Daily Technical Analysis by Kate Curtis from Trader's Way

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GBP/USD Short-term Falling Channel (March 12, 2013)

Cable has been on a downtrend for the past few weeks and has recently made a strong break below the 1.5000 major psychological support level. This confirms that the selloff is really strong and that the pair could be on its way to test the 2010 lows around 1.4300.

At the moment, the pair is trading inside a falling channel on the 1-hour time frame so there could be an opportunity to catch a quick pullback when joining the overall downtrend. The 1.4950 minor psychological level is located at the middle of the range while the 1.5000 handle is at the top of the range, both of which could act as solid resistance levels for the week.



Only medium-tier reports are due from the U.K. today and these could push GBP/USD to pull back a little before resuming its drop in case the actual figures come in better than expected. U.K. manufacturing production is expected to stay flat in January after rising by 1.6% in December while U.K. trade balance is estimated to show a smaller deficit of 8.8 billion GBP from 8.9 billion GBP.

Shorting around 1.4950 with a stop above 1.5000 would yield more than a 2:1 reward to risk ratio if you’d aim for the previous lows around 1.4850.

By Kate Curtis from Trader's Way

 

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GBP/USD: Break and Retest of 1.5000? (March 13, 2013)

GBP/USD has just broken below the 1.5000 major psychological level in the past week but the pair appears prime for a retest within the day. Using the Fibonacci retracement tool on the recent swing high and swing low to the 1.4820 area reveals that the 1.4975-1.5000 levels are in line with Fibs.

In addition, stochastic has made a bearish divergence on the 1-hour time frame as the oscillator made higher highs while price made lower highs. Stochastic is still in the overbought region and hasn’t crossed down yet, which suggests pound bulls could still be in control at the moment. A cross down from the overbought region will show that sellers have gathered enough momentum to keep the downtrend going.



Yesterday, the U.K. printed a very weak manufacturing production report which showed a 1.5% decline for February. This was way below the consensus of a flat reading for the month. However, the trade balance came in stronger than expected as it showed a deficit of 8.2 billion GBP, smaller than the estimated 8.8 billion GBP shortfall.

No reports are due from the U.K. today but the U.S. retail sales due 1:30 pm GMT could provide enough volatility for this pair. The headline figure is expected to rebound by 0.5% in February while the core version of the report could print a 0.5% uptick as well.

Take note that the recent NFP report printed a strong upside surprise for the same month and that improvements in the jobs sector usually result in a surge for consumer spending. Positive data from the U.S. has been lifting the Greenback so far, which suggests that a potential cable selloff could take place if the report meets or beats expectations.

By Kate Curtis from Trader's Way

 

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NZD/USD Breaks Below .8200 Level (March 14, 2013)

NZD/USD got sold off strongly after the RBNZ announced its interest rate decision during today’s Asian session. Even though the central bank kept rates on hold at 2.50% as expected, RBNZ head Graeme Wheeler commented that domestic economic activity is weak. A couple of reasons that he mentioned for this slowdown were the worsening drought conditions and the strength of the New Zealand dollar.

In fact, he pointed out in his speech a few hours later that he thinks the New Zealand dollar is overvalued by 10-15%, prompting traders to speculate that the RBNZ will engage in currency intervention if the Kiwi doesn’t return to their desired levels.

If you missed the initial reaction to the report, there’s still a chance to catch the rest of the move as European traders and U.S. session traders have yet to react to the news. Based on past price action following the RBNZ statement, NZD/USD typically makes a strong reaction right after the event then consolidates at the start of the London session, after which it makes a breakout in the same direction.

At the moment, NZD/USD is moving below the .8200 major psychological level and is consolidating around .8175, suggesting a potential breakdown later on. The selloff could last until the next minor psychological level of .8150 or possibly until the .8100 major psychological support. Take note that the U.S. is set to release its PPI and initial jobless claims later and that stronger than expected results typically boost the U.S. dollar.

Shorting at the break of .8175 with a stop above .8200 and a profit target around .8100 would yield a good reward-to-risk ratio for a day trade.

By Kate Curtis from Trader's Way

 

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EUR/USD: 4-hour Falling Channel Holding? (March 15, 2013)

After yesterday’s short squeeze on EUR/USD, which pushed the pair back above the 1.3000 major psychological support level, many are wondering if the rally of this pair would actually last. It seems that it could find resistance at the top of the falling channel drawn on the 4-hour time frame at least for the end of this week.

Take note that the top of the channel is close to the 1.3050 minor psychological level, which could act as resistance for EUR/USD. This area also acted as an area of interest in the past, and the lack of good news from the euro zone or any major market catalyst for today could keep the pair’s rallies at bay.

Of course, don’t forget that the European Union Economic Summit is going on today until the start of the weekend, which suggests that there is still some event risk. Also, the U.S. is set to release a bunch of reports, namely the CPI, Empire State manufacturing index, and University of Michigan preliminary consumer sentiment report during today’s New York session.

Shorting at the top of the channel with a stop above the 1.3050 line in the sand could provide a decent 2:1 reward-to-risk ratio for a day trade if you’re aiming for the bottom of the channel or just the 1.3000 major psychological level.

By Kate Curtis from Trader's Way

 

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EUR/USD Weekend Gap Play (March 18, 2013)

EUR/USD made a huge gap down from the 1.3100 area to below 1.3000 over the weekend. The sudden rally that took place during the last two trading days of the previous week can be explained by a quick short squeeze as traders decided to book profits around the pair’s previous lows.

However, sentiment for the euro zone remains negative as the pair opened this week right where it was prior to the short squeeze. Before the pair trades any lower though, traders could take advantage of this potential gap close back to the 1.3050 minor psychological resistance.

There’s a falling channel on the 4-hour time frame, right where the pair closed last week. A short trade on a pullback to the 1.3000 or 1.3050 area with a stop above 1.3100 and a target around the pair’s previous lows could work for today as the euro zone has no major catalysts on schedule.

By Kate Curtis from Trader's Way

 

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Pennant on GBP/USD (March 19, 2013)

After its strong rally towards the end of last week, GBP/USD consolidated tightly in a pennant formation during yesterday’s trading. This is most likely because traders are awaiting the release of top-tier British data within the week.



For today, the U.K. is set to release its CPI figures and possibly report a 2.8% annual increase in consumer price levels for February. The BOE is also set to release its Inflation Report in case the actual CPI data doesn’t stay within the government’s inflation target.

This report could provide a catalyst for a breakout in either direction. Recall that the BOE has committed to looser monetary policy if necessary even at the expense of stronger inflation and the risk of stagflation.

Higher than expected CPI could increase the odds of stagflation in the U.K. which might be more negative for the pound. However, weaker than expected CPI would also imply that the BOE has enough room to implement further easing, therefore the path of least resistance is down.

Stochastic is currently pointing downwards as it moved out of the overbought region. This suggests that selling pressure is still strong as pound bears might take the pair back to its recent lows around 1.4900. Shorting at a break below 1.5075 with a tight stop above 1.5100 and a target around 1.4875 would yield a 4:1 reward-to-risk ratio.

By Kate Curtis from Trader's Way

 

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EUR/USD: Potential Retracement (March 20, 2013)

After Cypriot officials and the Troika unveiled a bailout proposal to save Cyprus’ troubled banks, the parliament rejected the plan since it involved a one-time tax levy on deposits. This prompted fears of a bank run in the country, which might do more damage than good to its finances.

However, the lack of a concrete bailout plan at the moment increases the odds of Cyprus defaulting on its financial obligations. This explains why EUR/USD sold off strongly recently.



If you missed this sharp drop, there could be an opportunity to catch the move on a retracement. Using the Fibonacci tool on the swing high and low on the 1-hour time frame shows that the 38.2% Fib level is in line with the 1.2900 major psychological level while the 50% and 61.8% Fibs are close to the former support area.

Stochastic is in the oversold region, reflecting the lack of selling pressure at the moment. Shorting when the pair pulls back to any of the Fibs with a stop above the 1.2950 minor psychological resistance could be a good day trade, especially since the FOMC monetary policy decision could spark volatility in the markets during the New York session.

By Kate Curtis from Trader's Way

 

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USD/CAD: Trading the Canadian Retail Sales Report (March 21, 2013)

The falling trend line on USD/CAD’s 1-hour time frame is holding for now but the pair is consolidating into what appears to be a symmetrical triangle. Traders are awaiting the results of the Canadian retail sales report, which is set for release during today’s New York session.

Headline retail sales are projected to rebound by 0.6% from the 2.1% slide seen last December. Meanwhile, core retail sales are estimated to recover by 0.4% for January from the 0.9% drop recorded in December.



Stronger than expected figures could result in a Loonie rally, which might push USD/CAD to break below the triangle and head for the recent lows near 1.0200. On the other hand, weaker than expected retail sales figures could trigger a sharp Loonie selloff, which could force USD/CAD to break above consolidation and the trend line.

Bear in mind that USD/CAD is also finding support at an established area of interest near the 1.0250 minor psychological level. A break below this mark could confirm that the downtrend is still intact but another strong bounce could signal a reversal.

By Kate Curtis from Trader's Way

 

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USD/JPY Retracement In the Works? (March 22, 2013)

USD/JPY’s rally seems to be losing steam as the pair can’t seem to make a break above the 97.00 major psychological resistance. Right now, USD/JPY is pulling back to the 95.00 area and looks ready to test the rising trend line on the 4-hour time frame.

Note that the trend line is in line with the 50% Fibonacci retracement level near 94.00. This is also the former resistance level, which might act as support from now on.



Stochastic isn’t in the oversold region though, which suggests that the pair could still dip lower, possibly until the 93.50 minor psychological support. If you’re planning to buy this pair, make sure you set your stop below that level.

There are no major reports due from both Japan and the U.S. today, which means that there isn’t any catalyst for a strong breakdown. The trend could remain intact, at least until the end of this trading week.

Monetary policies of the BOJ and the Fed seem to be on somewhat opposite poles for the meantime as the BOJ is favoring aggressive easing measures while the Fed has expressed its intention to withdraw asset purchases once inflation and employment pick up.

By Kate Curtis from Trader's Way

 

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EURUSD: Potential Gap Fill (March 25, 2013)

There’s a falling trend line connecting the highs on EUR/USD’s 1-hour time frame and a test might be in the works for today. In addition, the gap from the previous weekend might get filled as it is close to the 1.3050 minor psychological resistance.

Lawmakers in Cyprus are hopeful that a bailout deal will be reached within the week even though Russia declined their request for additional liquidity. However, the lack of a concrete proposal could put EUR/USD back in selloff mode.



Stochastic is almost in the overbought territory, suggesting that euro bulls are about to run out of steam. On top of that, a potential bearish divergence is forming as the pair made lower highs while stochastic is making higher highs.

Shorting at 1.3050 with a stop above 1.3100 and a target at the previous lows near 1.2850 could yield at least a 2:1 reward-to-risk ratio.

By Kate Curtis from Trader's Way