EUR/USD swing short and my take on where risk aversion may creep back by looking at the ceiling in the Dow.

Normally, yes. But when it comes to trying to identify a potential short-sell in the USD/CHF following the week of cage-rattling the SNB put on traders, maybe not so clear-cut.

The daily USD/CHF has formed a Falling Wedge chart pattern. This trending pattern has reached the level a correction swing short could be taken...but that assumes that the SNB's out of tricks.

Chart pattern alert courtesy of Autochartist

 

The downtrend line of the chart pattern is overlapping with the 34 period EMA low - together these form an excellent level to park a limit order to sell at - which would capitalize on a resumption of the trend.

..becase the Swiss franc's rally has corrected the downtrend on both the USD/CHF and EUR/CHF to a degree that aggressive traders (who DON'T believe that the SNB can slow the strengthening of the franc) can short sell into area that prices action is approaching between the 20 period SMA and 34 period EMA low.

This view of the daily EUR/CHF shows the correction higher the SNB triggered with the "peg-threat". The bounce has nearly reached the 34 period EMA low as well as the downtrend line of the Falling Wedge chart pattern.

Chart pattern alert courtesy of Autochartist

 

So do you believe the SNB can follow-through? Then don't take this trade. However if you think the SNB will be as effective as the BOJ, the swing short is your trigger.

 

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Yet again the Swiss National Bank is back. This time with a single word that rocked currencies early Thursday morning: peg. The SNB has been trying to slow the strength of the franc which has not been an easy task considering the mood of the markets worldwide. None-the-less SNB Vice Pres. Thomas Jordan came out today on a mission and one that traders likely did not see coming…

A peg is a fixed exchange rate and that is exactly what Thomas Jordan suggested that the SNB is considering: A temporary peg to the euro. A peg is used to stabilize a currency against the currency its pegged to - in this case the euro. It’s also seen as an effective way to control inflation. The main issue most economists have with a peg involves the balance of trade. Consider that with a peg (in this case a temporary peg) a trade deficit will actually increase the demand of the foreign currency and in effect weaken the domestic currency - and this is precisely what the SNB wants to see. In that light, it makes perfect sense.

Pegging the franc to the euro - which has trended consistently higher against the euro (until today’s pop) - would be yet another action taken by the SNB in an effort to rein in the franc.

But really, is there anything that can be done to weaken the franc. I’ve always thought it is far easier to talk up a weak currency than it is to weaken a strong one. The continued eurozone concerns, the volatility in the U.S. equities market, and a global economic slowdown punctuated by weaker commodities prices have all drove traders and investors to the franc (and Japanese Yen).

The initially burst of franc weakness has now began to pullback. Whether or not this is profit taking on the rally in the USD/CHF and EUR/CHF will remain to be seen. Since the statement has now put the thought of a peg into market participants, new lows in these pairs may not be seen and perhaps that’s just what the SNB wanted, for now.

 

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The U.S. Dollar has benefited from the U.S. equities sell-off. The stronger dollar today has in turn been a bearish factor on commodities - and along with the weakness in equities - creates a one-two punch for commodities…that’s normally the case. But crude oil, after dipping to 75.71, has rallied back above the 80 level and it up three points today.

With that strength in the crude today a trader could expect some resiliency in the aussie and kiwi. Not that case. How about the loonie? It’s rallying towards parity, again.

What’s the message of the market here on a week that has brought more volatility than I have seen in my twenty-years of market analysis?

 

The fear continues to be debt and the real story today in my opinion in the Societe Generale. SocGen has spent the day denying rumors of the giant being on the verge of insolvency. The run on banks in Europe has indeed crossed the pond and is hitting the U.S.

 

As a forex trader that means that means that I must listen to closely to news out of France and if Sarkozy says anything, I’m all ears. He can move markets now. Germany and France have held the eurozone together and if France is in trouble, the picture looks gloomier than any Italian bank. Another AAA credit rating is at risk and that’s France’s near-term problem.

 

In the meanwhile, the BOJ and SNB must be disheartened that their ill-timed interventions have done little more than act as a speed bump on their respective trends. Both currencies in this environment are markedly higher - to no one’s surprise.

 

In the meanwhile, the weakness I expected in the GBP/USD has panned out. I did not get the bounce I *hoped* for but the 60-minute swing short I outlined capitalized on the weakness which is now attempting to test buyer’s resolve at 1.6100. Wait for a correction higher if you’re flat. The 30-minute 1.6185 level and the 1.6220 level on the 60-minute chart create a shorting zone that can offer a trend-following opportunity. Be very cautious however of momentum above 1.6620.

 

After the sharp sell-off in both the AUD/USD and NZD/USD - while there is high volatility - there is signs of some stabilization at the current levels. The 0.8000 level in the NZD/USD and the parity level in the AUD/USD are triggering strong bounces and that shows that the bulls are willing to step in at the major psychological levels.

 

Putting price action in perspective of Fibonacci level, pivots, recent highs and lows, and psychological levels are all part a of a chartist's typical day. But what about price movement ranges and volatility. It's difficult to gauge without sufficient historical price data but that's where I use the PowerStats plug-in on my MT4.*

* By the way, most brokers that offer Autochartist and MT4 will offer this study to their clients free. You can see a list here. InterbankFX does have it on their demo platform as well which is the version I am using here.

This view of the 15-minute GBP/USD shows the support and resistance levels calculated by Price Movement Range and forecasts expected levels 15, 30, 60, 240, and 1440 minutes out.

Price Movement Range Forecast calculated by Autochartist PowerStats.

Notice that the current resistance has reached (and exhausted) at not only the 60-minute resistance forecast but that this level is overlapping with the 1.6400 major psychological level. Despite the momentum of this rally, the cable has resistance still waiting overhead at between 1.6438 and 1.6429 therefore the climb above the "00" could be a slippery slope for the bulls. None-the-less a short-term time frame like the five-minute chart could be an effective way to intraday trade the momentum.

 

The sideways range on the cable may have bullish sentiment and momentum on it's side which increases the likelihood for continued movement higher as seen on the daily time frame. Both the steady stream of green GraB canldes and the slight upward angle to the 34EMA Wave would offer a more bullish Directional Bias to the pair but the overall picture is still very volatile. 

The recent price action on the 60-minute GBP/USD shows just how much the bulls are willing to step in as support levels.

The 60-minute GBP/USD has broken lower through the support of the Triangle chart pattern but there has not been enough bearish momentum to push prices lower through the lows 1.6259 and 1.6263.

Chart pattern alert courtesy of Autochartist.

Since the market phase reflects a more sideways, volatile market on the 60-minute chart, the oversold Stochastics reading (21, 1, 3) was a strong confirmation of a bottom and a reason to perhaps realize some profits after the Triangle breakdown triggered a momentum short.

Also notice that this intraday chart pattern is near a Triangle breakout as prices are poised to trade through the downtrend line of the pattern triggering a momentum buy.

The AUD/CAD has recently rolled over on the daily time frame and with the bearish sentiment and momentum, may be rady to take on a more bearish Directional Bias. If so, this opens up the 240-minute swing short entry.

The 240-minute time frame is valid and will be a trend-following entry short now that the daily time frame is reflecting a bearish Directional Bias. The PowerStats Price Movement Forecast on the chart confirms resistance at the 34EMA Wave as resistance: both the top and bottom lines.

Price Movement Range Forecast calculated by Autochartist PowerStats.

 

The set up will seek to capitalize on the continued loonie strength over the aussie dollar. With the RBA and BOC on opposite ends of the rate spectruem (RBA dovish and BOC hawkish) this trend could persist.

With the pair recently dipping below the 1.0200 major psychological level, look to the "00" overhead for continued selling pressure as the shorter-term 15, 30, and 60-minute time frames are moving sideways.

For now, the dollar-canada is holding on to its intraday uptrend as crude tests 96.00 after moving lower towards 95.00. The loonie initially weakened as at the USD/CAD rallied to the 34EMA Wave on the daily chart (triggering a swing short by the way) as the risk aversion swept through the market.

The recent price action is showing some resistance at the 0.9600 major psychological level as traders try to determine what's next for the USD/CAD: Follow the near-term intraday strength back above the "00" of maintain resistance at this same level and follow the overall daily Directional Bias which is bearish.

The 30-minute chart has formed a Channel Up chart pattern as the intraday uptrend has carried the USD/CAD higher on early session crude oil weakness and greenback strength. The pattern is testing the support of the uptrend line as the 0.9600 major psychological level has been broken.

Chart pattern alert courtesy of Autochartist.

 

With the weak low (one-bar) Initial Trend reading and a flattening 34EMA Wave the uptrend could be showing signs of a transition and this opens the door to both a pattern reversal (which has triggered) AND a trend reversal if the 34 period EMA low and the 0.9580 minor psychological level can be broken.

The EUR/USD confounded euro naysers and traders expecting inevitable doom (they still may be prived right) as it the pair bounced back up through the 1.4000 major psychological level.

The sideways market phase that the intraday time frames are consolidating into shows just how much near-term hesitation there is in the market as traders defy the negative news coming from the Europe in the face of what seems to be endless sovereign debt problems from the PIIGS countries.

 

The 30-minute chart has formed a large Triangle chart pattern as the daily chart rallied has re-entered the range and stalled. Prices are currently finding support above 1.4100 after the U.S. Dollar sold off after the possibility of QE3 began to become discounted into the market.

Chart pattern alert courtesy of Autochartist.

 

This consolidation can be set up as a a momentum entry and would trigger as prices either continue higher with the recent bullishness through the downtrend line resistance of the pattern or head lower as the negative news outweighs the optimism in the pair.

The Initial Trend of the pattern alert along with the flat 34EMA Wave confirm a low volatility sideways range.

The challenge with this pattern is that it is still trading with the wider sections Triangle and not the narrows. Prices will have to rally or sell off significantly before this particular pattern is broken. Therefore consider keeping an eye on this and the 15-minute time frame for a smaller Triangle formation as well.

The EUR/JPY has begun to show signs of fatigue. The 60-minute chart has begun to congest and although this not necessarily mean the market is going to reverse it could suggest further volatility ahead. The daily chart reflects that the range highs are waiting at between 117.50 and 118.00 which means that the current resistance at 116.90 could be near-term. The small, symmetrical Triangle pattern could set up a momentum opportunity for another push higher…or lower. But since the momentum that got the pair to this point has been bullish, there is will a slight bias to a continuation.

With the formation of the small Triangle pattern, the EUR/JPY may be indicating a shift in the market trend as this could be the first glimpse at congestion. Regardless, be cautious of being too bearish until the uptrend line of the pattern is broken which would include at break through 116.00. The intraday trend reversal could come as 117.50 is proving to be more difficult for the bulls to trade and establish support above.

Chart pattern alert courtesy of Autochartist.

 

The daily USD/CAD has broken sharply lower and broken the shallow uptrend of the pair simultaneously breaking throwing the pair into a volatile, sideways range.

The daily USD/CAD has recently pierced the uptrend line support of a very short Triangle pattern. This set up exemplifies why looking at the individual pieces of a pattern is so important. If the pattern itself is aggressive because of its brief development time, consider the trade valid because fo the uptrend line breakdown coupled with the "00" break.

Chart pattern alert courtesy of Autochartist.

 

The breakdown of the Triangle’s uptrend line comes as prices pierce 0.9730 and accelerate lower through the “00″. Currently prices are ready to test 0.9600 so do not automatically assume that the bearish sentiment and momentum guarantee a break here as well. Instead be proactive, look to protect profits and place a trailing stop with the expectation of a near-term bounce.

 

 

The  recent intraday movement on the USD/CHF embodies the confusion the pair is in a risk-appetite seems to be making a comeback. Since the pair has been a safe haven, any move higher in the USD/CHF would reflects traders will to take on more risk and this would be seen in a stronger EUR/USD and likely a stronger Dow Jones Industrial Average as well.

Near-term traders and investors seem willing to take on more risk but before assuming that risk appetite is back, look at the USD/CHF and confirm this sentiment with a longer-term intraday reversal on the 240-minute time frame. The downtrend line and 34 period EMA high are overlapping to create what could be a swing short if prices can rally higher into the 0.8380 minor psychological level.

Chart pattern courtesy of Autochartist.

 

The Falling Wedge downtrend line resistance is lining up along the 34EMA Wave which now means that if price can rally higher through 0.8388 then there is a potential pattern and trend reversal underway.

The recent breakout above the downtrend line resistance of the Falling Wedge is showing that near-term the franc is losing ground to the dollar. The break higher is a pure momentum play that doesn’t yet qualify as a all-out trend reversal.

The 240-minute USD/CHF has reversed the Falling Wedge pattern as prices have broken the downtrend line resistance. However the 0.8550 level which was prior resistance and a near-term ceiling will present a challenge to swissy bulls trying to reverse a strong downtrend in the USD/CHF in the midst of tremendous franc strength as it remains a safe haven currency.

Chart pattern courtesy of Autochartist.

 

The pattern reversal could prove to be short-lived unless the  pair can find buying momentum above the mid-June highs at 0.8550; this level then sets up not only a profit target but a fade (short sell) entry as well.

The 240-minute USD/CAD which had been slowly wandering lower in a shallow downtrend has suddenly and sharply broken higher in what has become a very volatile 240-minute time frame. The confusion over the direction in oil and demand from China and a slower-than-expected U.S. recovery has kept the commodity below $100/bbl. and this has continued to pressure the loonie.

Intraday the 240-minute USD/CAD has broken higher - which is a trend following entry since the daily time frame is in a shallow uptrend. The reversal of the Flag pattern confirms that the Flag was indeed a "Bull Flag" and therefore a short-term reversal set up.

Chart pattern courtesy of Autochartist.

 

The breakout comes as price action has rallied through the downtrend line resistance of the Flag pattern which is a pattern that has many of the same characteristics as a Channel but has a slight bias to reversing rather than following the trend – like a Channel.

The daily USD/CAD has broken through the downtrend line resistance of the Channel Down pattern but has not followed-through higher. The trend is up on the pair however it seems that the bulls do not have enough momentum to carry the dollar higher over the loonie. The upper trendline continues to be the battleground for traders. Keep an eye on the 95.00 level in crude as this could strengthen the loonie while the greenback slips below 75.00.

The failure for upside follow-through comes as the pair drops back below the 0.9800 level still has enough selling pressure to contain the bullish momentum. Despite the shallow uptrend, there is simply not enough bullish momentum to push to new highs AND accelerate. Look for continued 34EMA Wave support however the angle does not instill strong confidence in the bulls ability to tackle the 0.9900 level.

Chart pattern courtesy of Autochartist.

The daily USD/JPY has formed a large Descending Triangle as the pair trades lower to 80.00. The price action is being squeezed by the narrows of the pattern as the downtrend line support is sloping down at just below 81.00.

The daily USD/JPY has been pressuring the 80.00 decade level without success. This level is strong and major psychological level support. The pair is likely to be trade to the upside unless the the Triangle support and 80.00 are broken. Don't underestimate the possibility for continued sideways movement.

Chart pattern courtesy of Autochartist.

 

 

With the major psychological levels holding the pair in a 100 pip range, the 80.00 decade level becomes the support that the bears will have to break and create resistance at in order to see a more sustain move lower. Breaks of the “00″ have not yielded longer-term follow-through since the buying support has consistently carried the pair through 80.00.

Much of the reason for the lack of follow-through is likely the wide, volatile, distribution market phase that the daily time frame is currently in. Distribution is characterized by exhaustion just recent, key highs and lows making fades a popular entry strategy. Consider this before taking a pattern break on the daily USD/JPY.

The daily EUR/USD continues to be squeezed by the confusion and concern of the on-going Greek debt issues. How this problem will play out is of concern for all markets, not just the forex which means headlines will likely go back and forth day to day as details emerge regarding how the Greeks, ECB, EU, and IMF are going to avoid a Greek default. Do not underestimate the German and French government involvement - without their participation and approval the Greek problem is not likely to have a happy ending.

The EUR/USD is congesting as prices are slowly begin to narrow within the Triangle pattern. The likelihood for sustained follow-through higher to lower through the pattern is going to be limited by the exhaustion that typifies this market trend and the 1.4700 and 1.4100 psychological levels.

Chart pattern courtesy of Autochartist.

 

Expect continued congestion – which translates into fading the ceiling and floor of this pattern rather than waiting for a breakout.

The Rising Wedge on the 240-minute EUR/USD has reversed as prices are driving lower through the uptrend line of the chart pattern. This move lower breaks a small wedge that has formed as a larger Channel Up had formed, this therefore, could be a a correction with the uptrend which is still valid based upon the angle and support of the 34EMA Wave.

The EUR/USD is trending higher on the 240-minute time frame. The Rising Wedge pattern that has formed and now broken lower ushering in a pullback that could not only test the 1.4600 major psychological level and the 34EMA Wave but the uptrend as well.

Chart pattern courtesy of Autochartist.

 

Treat his move as a CORRECTION and look for prices to find support within the 34EMA Wave and trigger a swing BUY, possibly as buying support build at and above the 1.4600 major psychological level.

The daily NZD/USD has formed a Channel Up pattern and there are three ways to potentially trade this pair of uptrend lines.

The uptrend on the NZD/USD continues to trend higher with the support of a "twelve to two o'clock" 34EMA Wave. The Channel Up pattern is currently trading near the upper trendline but if price fall back into the range, there is a chance that the pair could congest within this wide pattern.

Chart pattern courtesy of Autochartist.

 

First consider the trend following entries, especially if the trend is strong. In this case the uptrend is shallow but confirmed. The trend following entries would be either a breakout through the uptrend line resistance or a bounce off the uptrend line support. The latter is a lower risk entry since the validity of the pattern extends to the lower uptrend line. If there is a break down through the lower uptrend line, this would trigger the third entry which is the trend reversal. Again focus on the trend following and if price exhaust the the top of the pattern, look for a swing on a move lower off support.

I'm not convinced that a breakout entry offers the best risk/reward here as the 1.4700 major psychological level is likely to be an upside obstacle for bullish momentum.

The 30-minute EUR/USD has broken through the uptrend line resistance as the euro gains on the approval of Green bond rollovers and German Chancellor Merkel's continued optimism. Rolling over the debt will ease Greece's near-term funding problems and the market sees this as a means to get through the next few years. 

Chart pattern courtesy of Autochartist.

 

The problem with the breakout is that the validity for the trade extends lower to the uptrend line support which is current jsut above the 34 period EMA high - also a buy trigger - and this trendline is wiating at 1.4650, also major psychological level.

The lower uptrend line  and 1.4650 are both support and could trigger a swing buy which relies on a correction. The breakout is the "bird in the hand" while the swing buy is "two in the bush". The latter entry offers more upside and less risk to the entry's validity but also runs the risk of not being reached if prices can rally to 1.4700 and find buying momentum above it.

 

The daily USD/CHF breakdown on the daily time frame has shown that there is enough bearish Directional Bias to trade through the lower trendline of the Falling Wedge pattern. The chances that the pattern will continue lower depend upon whether or not sellers are willing to pressure the 0.8300 major psychological level which – for now – they are not willing to do.

The daily swissy has continued to be the safe haven currency and the downtrend reflects that momentum lower as the franc continues to strengthen against the dollar. The break through the lower trendline of the Falling Wedge would normally be a bearish event ushering more downside however the lack of acceleration shows a chance that prices could begin to congest. 

Chart pattern courtesy of Autochartist.

 

The fact that prices have bounces from the “00″ shows near-term bearish exhaustion. Add to that the lack of acceleration and this could suggest that the USD/CHF is ready for some sideways chop.

The franc continued status as the safe haven currency is pushing the USD/CHF lower still. The Falling Wedge is close to be broken as prices sink through the downtrend line support of the chart pattern.

The daily USD/CHF shows just how dominant the franc continues to be over the dollar. The downtrend is close to triggering a trending pattern continuation short sell as the downtrend accerlerates.

Chart pattern alert courtesy of Autochartist.

 

The breakdown of the pattern triggered a continuation entry which relies on continued momentum below the 0.8400 level. My issue with any continuation entry of a trending pattern is that the risk/reward is usually not as good as a corrective entry (swing trade).

It's very important to pay attention to HOW prices behave before, during, and after any "00" level. In this case what's needed is ACCELERATION through the 0.8400 level. 

The PowerStats Price Movement Range offers insight into volatility and the rhythm of individual forex pairs.

PowerStats graphs courtesy of Autochartist.

 

The challenge in waiting for a corrective entry is that the 34 period EMA low and the upper downtrend line resistance are quite far away and therefore not a near-term entry that has proximity. Recognizing key levels on a chart is important, as is recognizing how likely it is that the levels will be reached.

Angel Merkel, German Chancellor Merkel has a big mic and podium from which her words echo globally.

With her reassurance that the euro is stable, that that issues in Europe are not a weak currency but debt, she was able to propel the euro higher as investors rally the single currency against the greenback.

The 240-minute EUR/USD has formed both a Channel Up and Rising Wedge pattern. This could be initially seen as a trend following set up but remember that the concern in the region is likely to create tremendous volatility and this same pattern can also set up a pattern and potential trend reversal short sell. 

Chart pattern courtesy of Autochartist.

 

The Channel Up support lines up with the 34 period EMA high which would be a swing buy trigger. Both these level confirm support on a correction lower. If the uptrend line is broken, remember that this would trigger a pattern break but not necessarily a trend break as the 34 period EMA low validates the mark up trend.

The consolidation could be ready for some BEARISH momentum as the USD/JPY seems poised to move lower through the uptrend line support of a large, symmetrical triangle. This pattern has contained the pair through April and May and now it seems June will be when the yen has the right environment to strengthen against the dollar.

 

The daily USD/JPY has consolidated int a sideways market trend setting up a momentum play if the price action gain selling momentum through the uptrend line of the pattern.

Chart pattern courtesy of Autochartist.

 

With the Dow Jones breaking below 12,400 and the U.S. Dollar Index losing footing at 74.00, look for a test of 80.00 to potentially attract the bearish momentum the USD/JPY needs for a pattern breakdown. Use an MACD Histogram to confirm the move lower with a negative reading.