inclined to ease further while the BOC might implement another rate cut if economic data continues to disappoint. Risk appetite has been weaker so far, although a pickup in demand for higher-yielding currencies might be seen if Greece is able to secure a debt deal before the end of the week.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Range Setup (Feb 23, 2015)

GBPJPY has been moving sideways recently, bouncing off support near the 182.00 major psychological level and heading towards resistance at the 184.00 major psychological mark. If the top of the range continues to hold as resistance, GBPJPY could move back to the bottom of the range once more.

Stochastic is moving lower, indicating that pound bears are in control of price action at the moment. This suggests that an early selloff might take place before price even tests the range resistance. However, once the oscillator reaches the oversold area and hints at a pickup in buying pressure, another test of 184.00 might be possible.

The UK economy has been printing impressive economic figures so far, suggesting that the path of least resistance could be to the upside. This could mean that GBPJPY might move past the 184.00 handle at some point, depending on the outcome of this week’s set of reports.

The economic catalysts could come later in the week, as Japan is set to print its inflation and spending reports on Friday. Another set of weak figures could remind market participants that the BOJ might need to implement more easing efforts later on.

Should a breakout in either direction take place, the pair could be in for around 200 pips in gains or losses, which is the same height as the rectangle. Bear in mind that Greek debt negotiations are likely to carry on in the next few weeks, as EU officials assess the proposals to be passed by Greek officials.

Risk appetite is supported for now, as higher-yielders had a relief rally after the Greek debt talks resulted in a four-month extension of their bailout program, lowering the risk of a debt default and further financial uncertainty in the region for now.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Triangle Resistance (Feb 24, 2015)

USDCAD is still stuck inside the descending triangle forex pattern on its 1-hour chart, as price just bounced off the bottom and is now testing the resistance. The top of the triangle at the 1.2600 major psychological level seems to be keeping gains in check for now and might push price back to the support at the 1.2400 major psychological level.

Stochastic is on middle ground, barely offering any clear clues at the moment. The oscillator seems to have been on the way down from the overbought zone, indicating that dollar bears are taking control. However, the indicator appears to be making an attempt to climb, which suggests the possibility of an upside break.

Last week, data from Canada was significantly weaker than expected, as the retail sales reports missed forecasts. News that the OPEC could have an emergency meeting to announce a cut in oil production sometime in the next few weeks have been keeping oil prices and the Loonie supported for now.

Should the oil cartel refrain from meeting or announcing a reduction in supply, oil prices could see further downside and drag the Canadian dollar along. Canada’s economy is heavily dependent on crude oil, as commodity price declines would mean lower revenues for its export sector.

Other event risks for this setup include the Canadian CPI release later on during the week. The report is slated to show further declines in consumer inflation, which might mean more weakness for the currency. As for the US dollar, Fed head Yellen’s testimony during the middle of the week might also result to significant moves.

Risk appetite has also been responsible for the dollar’s movement lately, as markets are still tuned in to the updates on the Greek debt negotiations. A four-month extension has been granted, although the EU still has to approve the latest list of reforms passed by the anti-austerity Greek government.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Rising Channel Resistance (Feb 25, 2015)

GBPUSD is currently trading in an uptrend, as a rising channel can be drawn on its 1-hour forex chart. At the moment, the pair is approaching the channel resistance while stochastic is indicating that pound bulls are in control of price action.

This suggests that the pair could test resistance at the 1.5500 major psychological level around the top of the channel. If this holds as a ceiling for the current climb, GBPUSD could head back south to the bottom of the channel around the 1.5350-1.5400 levels.

Fed Chairperson Janet Yellen’s latest speech sparked a sudden dollar selloff, as traders priced in lower odds of a Fed rate hike in June. Yellen clarified that they would change their forward guidance as soon as they are more inclined to hike interest rates, and their latest statement suggests that they are not likely to do so in the next couple of meetings.

Meanwhile, the UK Inflation Report hearings added support for the British currency, as officials assured that the drop in price levels might translate to stronger spending and growth. This suggests that GBPUSD could be in for more gains in the coming days, especially if US data miss expectations.

BOE Governor Carney and Fed Chairperson Yellen are set to make speeches again today and this might renew GBPUSD’s climb. An upside break from the channel resistance could mean longer-term gains for the pair.

However, a short-term countertrend play might still work out, as 1.5500 lines up with a key area of interest. Short orders might be located around this region, as buyers might also book profits right here. Shorting at 1.5500 with a tight stop around 1.5600-1.5650 and a target of 1.5350 could offer a good return-on-risk for a day trade.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDJPY Retracement Setup (Feb 26, 2015)

AUDJPY recently made a strong break past the 93.50 minor psychological resistance then zoomed up to the 94.00 handle. From there, the pair retreated and started to make a forex correction to the Fib levels marked on the 1-hour time frame.

The 38.2% Fibonacci retracement level lines up with the broken resistance level, making it a potential support zone. The pair has formed a reversal candlestick right on the area of interest, indicating a potential short-term bounce. At the same time, stochastic is indicating oversold conditions, which means that sellers are already exhausted.

A bounce from the current levels could lead to a move up to the previous highs around 94.00. Sustained buying pressure might even lead to the formation of new highs, possibly until the 95.00-96.00 major psychological levels.

On the other hand, a break below the 38.2% Fib might still lead to a test of the lower Fibs, right until the 93.00 major psychological support. This might be the line in the sand for any declines, as a break below this level marks the start of a prolonged drop.

The path of least resistance is to the upside, as China has just released a stronger than expected HSBC flash manufacturing PMI for February. The index landed back above 50 and indicated industry expansion, which might mean stronger demand for Australia’s raw material exports.

Meanwhile, data from Japan is expected to show more weakness, particularly in inflation and consumer spending. Core inflation could mark another monthly decline while household spending and retail sales are expected to print negative readings.

The event risk for this trade setup today though is the weaker than expected Australian private capital expenditure report released earlier today. It showed a worse than expected 2.2% decline for the previous quarter, reflecting weaker business conditions.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Ascending Channel (Feb 27, 2015)

GBPUSD just bounced off resistance at the rising channel on its 1-hour forex chart and is currently testing the bottom of the range. At the same time, a bullish divergence is playing out, after stochastic made lower lows while price drew higher lows.

The pair could make a strong bounce off support at the 1.5400 major psychological level and move up to test the top of the channel around the 1.5550 minor psychological resistance once more. Stochastic is almost in the overbought region though, which suggests that buying pressure might weaken in a bit.

If so, pound bears could take over and push the pair below the bottom of the channel. A strong break below the 1.5400 major psychological level would confirm a downside break and indicate a potential reversal. Before the pair heads any lower, a pullback to the broken support area might still be possible and offer a better opportunity for a short setup.

The path of least resistance is to the upside, as the pair has been in a steady uptrend for the past few weeks. It would take a considerably strong market catalyst to trigger a breakdown and sustain the selloff. So far, the cautious bias shared by Fed Chairperson Yellen in her recent testimonies was enough to keep dollar gains at bay.

Bear in mind though that a couple of Fed officials also gave testimonies recently and had a relatively upbeat bias, citing that the US central bank might be on track to tighten as early as June. While Yellen clarified that they would change their forward guidance to let market watchers in on what the Fed plans to do next, some traders still priced in strong expectations for an upcoming rate hike.

The event risks for this trade today include the US preliminary GDP report, which might show a downgrade from 2.6% to 2.1%. There are no major reports lined up from the UK today.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDUSD Corrective Wave (Mar 2, 2015)

NZDUSD seems to have completed its corrective wave, as price is finding resistance at the 61.8% Fibonacci retracement level on the 4-hour chart. This lines up with a broken support level and is close to the .7600 major psychological handle.

If this area continues to hold as resistance, NZDUSD could move back to its previous lows around the .7200 major psychological level eventually. Stochastic is moving down from the overbought area, indicating a pickup in selling pressure and a potential move lower.

However, an upside break from the .7600 handle might mean that the pair is in for more gains and a potential uptrend. This could lead to a move up to the next resistance level at the .7900 major psychological resistance.

The path of least resistance is to the upside, as the Fed recently downplayed its hawkish stance and indicated that a rate hike isn’t guaranteed for June yet. Meanwhile, data from New Zealand has consistently shown improvements, particularly in the dairy sector.

Event risks for this trade setup include the New Zealand dairy auction, which might indicate another gain in prices. If so, NZDUSD could be in for a longer-term climb as traders predict a strong rebound in the country’s largest trade sector. Another catalyst is the NFP report up for release at the end of the week.

If the US is able to keep up its impressive streak of hiring gains, NZDUSD could resume its drop as traders renew speculations for Fed tightening sometime this year. If the jobless rate continues to improve, the US central bank could alter its forward guidance to indicate that it is moving closer to hiking interest rates.

Shorting at market with a stop above the .7900 handle and aiming for the .7200 mark could work as a swing trade, depending on the outcome of this week’s events.

By Kate Curtis from Trader's Way