If we look at the USD/CAD from Friday we can see there had been a very big shift in sentiment and a dramatic turn has taken place. There is a tweezer bottom/engulfing candle on the 4 hour chart. So how do we trade this now. Two things are highly probable.

1. We will see a retrace of something in the neighbourhood of 50% of the first leg up (maybe even .618 as this is common)

2. And the dramatics of the reversal have likely established at least a short term low.

So an entry point around 1.0090 allows for a stop of 55 pips as we will set our stop at the turning point below at 1.0045. (Remember the total at risk here must be less than 1% of your trading account for good money management), and we will set a limit of 2 times the value of the stop which is 1.0200. This needs to be done in order to get a return on the trade that is greater than the risk. This is proper money management. If we go into profit of greater than 150% of the risk you can move you stop to break even and set your target at a technical level beyond the 200% goal.

Remember, if we are wrong we have managed our risk well and need to reward ourselves for a stop well respected. We have to remain clear on the fact that we traded the most likely outcome of the engulfing candle. We need to be able to do this again the next time this pattern shows up.

Good trading.

Last week I wrote about important levels on the EUR/USD. Not so much about the direction it would go but what the likely targets or outcomes could be if we hit certain levels. Let’s examine what is happening now.

There are two very important levels now on this pair. The recent high at 1.6018 and the recent low just following the high dropping to 1.5282. We are still stuck in the range between those two levels and it is likely we will spend yet another week in that range. Let’s examine this further.

The current triangle scenario is still alive and the way we ended last week may be how we continue through the coming week. So a move up is most likely.

The current target then, is the top of the triangle. If we break though there then the next target will be the record high at 1.6018. I would view any move above that level as limited and that the risk would then change to the downside for a larger correction.

Remember I always try to focus on where the best places are to take risk. Frankly being in the middle of the range is not really the place (At least not for swing trading) However if you really feel you need to trade this than the current risk (for stop) is likely best placed at Friday’s opening price. If you’re momentum or day trading I would expect the best break-out opportunities for now would be to the upside.

Currently for swing trading, I’m on the sidelines until we re-visit either 1.6018 or 1.5282. Waiting for a break or turn at either one of these levels is definitely going to be where reward outstrips risk by a large margin.

Summary and technical levels to watch:

Middle of range - Not a great risk reward for swing trading

Top of triangle trend-line

1.6018 for failure or break and reversal

1.5283 for a break below

These levels will all come into play over the next few days or weeks. Mark them well on your charts as they will continue to be important throughout the next 3 to 24 weeks or more.

What of the GBP/USD?

Ah… now here we are poised to break-out of a range or turn hard around. The current descending trend-line has contained the price action for over 6 months. So this level is very important.

Technically speaking the two levels to watch here are:

The top descending trend-line current price at: 1.9761

And the bottom barrier at 1.9400

Join me on Sunday night at 6:15PDT in our OTR (Online Training Room) this Sunday night for a detailed live interactive review of these two currency pairs

Until then, good trading,

Pierre

This week I maintain the focus on the EUR/USD as we are witnessing a very important level being approached as well as an ever increasing amount of news and rhetoric regarding the value of the Euro versus the USD, especially from Trichet and Bernanke (the central bankers from the EURO Zone and the US).

Both are giving speeches arguing that their respective currencies should be strong so this is sending mixed messages to the market. So consider this: Trichet has been arguing and posturing on his ‘Hawkish’ side for a very long time. For Bernanke it’s a relatively new stance. The G8 Summit it this weekend and there is little doubt the value of oil, the USD, inflation and how this may effect the overall world economy is on the docket. Somebody said it quite well earlyer this week that Trichet may whish he could take a 'Mulligan' on his comments about raising the Euro interest rate in July. Does this mean an immediate downside move is coming? Well… not necessarily what it does mean is that traders are going to continue to be quite reactionary as news comes out from both sides of the Atlantic. Swinging in favour of who made the most ‘Hawkish’ statement last.

Technically we are presented with a very good ‘line-in-the-sand’ that should provide a reasonable place for traders to go Bearish or Bullish next week. On the chart I’ve pointed out where this happens and we are very close to this level at market close on Friday. The statements out of the G8 this weekend will very likely send the pair on a strong move one side or the other Sunday, Monday or Tuesday.

What to watch:

• The most important trend-lines over the last month have been the apparent developing triangle that is now in jeopardy of failing, falling below the 1.5283 barrier which will negate the Triangle theory and open the door to the potential fall to the previous area of resistance around 1.5000 (which in Elliott Wave Theory is also the most probable outcome landing in the previous wave 4 area of one lesser degree).
• A rejection and strong move up from Friday’s low would in turn confirm the Triangle and send the pair up above the opposite trend-line for a re-visit of the record highs. The 100 day moving average would be a good defining line to use for support once above.
• If we get a break down, copy the upper trend-line and move to the bottom of the pattern. This will serve as the first target of the move down. Then in week or two if we break below it; this will serve to provide us an opportunity for a new buy position.
• If the break is up, I would expect a re-test of 1.6020 before finally reversing longer term.

So remember the price point of 1.5283 – It will undoubtedly be an important level next week and also when we revisit this area again in the near future.

Good Trading,

Pierre

I think it's worth spending a little more time on the EUR/USD this week as last week I discussed how the best opportunity on the EUR/USD would be to look for reversal candles within a developing range. I had said that looking for reversal candles on the daily chart would quite possibly give us some very good opportunity for swing and position trades. If you look at the chart provided we were indeed given such an opportunity. This came right at the 100 Day Simple Moving Average in fact, which has been supporting the EUR/USD since March 2006.

If we look at the shape of what is developing there is a potential for a triangle to be forming. This is the most common pattern in this position following a long move up. In Elliott Wave terms; this would be a Wave 4 Triangle pattern preceding the 'Terminal Thrusts'. If this is the case we should now see a reversal at or near the current levels.

However... as a technical trader I have to look at all the possibilities and decide what is the highest 'Probability'. In this case the move up so strong and with only a minor correction it is possible that the target for the current move sits around 1.60 again. So I don't just buy into what I believe is most likely. Just like last week, we need to see confirmation from another source.

How To Trade This... At the risk of sounding repetitive, I will once again say we need to see a good reversal candle at or near a trend-line. As the move up was so dramatic so too should the reversal pattern be if it does indeed show up here in the very near future.

Failing that, I would expect a return to near or just above the all-time high and look for a good selling opportunity when we are back in that range around the 1.60 mark.

At this stage I find myself repeating a saying I heard years ago when I started trading: I would rather not be in a trade then in a bad one.

Good Trading

Pierre Charlebois