Cable awaits Wednesday breakout.

Today we had broad risk-off sentiment in the currency markets lead by losses in the EURUSD and volatility in STIRs as continued uncertainty around the bailout in Cyprus has sparked another inevitable round of contagion fears for peripheral Europe.

Meanwhile Sterling held its own today and was the out-performer relative to the other majors including the Aussie and a flight to quality in Gold.  For the relentlessly bearish GBPUSD market of late, today's strength was impressive and indicative of a market that had clearly overreached to the downside, the low of which formed on the rejection of worse than expected UK manufacturing data which sellers used as an excuse to take profits.  Since then we have seen a steady retracement back to what I perceive to be fair value as price has steadied in a tight range since the start of the week and traders wait for Wednesday's slew of UK data before taking action as shown below on the 4hr chart.

We can see that despite weakness in other risk currencies, the above pair has been unable to trade down and this technical flag formation is displaying clear signs of strength.  Fundamentally, however, Cable is a massive sell as improving economic conditions across the pond contrast starkly with a struggling UK economy and continued dovishness in the BoE.

I am therefore looking for sell opportunities in the inevitably volatile price action expected tomorrow with both the BoE minutes and the FOMC set to deliver a double wammy to this market.  Running in the background will of course be the Chancellers delivery of the Spring Budget, although this has been traditionally bullish for FTSE and GBP, I think it will clearly be overshadowed by the actions/ or inaction of the Central Banks.

TRADES: The main shock scenario I perceive for this pair would be if another 3 months of QE is agreed by the MPC and it will be interesting to see how aggressively the market sells-off in this scenario. If it can't maintain a sell-off than this is very bullish and I will be looking to get long on any false break of the current trading range. Alternatively, if there is a relief rally off the back of a 6:3 vote then I will be looking for any excuse to fade this move i.e.. any sign of sellers entering the market in the major resistance zone above 1.5275 or, on a lesser scale - a false break of the current trading range that has been in place since Monday would do nicely to trap Bulls. I would look to take profits quickly, however, and not want to hold a position going into the FOMC in the evening.  In terms of the FOMC I am expecting volatility but no game changer.  We all know Bernanke is a dove and although the economy is improvinng, the unemployment figures still have some way to go before withdrawing stimulus.  On the other hand, there may be concern that the stock market is overheating and Bernanke may signal this to the market to take some steam out of this rally.  This would be the shock scenario for me but it is unlikely I will be able to trade Cable off of this, but my mates in fixed income will have a field day!

      

USD/CHF false break.

We've just seen a false-break to the up-side in the Dollar Swiss pair.  This converges with previous major resistance and is probably worth a top-picking attempt with tight pre-determined stop above the high of the preceding hammer candle on the 4hr chart as shown below. Generally I would be wary of fighting the clear up-trend in this pair as the global "risk-off" theme continues, however, the risk reward could still be here if resistance holds-up and profit taking ensues.    

I will be looking to add more if we see a break below the triangle set-up as illustrated on the 1hr chart:

EUR/USD bottom picking.

We've got a text book false break set-up in the Euro dollar pair on the 4hr chart as illustrated below.  This set-up gives us the opportunity to go long with a tight pre-determined stop below the low of the preceding 4hr hammer candle.      

Gold Long set-up.

In Gold we have a nice set-up on the Daily chart.  After forming an inside day on Friday, Gold broke out to the downside today before re-tracing the entire move and duly forming a false-break hammer candle on the daily chart.  This has occurred at previous support and after a gradual loss of momentum in selling pressure since topping out in Feb. If we can close above the 1630-35 level I will be looking to get long...

 

    

GBP/JPY follow up.

We have seen this pair trade-up to a key resistance level where I have taken profit for a respectable 2/3:1 risk reward.  I will be watching for further price action set-ups here...

Long Set-Up in GBP/JPY

We have seen a false-break lower in the GBP/JPY pair today forming hammers on both the Daily and 4hr time - frames as illustrated below.  This Bullish price-action has coincided with the 38.2 Fib retracement.  I have accordingly initiated a long position and will aim to run it to new highs if the dominant Bull trend can prevail.  

Aussie Long initiated

Following on from my comments on Gold in the previous post; we can also find a similar set-up in the AUS/USD pair.  As a commodity currency, the fate of the Aussie is often correlated with Gold so it is unsurprising that a similar set-up has materialized in both markets simultaneously.  That being said, they are not the same market and a position in both is somewhat diversified.  However, your position risk should obviously be carefully managed if going long both the Aussie and Gold as they are highly correlated when it comes down to global Macro economy especially China during the overnight session (GMT).

Gold Long set-up

As illustrated below it is apparent that we were correct to take profits when we did in Gold (post 27 March) as momentum did indeed slow and we have since seen a persistent pull-back.

On the 4hr chart below: a decent long set-up has presented itself again with another clear false break of previous support (forming the bottom of the bearish mother candle) this also coincides with the 61.8 Fib level which, if respected, can form the beginning of a powerful 3rd wave of momentum.

I am therefore looking to get long on a close above this level with a tight stop below the low of this latest Hammer candle.

  

Gold closed-out

I have closed out my gold position for a nice profit as momentum has slowed to the up-side here.

Gold false-break and double bottom.

In Gold we've seen a clear false-break of previous major support forming a hammer set-up on the 4hr chart as below. 

On the daily time-frame we can see the significance of this support level as it forms the low of the mother candle established on Tuesday last week.  A close above this level will provide further confirmation.

EURGBP double bottom

We've got a double bottom in the EUR/GBP cross pair which has put me long as shown on the 4hr chart below.  This is not a Macro-Risk trade and can be a useful addition to holding a net long or short risk trade in the major currency pairs such as the Dollar/Yen which has delivered a bearish outside candle on the 4hr chart below.  Accordingly I have a sell order in place as shown.

 

GBP/USD sell order

Following the FOMC decision and statement; we've got a nice set-up in Cable which I hope to exploit with the following sell order.

Aussie Trade follow-up

Apologies for the quality of this image.  My short position has only been partially displayed for some reason as text on the left hand-side of the pic.  Following on from my sell recommendation last week I am looking to take profit around these current levels for a respectable 1:2 risk reward.  If we can break yesterday's lows around 1.04850 I may look to get back in on the short side, but for now I think we've reached support and will be happy to take profits

As a side-note: the EUR/USD pair is approaching key levels in the form of previous support and the 50% Fib from the recent new low and bounce on the Daily.  I will be watching the price-action for any opportunities to get long here...

Aussie short opportunity.

On the 4hr AUS/USD chart today we've got a nice outside bearish candle set-up.  This price-action has come in around previous support and gives us an opportunity to get short with the bearish momentum that we have seen since this pair topped-out last week.  Placing a stop above the high of the candle we can manage a tight risk with potential for new lows and decent reward if the short-term bearish trend can continue.

EUR/USD Follow-up.

As we can observe from the latest EUR/USD chart below; The compression triangle formation discussed in my previous post last night worked a treat and as predicted price initially false-broke to the upside before a steep rejection and very healthy risk reward trade opportunity presented itself.  Unfortunately for me, this occurred during the Asian session and so I missed it! It is interesting to see, however, that once again this triangle pattern has worked really well in the EUR/USD pair when traded with the immediate trend, especially when preceded by a double top and bearish outside day.  These kind of set-ups are premium trading opportunities and definitely worth watching out for going forward.

Unfortunately we haven't seen the same momentum in Gold despite the break of the flag to the downside.  I missed the initial break and have been watching the price-action this morning but I haven't really liked anything so far.

Market Commentary 1st Mar 2012

There was an impressive 1st-of-the-month rally today in Equities as we saw decisive buying across the board, despite a weaker than expected ISM figure, resulting in a complete reversal of yesterday's panic sell-off in the FTSE! Reasons for this? Well; clearly we have reached the stage in this Bull market where negative economic data is merely being shrugged-off and any sell-off is considered a buying opportunity.  You could make the argument that Ben Bernanke's testimony has in fact reassured the market and is seen as a positive indictment on the health of the economy as the Fed doesn't seem to think that there is need for further stimulus.  Personally I don't buy this: The stock market and the economy are running on different time-lines and this entire Bull market in global equities has been driven by massive liquidity injections from day one.  So perhaps QE3 was never priced in by the market to begin with or the Fed has no credibility and Ben Bernanke's statement is not seen as decisive enough to convince the market of anything.  Market analysts who hold this view are pointing to a supposed fat finger yesterday evening that triggered a cascading effect in the global markets rather than a wide-spread sell off as a result of the content of Bernanke's testimony.  Judging by today's response in the stock market there may be some validity to this argument and although T-Notes have continued to sell-off; I would expect a much more aggressive move if the market was re-pricing an end to Fed Bond buying.  The problem is; when we look at Gold and USD there was an unambiguous response to the Bernanke testimony which has held  throughout today whilst Stocks have rallied.  Clearly, therefore, the market has taken the hint at less Fed dovishness seriously. So where does this leave us?  Ultimately the market will go where it wants to go and if we look at the fact of price behaviour it can be seen that Stocks are clearly Bullish while Gold failed to rally from its lows today and the Dollar has remained strong.  The complication of continued stimulus coming from the ECB may also be a contributing factor, but regardless of the catalyst, this tells us everything we need to know about the underlying sentiment in these markets and could even be a harbinger for a return to the traditional risk-on/ risk-off correlations in the Gold, Dollar and Equity markets.  This in itself would suggest a change in expectations about Central Bank policy and Quantitative Easing in particular.  Going forward, therefore, I will be watching for opportunities to short Gold and get long Equities on price-action retracements.  

Following on from the above post note the 1hr chart for Gold which has formed a Flag/ Triangle pattern with the 38 Fib providing short-term resistance.  There may be an opportunity to get short on a break of the flag or if price trades up to significant resistance at 1751.7 and the 618 Fib where I have left a sell order for the overnight session.

In the same vein; the EUR/USD pair has been unable to trade up in correlation to other risk assets including Equities and has instead formed a compression triangle as seen above.  I will be looking for opportunities to get short following on from Wednesday's outside bearish day and ideally expect to see a false-break of the triangle formation to the up-side before continuing the down trend.

Risk Off!

There have been some good trading opportunities in the volatile price action across the board today with potential for a reverse in recent risk sentiment on the cards as markets respond to the prospect of an end to central bank easing policies.

Looking at the below EUR/USD chart we saw the formation of a double top culminating in a decisive Bearish outside day.  This could signal the start of a change in the recent bullish market sentiment and a continuation of the longer-term bear trend.  I will therefore be looking to play the short side tomorrow and shall be leaving sell-orders in the market overnight around the 38 & 50% fibs just in case we manage to trade up to these levels.

      

Gold false break!

We've seen a false break of the Bullish Flag formation and clear rejection on the 4hr chart above.  I will be looking for an opportunity to get short with a tight stop above the top of the recent hammer candlestick.  Normally I wouldn't advocate trading against the trend but this is such an obvious set-up with a predetermined tight stop location so I will leave it to your discretion.

EUR/USD

We had an assertive Bull rally in the EUR/USD last week that we were able to profit from.  The pair has since looked over-bought this morning and I would expect a pull-back, however, there must still be some bullish sentiment around this market and I will be looking for some renewed buying interest possibly at one of the fib retracements indicated on the 4hr chart above.  The first retracements coincides with Friday's lows and the 21day moving average while the 38.2% is coming in around previous resistance and the 618 is positioned at the original gap open.  Any Bullish price-action at these pivotal areas would convince me to get long.  

closing out Euro Trade for nice 3:1 profit!