Daily Technical Analysis by Kate Curtis from Trader's Way

[katetrades]

Trade Setup for the Day: GBP/USD Short (February 22, 2013)

There might be a chance to catch the GBP/USD selloff at a better price today as the pair appears to be retracing to the 38.2% Fibonacci level on the 4-hour time frame. On a longer-term chart, the pair has already broken down from a significant level of support at 1.5350 and appears to be headed further south.

Stochastic is deep in the overbought region in the 4-hour chart, which suggests that the pullback could be over soon. In addition, the 38.2% Fibonacci level is in line with the 1.5250 minor psychological mark, which could act as resistance.



Setting a stop above the 61.8% Fibonacci retracement level seems like a reasonable line in the sand as it is close to the former support at 1.5350. For those already short the pair, scaling in at the 1.5250 area could allow you to press your advantage. Aiming for the next major support level at 1.5000 or lower would yield an excellent reward-to-risk ratio.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup for the Day: Short EUR/USD (February 25, 2013)

EUR/USD consolidated around the 1.3150 and 1.3200 major and minor psychological support levels at the end of last week and continues to move sideways in that area today. The downtrend on the 1-hour time frame is still intact and suggests a potential continuation of the selloff.

Take note that EUR/USD is currently trading below the 1.3300 major psychological support level and bottom of the longer-term trend line. After breaking below this support zone, a reversal of the previous uptrend could be in the works.



Stochastic is neither in the oversold or overbought territory though, which means that traders are still undecided where to take this pair. If it does rally, it could pull back until the 1.3300 area. That’s right in line with the falling trend line and the 61.8% Fibonacci retracement level. If the bearish sentiment is much stronger, the pair could simply break down from consolidation.

Shorting at 1.3300 with a 100-pip stop and a profit target at 1.3200 or the previous lows would be roughly a 1:1 trade. Setting a tighter stop of 50-pips would improve the reward-to-risk ratio but it might not be enough breathing room for this pair since ECB Governor Draghi has a speech today.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup of the Day: Short GBP/USD (February 26, 2013)

GBP/USD made a huge gap down over the weekend but price pulled right back up and the pair starting to close the gap completely. The previous week’s close is around 1.5241, close to the 50% Fibonacci retracement level. Stochastic is already in the overbought region, hinting at another potential move down.

Shorting around 1.5250 with a stop above the 1.5300 major psychological level and aiming for the 1.5100 area would be a good day trade with a reward-to-risk ratio of 3:1. If you’re going for a longer-term short position, aiming for the 1.5000 round number with a trailing stop would help you press your advantage and protect your profits.



Take note that Bank of England Governor King is giving a speech today. He just voted in favor of further easing, according to the minutes of the latest monetary policy meeting. The last few times that happened in the past five years, the central bank actually implemented further asset purchases in their next interest rate decision or within the next three months.

Given the Federal Reserve’s intention of tapering off asset purchases, fundamentals are in favor of a GBP/USD short trade. However, Fed head Ben Bernanke is also scheduled to give a speech during the U.S. session today. It’s his semi-annual testimony in Congress so it could be a major market mover.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup of the Day: Long AUD/USD (February 27, 2013)

AUD/USD is approaching long-term support at the 1.0200 major psychological level and a potential bounce could be in the cards. Stochastic has been deep in the oversold region for the past few weeks, suggesting that Aussie bears are running out of selling power.

Aside from that, the stochastic has made a bullish divergence with price as the oscillator made higher lows while price made lower lows from the start of the year. This also hints at a possible bounce, depending on market catalysts.



There are no major reports due from Australia this week and the big market mover from the US, which is Fed head Bernanke’s speech, was already finished. In his speech, Bernanke talked about the recent FOMC meeting minutes and the timeline for the withdrawal of asset purchases. He did mention that the benefits of further asset purchases outweigh the risks though, which meant that the expected tapering off of stimulus will not take place anytime soon.

A swing long trade at 1.0200 or at market with a wide 150-pip stop and a target at the top of the range (1.0600) would yield a little more than 2.5-to-1 reward-on-risk.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup for the Day: Short NZD/USD (February 28, 2013)

NZD/USD is still on a strong downtrend, as seen from the formation of a falling trend line on the 1-hour time frame. The pair has also just broken below the .8300 major psychological support earlier this week, confirming the strong bearish bias on this pair.

After consolidating around the .8250 minor psychological level at the start of the week, the pair is pulling up for a quick retracement before possibly resuming its downtrend. It just rallied past the 38.2% Fib level but appears to be finding resistance at the 50% Fibonacci retracement level, which is in line with a former support area.



However, the trend line is still a few pips higher than this resistance zone while stochastic hasn’t crossed down from the overbought area yet. This suggests that the pair has enough room to climb before actually selling off. The 61.8% Fib seems to be a better entry point in this case.

Shorting around .8350 with a stop above the .8400 major psychological level and a target of .8200 would yield a 2:1 reward-to-risk ratio.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup of the Day: Short EUR/USD (March 4, 2013)

Another retracement opportunity is presenting itself on EUR/USD’s 1-hour time frame as the pair has been stalling above the 1.3000 major psychological level. Drawing a trend line connecting the highs of the price shows that the potential test level is at 1.3100-1.3150.

US sequestration has been weighing on riskier currencies so far while Italian politics is adding further selling pressure on the euro. The ECB is set to make its monetary policy decision later on this week and, even though no interest rate cuts are expected, further LTRO issues could be possible. After all, ECB President Mario Draghi has already expressed his openness to further easing during his speech last week.



The Fibonacci retracement tool shows that the 38.2% Fibonacci level is in line with the 1.3100 major psychological resistance while the 50% Fib is close to the 1.3150 minor psychological resistance and falling trend line. Shorting in this area and putting a stop above the 61.8% Fib, which would be above the trend line, would give the short trade enough breathing room.

As for targets, the 1.3000 mark seems to be solid support at the moment but this could depend on what the ECB does during its monetary policy decision.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup of the Day: Long AUD/USD (March 5, 2013)

The AUD/USD pair has been trading cautiously around the support zone from 1.0150 to 1.0200 for the past few days, as traders waited for the monetary policy decision from the Reserve Bank of Australia. During the actual statement today, the bank decided to keep rates on hold at 3.00%, as Governor Stevens maintained that the RBA’s recent easing efforts are just starting to take effect.

From a technical standpoint, a hammer candlestick pattern has formed on the daily time frame right on the 1.0150 support level. This indicates that the recent selloff, which was mostly a result of pricing in rate cut expectations, is already over and about to reverse. Right after the rate statement, the pair jumped back above the 1.0200 level and appears ready to trade even higher.



A bullish divergence has also materialized on the daily chart as the price made lower lows, while stochastic made higher lows. Now that stochastic is moving out of the oversold area, Aussie bulls could push the pair right back up to the top of the long-term range around 1.0600.

Going long at 1.0250 until 1.0600 with a stop below the 1.0150 level would be a 3.5-to-1 reward-to-risk ratio.

By Kate Curtis from Trader's Way

 

[katetrades]

Trade Setup of the Day: GBP/USD Short (March 7, 2013)

GBP/USD has been forming its usual Asian box consolidation prior to the Bank of England interest rate decision. Strong breakouts typically take place during the actual event and the direction depends on the central bank’s rhetoric.

Recall that the minutes of the previous monetary policy meeting showed that BOE Governor Mervyn King shifted his stance to a more dovish one as he voted to increase asset purchases back then. However, the hawks still outnumbered the doves at that time, which explains why there was no actual change in monetary policy.

This time around, King could vote in the doves’ favor once more and probably convince a few more policymakers to push for further easing. If that’s the case, GBP/USD could make a strong breakdown from the 1.5000 major psychological level and sell off by at least a hundred pips, depending on the size of asset purchases.

On the other hand, if there aren’t enough votes to increase the BOE’s asset purchase program, GBP/USD could spike to the upside during the rate statement. This initial rally might not last very long though as the lack of easing this time could increase the odds of further easing next time. After all, the UK is facing the possibility of a triple-dip recession and has been printing weak economic data lately.



A short trade at 1.4980 until the 1.4800 area or lower with a tight stop above 1.5000 would yield a pretty high reward-to-risk ratio, good enough for a day trade. Stochastic is in the overbought region, suggesting a further move down, while the 1.5000 major psychological support has already been breached.

If price spikes higher during the BOE decision though, possibly because of lack of action or hawkish remarks from incoming head Mark Carney, fading the rally from 1.5050-1.5100 back to 1.5000 could also work as a short-term trade.

By Kate Curtis from Trader's Way

 

[katetrades]

EUR/USD Testing Downtrend Line at 1.3100 (March 8, 2013)

The falling trend line on EUR/USD is still intact for now as the pair is currently testing the 1.3100 major psychological level. That area is in line with the 38.2% Fibonacci retracement level, which might act as resistance today.

There are no major economic releases from the euro zone today but the ECB Governor Mario did talk about downside risks to growth during the central bank’s recent monetary policy decision. The ECB did keep rates on hold though and didn’t announce any changes to its current stimulus programs, and this allowed EUR/USD to bounce back to 1.3100 later on.

However, 1.3100 might be the line in the sand for the euro’s rallies in the near term as the sentiment in the region is still downbeat. After all, there is a lot of political uncertainty in Italy at the moment and this places the country’s debt situation in jeopardy.

In a nutshell, the ECB rate statement was slightly more upbeat than expected as Draghi focused on the potential economic rebound that the central bank is projecting to happen later in the year. This could continue to provide support for the euro today.

However, the main event risk for this pair is the U.S. non-farm payrolls report due 1:30 pm GMT. The labor report could show a 162K increase in hiring for February, which could keep the jobless rate steady at 7.9%.



A stronger than expected figure could give the U.S. dollar a boost as the Fed is closely watching the jobs figures as part of their consideration in withdrawing monetary stimulus. A weaker than expected figure could trigger a U.S. dollar selloff and push EUR/USD above 1.3100 and the trend line as this would mean the U.S. economy might have trouble withstanding the future job cuts entailed by sequestration.

If you’re expecting the downtrend to continue until the end of the week, shorting at 1.3100 with a 50-pip stop and aiming for the 1.3000 handle would be a 2:1 trade. But if you’re expecting an upside breakout, wait for a bit of momentum around 1.3125 with a stop below the 1.3100 mark.

By Kate Curtis from Trader's Way

 

[katetrades]

EUR/USD in a 150-pip Range (March 11, 2013)

Last Friday’s NFP release, which came in stronger than expected, pushed EUR/USD back to the 1.3000 major psychological level. This support zone seems to be holding at the moment as stochastic reached the oversold region and started to move upwards, suggesting a potential bounce back to the top of the range or at least until the middle.

There are no major economic reports due from the euro zone today so there’s no catalyst for a convincing break below the 1.3000 handle. Keep in mind though that the U.S. NFP was released during the New York session on a Friday, which means that Asian and London session traders have yet to price in their reaction to the data. A significant amount of dollar-buying could set off a break below the bottom of the range, especially when the euro zone suffers a bout of downbeat political updates from Italy.



EUR/USD could keep trading around the bottom of the range but could be due for a bit of correction as traders take profit off their short trades from last week. If that’s the case, the pair could bounce back up to the 1.3050 minor psychological level around the middle of the 150-pip range. Going long at 1.3000 with a stop below 1.2975 could yield roughly a 2:1 reward-to-risk, good enough for a day trade.

By Kate Curtis from Trader's Way