Range or Trend?

I'm looking at the AUDUSD Daily and Weekly charts this morning and see an obvious but very strong resistance level at the .7330 levels.  Just like with any resistance levels the big question is always: are we going to break it or are we going to bounce back? 

On the daily chart the resistance line is very clear and show a few very close previous touches:
On 10/14/08 we reached .7236.
On 01/06/09 we reached .7265.
On 01/07/09 we reached .7267.

And finally since 02/04/09 we've been flirting with the highs and stayed in a range between .6972 and .7382.

The weekly chart shows a very nice pattern of 1 2 3 4 reversal.
The 1 level being at .6006.
The 2 level being at .7267.
The 3 level being at .6246.
The rule of th2 1 2 3 4 reversal technique is that if level 3 goes lower than level 1 and then turns around and goes higher than level 2 (point 4) then we are ready for a new trend in that direction, in the case of the AUDUSD chart, we are ready to go up.

If we do cross the resitence level and look to the left on the chart from where we are today, the pair is in the clear to move all the way to .8200 with no problems, there is really no noise in between here and there!

G10 and LatAm currencies...

I wanted to try to mix things up a little bit by starting Blog posts on general FX Trading information in addition to my normal posts on possible trades. So for this post I wanted to simply list the G10 and LatAm currencies:

List of G10 Currencies
Australian Dollar (AUD)
British Pound (GBP)
Canadian Dollar (CAD)
Euro (EUR)
Japanese Yen (JPY)
New Zealand Dollar (NZD)
Norwegian Krone (NOK)
Swedish Krona (SEK)
Swiss Franc (CHF)
US Dollar (USD)


List of LatAm Currencies
Argentine Peso (ARS)
Brazilian Real (BRL)
Chilean Peso (CLP)
Colombian Peso (COP)
Dominican Peso(DOP)
Mexican Peso (MXN)
Peruvian Nuevo Sol (PEN)
Uruguayan Peso (UYU)

Up reversal and trendline break pointing to a stronger Aussie.

The weekly chart of the AUDUSD is currently showing two very good setups pointing to a higher Aussie in the weeks ahead. The time frame of these trades is based on the weekly chart, so we should be very patient and allow them enough time to realize all of their potential which could take several weeks, perhaps until early April. We should also keep an eye on the entry points of these trades and review them at the end of this week as things might change depending on how the pair closes the weekly candle.



Starting with the trend line break, the entry point for the break is at .6780. This entry point might change depending on how this week ends but we should proceed with the current price levels and set .6780 as our entry level. The take profit target of this trade is at .8862 which if reached would give a remarkable 2082 pips profit. The stop loss of the trade should be placed at the previous lows of .6006 or 774 pips from out entry. The reward to risk ratio of this trade equals 2.69 which is really good and one not to be missed.

I marked the different price levels for the 1 2 3 4 up reversal in the chart above. This strategy is very straightforward, if the pair tries to make new lows and fails it will most likely reverse to previous highs before the decline. If we cross the price level 2 (marked by number 4 on the chart) then we should be on our way to our target of .8260. The entry of the trade should be set right above price level 2 (price level 4 on the chart) or .7270 and the target should equal the distance between 2 and 3 which counting from our entry point, number 4, would put us at .8260, the stop loss should be set to the most recent low of .6246 (3 on chart). The reward/risk ratio for this trade is only 0.97. Normally I would not recommend a trade which this type of reward/risk ratio but since we've combined this trade with another, both going the same direction I think the trade is safer than explained from the ratio.

If these entry points are reached within the next couple of weeks we should be on our way to very good gains.

Potential channel breakout on the AUDCAD

The AUDCAD is currently setting up in a very nice uptrend channel which started towards the end of November at around the 0.7900 levels and is currently trading at the 0.8500 levels.



In the best channel break situations you would want an uptrend channel to be broken down and a downtrend channel to be broken up. In this situation we are dealing with an uptrend channel which is close to being broken at around the 0.8400 levels. If the break is to take place and we break below .8400, we can look at various take profit targets and areas to add to our positions. Those could be setup by using Fibonacci numbers as a guide drawn from the bottom of the spike on Oct 10th, 2008 and the latest high from January 5th, 2009. The targets would be 0.8320, 0.8097, 0.7912, and 0.7741. Let's monitor the situation tonight and over the next couple of days to see what happens.

Can the AUDCAD go higher?

A few weeks ago I went long the AUDCAD with a couple of trades.  Unfortunately I did not Blog on those trades, but as I was reviewing all of my open trades this morning I figured why not Blog on the analysis I did on this trade as I worked on deciding if I should hold on to the positions or take my gains and walk away.  Stated differently: would the AUDCAD be a good buy today and can it go any higher?

The first analysis I did was on the trend line break.  As you can see from the chart above , the break is very solid, we are currently trading at around 0.8450, the take profit target of the trend line break is close to .9540 and at this point our stop loss should be around the trend line break or .8010, therefore we have a 1090 pips profit potential for a risk of 440 or a reward/risk ratio of 2.48.  This is an excellent reward/risk ratio in my book, I usually avoid any trades below 1.50 and anything above 2 I consider very good but you should definitly have you own Reward/Risk ratio rules based on your risk tolerance.  (Great topic for another post!)

My secondary analysis was on the RSI levels.  The RSI 14 is at 47.09 (Black line) and RSI 3 is at 80.77 (Blue Line).  From these numbers we can assume that the pair does still have room to go up.  The rule of thumb for RSI 14 is usually that the pair is overbought at when the RIS 14 is close to the 70 levels, which we are still far from.  For RSI 3, which I normally use when trading on shorter timeframes, we can easily go to the 90 levels and still trade higher so we do not have to worry about that one showing a sign of an overbought pair just yet.

Based on the above two trade analysis, I think the trade is safe to keep. (or enter today)  As a final analyss, I would also like to look into the Fibonacci numbers to see if I should add to my positions.  As you can see from the chart below, we've touched on the 38.2 levels twice already, I think the best entry point for additonal positions on this trade would be right above that level and eventually above the 61.8 level as well. 

To sum it all up, we have 1 trade and 2 potential trades to take on the AUDCAD. 

The current trade is a BUY@.8450.

First add-on trade is a BUY@.8495.

Second add-on trade is a BUY@.9010.

Are good times for commodity currencies coming soon?

It is safe to say that most of us agree that the economy moves in cycles.  Although sometimes differently labeled those cycles are: Peak, Recession, Trough, Expansion and repeat.  Last week, the National Bureau of Economic Research declared that the U.S. has been in a recession for the past year.  (National Economic Trends 12/08) By doing a little bit of online research or remembering economics classes, you will find that historically, the best investments during a recession are in commodities, so there lies the question: Is this the time to go long commodity currencies?  Looking at the AUDUSD and USACAD weekly charts, it sure does seem like it and here is why.

If we look at the AUDUSD chart below, the pair had a beautiful run up from .4773 in April 2001 to .9847 in July 2008 which was followed with a decline to .6326 in October 2008.  That's right, it took the Aussie 4 months to give back close to 60% of its gains against the Dollar in over 7 years.  Now that the decline has slowed and the pair has been ranging for the past 8 weeks, I believe we have a very good opportunity for a reversal and a move up which will coincide with commodity strenght if the theory of commodities doing well in U.S recessions holds true.  The green line on the chart below represents a DeMark break or a trend-reversal trigger, it will most likely take another couple of weeks before the trade is ready for our investment but we will keep an eye on the pair over the next few weeks and see when the time will come.  As it stands today, the BUY opportunity will come at around 0.6820.

The Canadian chart shows a very similar story, decline from 1.6196 in December 2001 to .9056 November 2007 to just about a 56% retracement in October 2008 (to around 1.3015) and now a question of the existence of a sell opportunity?  The red line in the chart below indicates a point of trend reversal, unlike the Aussie, the Canadian seems to be ready for its reversal now.  The prime entry level for the pair is a short at 1.2450.