Lately the theme that I have seen in the market has been a mild willingness to take on risk, except when looking at GBPUSD. On a day chart the pair still remains in its down trend although it is currently off of its recent lows. It has found support near 1.4870, which had been acting as resistance about this time last year. The pair also received some support by 1.50 being a sentimental level.

If you believe that risk aversion is just around the corner and the market is just taking a breather, then GBPUSD offers a good opportunity to profit from this. If the pair were to break past the recent lows near 1.4815 there is little in the way of previous support until 1.4400 and then 1.4100 below that.

There a plenty of fundamental reasons that you would want to short GBPUSD as well, with the BoE’s continual quantitative easing efforts being the foremost reason. There is also the lack of a recovery in their housing market. Creeping inflation, which normally strengthens a currency is a hindrance in this situation, since there has been little growth to compensate, setting the stage for a stagflation scenario.

Fundamentally, you have to ask yourself the question: Is England better off than it was a year ago? If no, then there is good reason to short GBPUSD.

Alternatively, since both GBP and AUD are risk based currencies you can look to buy the fundamentally stronger one, AUD and sell the weaker one GBP. In a scenario of risk appetite the AUD would gain strength faster than the GBP and in risk aversion the GBP would fall faster than AUD. Remember that being a low liquidity pair gives GBPAUD a higher spread and more volatility, not for the faint of heart.

GBPUSD has established a slightly down trending range over the last seven months, and it currently sits as the bottom of that range. The markets look to be increasing the risk that they are willing to take on, and recent economic data, particularly last week’s unemployment number, has been stronger than expected. For now the pair will at least return to the midpoint of the descending range.

This week GBPUSD has been in a loose range this week, in between 1.5570 and 1.5715. The bias has been to the upside so watch for a break above the range. On that break, or even before, look to buy the pair for a long term trade with a stop loss below this week’s lows. The minimum target is 1.60 so you are going for around 400 pips.  This is a long term trade so be loose with it but don’t forget to secure some profit.

The US retail sales data was postponed until tomorrow, which means that we get that on top of consumer sentiment on the Friday of a rather sideways week of trading with a bias toward the upside. Last week’s unemployment number was not as bad as the market made it seem, in fact they were actually very positive. So, look for opportunities to buy the risky currencies against the dollar and yen, especially around the US open.

AUDJPY poses a good opportunity to play this sentiment. There is some short terms support near 79.60 which present a good buying point, but be weary around the 80.40 level, as it could pose some resistance. Additionally, the pair now trades above its down trending highs that began in mid January.

Selected Excerpt:

USDCAD broke near the predicted price of 1.0695 five pips higher at 1.0700. After the break, it head up towards the resistance points near 1.0725 and 1.0745. USDCAD then bounced just above the zone near 1.0745 and started a downwards range. At the moment, the price is at the support zone that has been created around 1.0650. If it breaks this level, look for a move down to support at 1.0605.

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Today is shaping up to be a strong positive day for US equities. News of international bailouts and strong earnings reports has boosted the morale of the market. However, the markets have yet to break through their two month long downtrend.

Looking specifically at EURUSD, the pair has yet to even break out of the downtrend that began in the middle of January.  What does this mean for traders?  Depending on your perspective you could be looking at two different short to medium term trades, or just one.

They are both longs, the first would be to follow the current upward momentum, taking profit when the pair reached the current down trending tops.  This would be worth close to 100 pips; however there is not a good stop loss for at least 200 pips, making the risk to reward ration less than appetizing. Conversely, a break of the down trending tops can be traded, looking to make a return to the higher down trending tops.  This trade offers a much stronger risk to reward ratio, using the lower resistance as new support. Both of these trades are counter trend, looking to play technical corrections, as the sentiment of the market ebbs and flows.

However, you can also look to trade both of these by going long EURUSD at market and simply move your stop loss to break even or a small profit, and then play out the other trade.

EURUSD currently sits at 1.3780

Boxers or Briefs?

If you look anywhere on the internet, there are so many people that tell you how to trade. Whether it’s with indicators, trading naked, or using the positions of Jupiter and Sirius to determine the tidal flows of Neptune, you are constantly bombarded with articles or PDFs telling you how to trade. Some people make it seem easy; some people make it look hard. In this article, you will see that it isn’t necessarily hard to learn how to trade, but that the application of that knowledge is. This article will also deal specifically with mostly price action based trading. No astrology or chicken bones here. Most of the methods described here can be learned elsewhere, but that isn’t the point. The point is to show you in what order to learn these things. In order to describe the best way to learn how to trade, it’s time to look at a super awesome analogy: clothes.

In order to start getting dressed, there is one important set of garments you need to put on before the rest of your clothes. These are your undies. The cool trading method that underwear is supposed to represent is support and resistance. If you don’t get the whole connection between support and underwear, you need to talk to Michael Jordan. If you don’t get the lame underwear commercial reference there, I’m sorry. I give up.

Support and resistance levels are zones in the markets where price action occurs. These are places where the price either bounces or breaks depending on the strength of buyers and sellers in the market. A bounce occurs when the price reaches a level, touches it, and moves the opposite direction. A break occurs when the price reaches a level, touches it (tests it) a few times, and then continues in its original direction through the level. By the way, support is below the current price, resistance is above, or, support levels are near the valleys, resistance levels are near the peaks.

The reason these levels are so important in Forex is that all price action occurs along or around these levels. All of the moves in the market either start at a support or resistance point, or after consolidation, break through these points. A few things to note about support and resistance (from now on abbreviated as SR) are that these levels aren’t specific prices, they are more like zones, and that some SR levels are stronger or weaker than others, but that’s for a later day.

SR levels are one of the most important aspects of trading. Now that you know the market from your naked trading, you can start trading these SR levels. You know how the market reacts in certain conditions or certain times of day. Now, using that information, you can look for SR levels and try to base your trading around these zones. For example, you know from your naked days that during the shift from the Asian session into the Euro session, the EURJPY makes a big move either way. The current price is 130.05. You see a support level at 127.50 and a resistance level at 131.75. Once the shift occurs, the price starts moving down. There is no other support level except the one that you found before. There is a pretty good chance that EURJPY is going to move to your support level. Congrats! You are making demo money! That’s super fun, right?

So basically, SR trading is the means with which to apply the knowledge you gained from trading naked. Also, you will continue to learn how the market acts by looking at SR. These levels open up a whole new realm of market activity for you to explore and learn about.

To view POYTC Part 1, click here.

Selected Excerpt

USDCAD is about to break out of the symmetrical triangle that has developed on the one hour chart. Look for the break to occur somewhere around 1.0695. After the break, look for the price to enter the resistance zones around 1.0725 and 1.0745. Expect some consolidation or even a range between the two zones, but eventually look for the price to break 1.0745 and head up towards 1.0810. When there, watch out for more consolidation and then a break towards 1.0855.

For the full article, please view the PDF here.

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