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Because of changes in my schedule, this will be the last of my weekly columns written specifically for the CNNMoney.com Web site and e-mailed to readers.
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Another interesting chart presenting some clear formations at the moment is also the USDJPY.
(Click here for chart)
What do we see?
Well after the Yen strengthened against the USD at the beginning of this month we saw it retrace back to its 50% Fibonacci retracement level, which it failed to break. Another interesting Fibonacci development is that we can currently see over the last couple of weeks the USDJPY’s failure in staying above its 38.2% retracement level (you can see plenty of daily wicks passing through this zone but not too many closes above it).
Add to that the fact that during this congestion period there’s a nice bearish pennant forming.
So what does it all mean? How would I trade this?
Well, for me personally, I’d be looking at opening SHORT positions around the 38.2% retracement mark (around 117.60-5) with stops outside the downward sloping pennant line (plus some breathing space) at 118.15 (giving us an initial ~50 pip stop loss). Otherwise, if the SHORT limit entry is missed I’d be looking to enter SHORT on stops at 116.85 (a break below the upward sloping pennant trend line) my initial stop loss would probably be around 40-50 pips away from entry, but upon it’s breakout I’d quickly move the stop down to the high (+10-15 pips) of the breakout bar.
My target for both entries would be the pole length, being the difference between the 100% Fibonacci retracement point (~121.60) and 0% Fibonacci retracement point (~115.20) on the chart, which gives me a target of 640 pips!
What if I were to get stopped out on the 117.60-5 at 118.15?
If I were to get stopped out I’d stop and reverse my position going LONG with stops back at 117.65 (50 pips). I’d need to be careful here as a pennant formation could very easily turn into a flag and I’d be watching the 50% retracement zone very carefully (~118.50). If we get a successful close above the 50% zone I’d be looking for the USDJPY to hit the 100% Fibonacci retracement on the chart as target - being 121.60.
If the market were to hit my stop loss on my entry stop position I would close all positions and would NOT reverse my position - I’d take the loss on the chin and move on to the next trade.
Please be aware that medium and long-term outlooks may look as though they are going to work in the short-term, however, with the nature of things in this world one event can quite easily unsettle these views/chart formations and throw everything out of whack quickly. Just because I have a long-term view doesn’t mean I keep it for months and months regardless of what is happening. As traders we need to be on our toes. I know my view(s) can easily change in a week or two depending upon price action… but I always hope that it remains for months and months, because then I’d know I’m making money!
Anyway, we’ll see how it goes.
Tags:
USDJPY,
Currency Analysis
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Everyone understands the advantages of growth investing. Bet on a company with a hot new technology or a great retailing idea, and as the business expands, the share price will soar.
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The older this bull market gets, the more you wonder whether it can last much longer. Certainly the Dow's sudden drop in late February is a reminder that things can change quickly.
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Once again the Aussie Dollar is trading around the long-term historical resistance area of 0.8000.
There are several interesting patterns on the AUDUSD that I’d like to share.
Here’s a weekly chart of the AUDUSD.
Notice how we have an extremely large (and albeit ugly) head and shoulders pattern. Add to the fact that the right shoulder didn’t dip as far south as the left shoulder and we have a currency ready to move.
Not only that but we also have an ascending triangle that has formed over the last 3 years.
So what does all this mean? Well I for one am quite bullish the AUD/USD - as this is a weekly chart I’ll be keeping an eye on how the AUDUSD closes at the end of this week, and then how it reacts to any successful close beyond 0.8000 the week after. As an example, if we have a successful break this Friday, yet by the following Friday we see the AUDUSD back below 0.8000 then resistance is still strong and we may get further downside before it attacks it again - provided the AUD/USD doesn’t retrace too far.
Potential targets for this move would be the ascending triangle’s side of about 1200-1300 pips (0.8000 - 0.6800), therefore being, around 0.9200-0.9300. The head and shoulders target is phenomenally higher again giving a target some 3200-3300 pips above 0.8000 (0.8000 - 0.4700) - if this gets reached then we’d see the ol’ 1980 glory days of the AUD!
But is this a strategy that anybody could use? It definitely isn’t one for us small retail traders - our stops would need to be very large making the position size so small we wouldn’t even be able to enter in.
However, by providing a long-term view of where we perceive a currency may go in the future it can help our trading by only short-term taking trades in the long-term direction.
Tags:
AUD USD,
Currency Analysis
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Actors, authors, astronauts and others ponder the national promise.
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