I am going to cover some medium term Technical Analysis for some of the Major pairs in this article. Please remember that these ideas are not 100% sure and that there are inherent risks in Forex.
- The Euro - Dollar Exchange rate has been stuck in a range of 1.30 to 1.35 since January. The Daily chart has formed a neat Head & Shoulders formation as seen in the chart below. It has a height of nearly 500 pips, and a break below 1.300 could expose 1.25 via the H&S. At the moment EURUSD is trading pretty much at its 100DMA and a breakout is expected.
- In the Short term 1.3000/30 is strong support which will need a big, volume carried move to break. Not only is it the neckline of the large H&S it is the 23.6% Fib from the 1.4250 October 11 High to 1.2620 Jan 12 Low.
- On the daily, I recommend a "sell limit" at 1.2999 with a Take profit order around the previous swing low at 1.2650. A stop loss order around 1.3150 gives you nearly a 1:2 risk:reward ratio.
- The 4 Hour Chart shows more bearish potential with the formation of a bear flag. the flag pole is around 340 pips long showing a break of 1.3030 could expose the 100% Fibonacci expansion at 1.2861.
- With both of these charts, the aforementioned sell limit will be used with the hourly and daily and Technically speaking it looks like a strong set-up.
- The only other thing to consider is the fundamental side of the EUR trade. Spain's 10yr Bonds are yielding 6% and are fast approaching the critical 7% level and this could exacerbate the EUR fall and could be the catalyst needed for the EURUSD to fall to 1.25
- With the EURCHF cross pair stagnant at 1.20, USDCHF is almost 100% inversely correlated to the EURUSD pair and so moves will be opposite in % terms.
- The main drivers for this pair is the EURUSD pair. However as the USDCHF is on the verge of a major technical breakout, the USDCHF may lead the EURUSD.
- USDCHF has a strong downtrend line which is capping the pair at the moment (red line). However there is an Equi-distant (green) channel supporting the pair. The 100DMA is also flattening out at the downtrend line.
- Therefore, I recommend a Long trade on the break of 0.9225 with a stop loss at 0.9050. From here there are two potential profit targets, firstly at 0.95 and then 0.99. These are two strong technical levels as 0.95 is the recent swing high level and the 0.99 level is a Fibonacci extension level.
- The Aussie has strong support from the high yield you get from longing this pair. But what is an advantage in risk-on environment acts as a double edged sword with strong downside pressures during volatile times.
- As a commodity currency and strong trade partner with China, the recent data suggesting a slow down in china is very AUD negative and could lead to a slow, precipitous fall.
- In recent weeks the AUDUSD has fallen from 1.0850 to a recent low of 1.02250. It was trading in a neat equi-distant before recently breaking out of this. This caused a mass of short covering but only managed to reach 1.0450 before reversing down.
- Right now the Aussie has fallen back to the trendline and is unsure how to react. Because of this I don't recommend you trade any swing trades. However What I can say is small 15/25 pip scalps could be very profitable in the upcoming days if done with a bearish bias.
- The USDJPY is being driven by the interest rate differential between the two nations. Primarily the 10yr US bonds are strongly affecting the pair. In the last few weeks the 10yr's yielded 2.40% and this was when USDJPY was trading at 84. However the topping of US equities pushed 10yr's back to 2% forcing the USDJPY pair back down to 81.
- The Rapid rise in the USDJPY over the past few months was due to have a retracement and so far we have reached the 38.2% level. The next level will be the 50% level which coincides with the Equi distant channel.
- In the long term, there are arguments that it is forming a Bull flag which would in turn target 90.00. This could quite easily come around if there is some significant easing from the BoJ in the form of QE which would be very JPY bearish.
- Therefore I recommend you bid into the market at around the blue demand levels highlighted in the chart which coincide with the 100 DMA (not shown). Lets say Long at 80.00, I would recommend a target of 90.00 with a stop loss around 75.00.
- This trade would be very long term and could take months to occur so Swing trades on the way could add to the potential pips that you could earn.
Thank you for reading and good luck with your trades!