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10-10-11 Kosentrade’s Forex Top down analysis

10/10/2011

I didn’t get a chance to finish my weekly Forex top down analysis writeup yesterday, so I’m finishing it now to post shortly after New York lunchtime.

A few interesting thoughts for this week:

  • No matter how “cheap” or “expensive” something may appear, that doesn’t mean a trend change is in order.
  • So long as you are trading with the trend, prices are never too high to buy, or too low to sell.  (An idea borrowed  partially from Mr. Livermore – and rather counter to the general “don’t buy highs and sell lows” mantra.  So, if you do buy a high, be prepared to sit through a pullback before price goes in your direction.  Therefore: buy pullbacks.  It’s easier to define risk.)

As always, keep the big picture and larger levels in mind.

Review of last week’s writeup.

My general theme last week was shorting a bounce in risk.  I put Eur/Usd and other risk currencies on a short watch.  We opened last week at strong support / resistance levels for this bounce, but my call was slightly premature as we continued through part of Wednesday with a risk off tone, and generally continued to secondary support / resistance levels.  In other words, Eur/usd opened last week below a significant daily 50% retracement, and fell almost to the .618 before this current rebound.  This is partially why I don’t care to trade levels as pivots, or trend reversals, but rather prefer trendline breaks.

In general, my market forecast was pretty accurate.  I said “Weekly, we begin with a dollar positive tone, but many majors sitting on strong support / resistance areas.”

Last Wednesday provided the fundamental catalyst for a change in risk appetite.  While we are still in a bear market, last week’s downgrade of both Italy and Spain did little more than provide a pause in dollar selling and equities buying.

Overview:  This week, I am looking at a larger correction higher in risk, and will trade pairs such as Euro with a long bias while looking for larger daily retracements as possible pivot points.

 

Eur/Usd Long watch, short term, Short watch on Daily

Daily: minimum long target is 1.38, with possible long targets up to the .5 and .618 daily retracements higher.

Hourly: we will likely hit resistance around the current highs up to around 1.3680.

Lower timeframes:  M5, buying minor retracements worked well last night.  This long move is looking possibly overextended, so I wouldn’t be surprised to see a minor pullback throughout NY afternoon and into London open.  Look for potential downsides to 1.3560 and possibly as low as 1.3545

 

Gbp/Usd, Similar to Eur above. 

This trade is similar on many timeframes as the Euro.  Throughout the week, I will look for a further pullback up to daily fibs with a min target of 1.5820.

Hr: We will likely hit resistance as we enter NY afternoon around the current levels, and below 1.570.

Lower timeframes: trading long bias, initiating positions on fib retracements worked well over the London session.  Were I to trade this short this afternoon, I would not expect a retracement much below 1.5500 or possibly 1.5449 (fib retracements of h4 moves)

 

Eur/Gbp: Possible intraday longs on pullbacks

Last week, my theme was a long GBP bias on this pair, based on the price action on Eur/Usd and Gbp/Usd.  I still like that idea, but need to be cautious over the levels.  Daily, we should hit fib resistance between .8698 and .8710 (but I am not going to short simply based on a test of these levels, I will look for trendline breaks)

Intraday: we will likely hit hourly resistance around the current levels, and between .8716 and .8743.

Lower timeframes:  Obviously, a Eur long bias prevailed last night, one could have traded based on fib pullbacks, but these moves were generally sloopy.  We remain in a long channel on 5 and 15 minute charts.  Considering the daily chop action on this pair we could see deep retracements into Asia and London tomorrow.

 

Aud/Usd Generally the same as Eur and Gbp. Vs. USD.

Aud continued its downtrend through the beginning of last week, and broke a shorter term down trendchannel with great conviction on 10/7

My first level of resistance is at 1.0037 (or basically parity) I am looking at potential shorts on daily fib retracements.

Hourly: we have a very nice long trendchannel developing.  As we enter NY afternoon, I would look for resistance to develop around current levels (.9980).  A break of this hourly trendchannel may lead to downside targets of .9757.

 

Usd/Jpy still does not interest me in the slightest

 

Eur/Aud, Could go either way.

Last week, I said we appeared to be entering a H&S pattern on the h1 chart.  The neckline never gave way and our H&S turned into a bull flag hitting a nice fib extention.

This week, things could go either way.  While technically, I remain bearish below the 200 hr ma. We need to see a solid break of these lows.  Should that happen, my next level of support is at 1.346240

I as always welcome your feedback.  If this continues to go well, I may start posting midweek updates around Wednesday afternoon.

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One Comment
  1. Big Bubba permalink

    Good stuff TK you rock BB.

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