A-B-C-D Trade - page 52
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We now understand what is driving market. Breaking news certifying U.K. banks' liquidity levels came out. This drove EURO pairs down including EUR/GBP.
Caution.
While market awaiting BOJ rate decision, more specifically any measures on easing, which is apparent sentiment. Again, we, as technical analysis traders just watch out for timing of such announcements and don't trade the rumors.
Meanwhile, we highlight USD/CHF from previous day. We mentioned and kept the first plot since pair was respecting its fibs quite well.
USD/CHF 5-Min Chart
Retrace Fibs (blue)
High = Sept 23rd 08:30 .9899
Low = Sept 24th 14:00 .9806
138.2% = .9733
161.8% = .9705
Retrace Fibs (black)
High = Oct 4th 07:15 .9789
Low = 08:00 .9735
138.2% = .9714
161.8% = .9702
ABCD (red)
A = Oct 4th 07:15 high .9789
B = 08:05 low .9735
C = 09:00 high .9771 (61.8 retrace of A-B)
Asian Low = .9744
FE 100 = .9717
FE 127 = .9702
FE 161.8 = .9684
Entry open of 09:45 candle price .9738
Target per above at the FE 127 of .9702 since we have other fibs there. Pivot C is too far for our S/L and we must select a retracement fib of A-B. Using just above the 38.2% of .9756 would make this risk/reward 22/33.
(.9756 + spread & cushion = .9760 S/L)
We waited for this entry time/price due to data through 09:00. Waiting for pair pivot was instrumental in determining target, of course. It pivoted to form Point C right at the blue 138.2% fib.
We didn't advocate a bounce trade there as it was not the first approach, which is the highest probability.
However, we do point out that the Point C pivot at the 61.8% was a good place for an early entry. That trade can even exit just above Point B for a nice profit. The forex freedom bars indicator was showing predominantly down trend.
Much like a few days ago, we sensed some "flight to safety". This time it was due in part to the televised news about terrorist threats in Europe. Much like the Greek riots, the media can play a large role in market psychology. The Swiss Franc has long been a safe haven vehicle, along with gold.
We kept an eye on USD/CHF, as we did the last time, and had alarms set near breakout point. We still need a plan as opposed to just jumping in.
More later on the Euro pairs, etc. Australia also has a rate decision soon.
USD/JPY 15-min chart plots a retracement set of fibs from Oct 4th Asian High of 83.86 to Euro session low of 83.18. This came dangerously close to the low price after intervention of 83.15. Pre-intervention price was 82.87.
The aforementioned 1-Hour Doji candle at 06:00 did not spur an immediate reversal. Could have been attributed to breaking news of non-scheduled banking news or European terrorist warning.
Today Oct 5th, pair bounced off the 61.8% fib 83.60 and was trapped between that price and 38.2% of 83.44, ahead of BOJ monetary news from its meeting due today. If aggressive measures are put is place for easing, look for USDJPY to go up accordingly.
EUR/JPY 5-min chart recounts parameters mentioned yesterday which had furthest regular extension 161.8 at 114.19. We now add the ABC plot:
A = 06:30 high 114.83
B = 07:45 low 114.19 (same as Asian Low)
C = 08:00 high 114.37
FE 100 = 113.75 (hit)
This was not considered tradable due to staying on sidelines as had data through 09:00. Pair has been channeling since reaction to 09:00 data yesterday, ahead of BOJ.
***
Today, Oct 5th, we have data 07:15 through 09:00, and then again at 14:00. Big item is BOJ.
Other high-impact data this week are GBP and EUR rate decisions on Oct 7th and U.S. Non-Farm Payrolls Oct 8th..
Watch the EUR/USD Daily chart, as the September uptrend clearly presents a trend line/channel break opportunity in near future.
Australia, against most forecast, kept interest rate unchanged. AUD lost ground across the board.
BOJ cuts rates and on aggressive path for easing/stimulus.
Oct 5th Review
This day littered with data.
03:30 Australia Rate Decision surprised and held rate.
04:40 BOJ Rate Cut.
07:15 CHF data as forecast
08:00 & 09:00 EURO data
08:30 GBP data
14:00 US data
Let's review EUR/USD since the Yen will take some time after Japan surprised the market by cutting rate to near zero, Effects did not even last one day.
The attached EUR/USD 5-min chart with arrows representing data. As we can see, it was very difficult to trade from 03:30 through reaction to14:00.
The Asian High was the 138.2% regular extension.
Retrace fib plot (blue) was (see below) Low = Point A and high = Point B.
138.2% = 1.3752
161.8% = 1.3772
261.8% = 1.3855 (hit)
ABC (black)
A = 03:40 low 1.3636
B = 06:30 high 1.3720
C = 07:30 low 1.3680
FE 100 = 1.3764
FE 127 = 1.3787
FE 161.8 = 1.3816 (hit)
FE 236.2 = 1.3878
After pair hit its FE 161.8 of 1.3816 at 13:15 GMT, it pulled back ahead of 14:00 U.S. data. Here is that mini-ABC (red):
A = 12:10 low 1.3761
B = 13:15 high 1.3817
C = 14:25 low 1.3782 (61.8% retrace of A-B)
FE 100 = 1.3839
FE 127 = 1.3855 (target -hit) and same as the 261.8 regular extension fib.
Entry during 14:45 candle should have filled about 1.3825-28.
S/L options included just below 1.3805, which was the high from Oct 3rd and was week’s high thus far at the time. Alternatively, the standard would be to select a retrace fib from A-B, likely the 23.6 or 38.2
Risk/reward about 23/27.
As mentioned, very difficult to squeeze a trade in, but this one presented itself after the 14:00 release.
Bounce trade opportunities off of FE or regular extensions were too close to data times with the exception of 18:00 GMT bounce off of the 261.8 regular extension, which happens to be the exit target for the ABCD trade highlighted above.It happened again at first revisit upon Asian/Tokyo open 23:55 candle.
The problem with the first touch at 18:00 is that the volume was significantly reduced due to being close to the New York close. Had trade been made, a net of 20 pips or slightly more was achieved. It bounced from the FE 127 to the FE 78.6. We also saw it bounce back up a bit off the FE 100, before settling on the FE 78.6.
EUR/JPY – Oct 5th
1) Retrace Fibs Plot (blue) = High of Oct 4th 115.29 to Oct 4th 09:45 low 113.75.
The Japanese interest rate cut, which had no firm release time, was absorbed by the market around 04:40 GMT. We can see spike on all Yen pairs and other majors. Spike bounced off the 78.6% retrace fib and retreated to the 50% end Asian session.
Pair waded through data and chopped around until U.S. data at 14:00. Pair revisited high of plot, probing about 5 pips above, and bounced.
2) Retrace plot (black) for bounce:
Low = 12:00 114.68
High = 18:00 115.34
23.6 = 115.18
38.2 = 115.09
50 = 115.01 (hit)
61.8 = 114.93
Pair retraced just beyond the 50% fib and just now bounced off the wider 78.6% from #1 plot listed above.
The set-up and recognition was easy. Target with highest probability, in our opinion, was the 38.2% retrace fib of 115.09. Stop-loss just above 115.29, with max = 10 pips.
Risk/reward = 10/17
The consideration of most concern was USD/JPY, which at the time (18:00) had made its way back down to 83.20, dangerously close to previous post-intervention level of 83.15.
However, note that USD/JPY made a new post-intervention level of 82.95 during end of euro session at 14:45. This fact was enough for some to trade this bounce.
We'll save additional comments on the Yen intervention for our review of USD/JPY.
USD/JPY – Oct 5t
In a surprise move, Bank of Japan cut rates to zero to .1% (1/10th of 1%). Verbiage included their intention to pour about USD 420 billion into easing measures, such as purchasing government and corporate debt. This is an example of quantitative easing (QE).
Although the market is anticipating QE in the U.S., this move by Japan only strengthens that belief. A rush to the hedge with safe haven commodities such as gold also took place.
As a side note, we always chuckle at the irony of countries dealing with the strength of its currencies. A Japanese company such as Toyota is impacted greatly by a strong Yen. To hedge their exposure, they may elect to purchase futures contracts in USD/JPY. In this case, they would short USD/JPY, in effect making the situation worst by contributing to Yen strength.
The corporations thus must pressure law makers to rectify the situation, or at least attempt to do so. It certainly doesn’t help that Japan’s interest rate was already near zero, making a rate c's effectiveness questionable. The country must then include other QE measures, such as mentioned above.
The U.S. is in a similar situation. As previously mentioned, it seems like all countries desire to weaken their currencies. It is now being called "the currency war". This view may explain Australia's surprise decision to leave rate instead of the anticipated rate increase. More on the AUD later.
In the end, the market did not have confidence in Japan’s maneuver, snapping back on the USD/JPY pair. Forex is the world’s largest market, trading about USD 4 trillion per day. It is impossible for any single entity to manipulate it for very long. Most experts believe a concerted multi-nation effort is the only way there would even be a chance for longer term effectivenes
Attached 15-min chart utilizes retracement fib plot from:
High = Oct 5th 04:30 83.98
Low = Oct 5th 08:15 83.23
138.2% = 82.94 (hit at 82.95 to establish new post-intervention low)
Chart also has red horizontal lines for key support levels of 83.15 and 82.87, as well as a blue horizontal line for the previous Asian High from Oct 4th of 83.86. Notice spike after BOJ decision halted at this area. The 15-min candle refused to close above this.
references include: Gold hits new record after Japan cuts rates Metals Stocks - MarketWatch
USD/CHF – Oct 5t
Attached is the 15-min chart with following fib plots:
1) Retrace plot (blue) from high of Sept 23rd .9899 and low of Oct 4th .9779. This produced a 161.8% regular extension of .9705, the area where USD/JPY pivoted after BOJ rate decision. The 138.2 was top before BOJ.
2) ABC(red) :
A = 07:15 high .9789
B = 08:00 low .9735
C = 09:00 high .9771
FE 236.2 = .9644
3) Retrace plot (Oct 5th black) from
Low = 06:30 .9702
High = 04:30 .9738
161.8 = .9680 (Asian Low hit end Asian)
261.8 = .9644 (hit end Euro session) same as the FE 236.2
Flight to safety saw strengthened CHF, and weaker USD across the board (which is the objective of America).
Surprise U.S. jobs data released at 12:15 GMT. EUR/USD bounced off fib at 1.3878 and now retesting.
If resistance broken, should extend to 138.2% of 1.3909. Next fib 161.8% = 1.3927. Round number respected by market of 1.3900 may provide bounce.
ABC plot places FE 100 = 1.3912.
The bad jobs report also sent UDS/JPY temporarily below pre-intervention price of 82.87, touching a new low of 82.74 before whipsawing back up to resistance of 83.15. Currently nervous pair sits at 82.92.
USD/CHF established a new historic low of .9620. Pair currently sitting between its 138.2% & 161.8% regular extension levels based on Asian Low to High fib retrace plot.
We zoom out on the attached EUR/JPY 5-min chart with following noted:
- Bounce off Asian Low at 03:05/03:25 GMT for 19 gross pips to upside.
- After Euro data at 09:00 & 10:00 pair bounced off Euro session low of 114.68 at 11:05. Gain to upside was to 115.06 for +40 pips gross, prior to surprise U.S. jobs data at 12:15. Bounce hit the 38.2% fib (black), and was a 78.6% retrace from high of Point A of ABC detailed below.
- Euro session low of 114.68 was pivot low from Previous day's Euro session (Oct 5th) at 11:35.
- We can see the spike on 12:15 candle hitting session low again after data released. This interaction with support is likely reason USD/JPY pulled back up at the same time. We can often use this kind of cross-currency pair correlation to our advantage.
- Blue fibs from plot of Oct 4th Asian High 115.29 to Oct 4th Euro Low 113.75. Its 61.8% fib is 114.70, same area of bounce up during Oct 5th Euro session.
- Retrace fib plot (black) from Oct 5th 11:35 low 114.68 to 18:00 high 115.34.
- Oct 5th bounce at 18:00 had already been mentioned on previous post.
- ABC plot to ascertain post Euro data movement:
A = 10:00 high 115.22
B = 10:40 low 114.90
C = 10:50 high 115.02
FE 100 = 114.70 (hit) same as blue 61.8% fib.