Monday, 17 October 2011

Do Currencies Have The Answer?

This week promises to be yet another big one for the markets. There are a whole host of companies reporting and we MAY even get something that doesn't resemble a rumour from European leaders although I suspect that is probably unlikely :). I thought I would take a break from my usual charts and show a number of Currency setups that look very interesting here from a short term perspective. FX is the biggest trading market in the world and no doubt this market proves to be a lead indicator for Equities, Bonds etc etc.

The Euro region is the heart of the crisis. EUR has had a strong run for the pat 2 weeks which seems to have buoyed all risk assets. Interestingly, I am now seeing a potential climatic Ending Diagonal pattern forming. These are great trading patterns that can be used with tight risk for turns in the market.

EUR 60mins:
Note the 3 wave push into overhead resistance with clear bearish divergences. This is a great area to be looking for a bearish turn. Use your own confirmation setups before putting this trade on.

EUR 15mins:
The Ending Diagonal/3 little Indians pattern can be seen more clearly here. This pattern was made notorious by Market Wizard, Linda Bradford Raschke.

AUDUSD is also coming right into a confluence of res from 1.035 to 1.045. There is a downward sloping trendline, the 200 day moving average, and also a previous breakdown level. Also note the Fibs in the next chart. The bigger picture looks to be bullish no doubt but here we can expect a short term turn.

AUDUSD Daily ii:
This chart shows the Fibonacci Fan and the Fibonacci retracement- both also coming into the zone.

DXY Daily:
The USD is now retesting its prior breakout level and base pattern. Note the trend is up on the Daily and coming into the 55ema as well. This is a low risk short term buy trade with stops back into the base. Note this could be an ABC move off the low in the bigger picture. However, you just have to buy support here with this kind of setup.

These are all short term trades only. I see Equities right at the top end of their range namely 1225/1230 S&P500, 6000 DAX, 4250/4300 ASX200 etc. I have no desire to chase longs up here for now and instead will be looking to short early in the week with the right stops and confirmation out of these levels. Arnt we supposed to buy low and sell high?

One final thing. The Australian futures (SPI) have broken out of a clear consolidation pattern today but feels very lacklustre indeed. Could we be looking at a complete 5 wave move off the low now? Note the deep wave 2, the alt with 4, the bearish divergences coming into this breakout, and Wave 1=5 right at the 4300 level. Certainly I am getting nervous up here. Tuesdays are my reversal day and I will be looking for a high.

SPI Day Session 15mins: