I was talking to Zoltan Vass (our Chief Economic Strategist) earlier this week and we were discussing how it appears we are on the verge of some very volatile activity. Looking at what the JPY pairs did this week really confirmed our expectations.

 
Now let me add to this that I think the old adage of 'We Ain't Seen Nothing Yet' is about to be confirmed. I can't say for certain it will be this coming week, but I am getting very organized to trade it if it is.

AUD/USD

I have been saying for weeks we should see one more push to the upside and then a reversal that; as Kevin O'Leary of BNN says 'Comes Down Without Hitting the Sides'. The price action on the chart shows how there has been a new top and now somewhat of a correction that has staled. I would surmise that there will still be one more move higher before the larger decline as the reversal was not sharp enough to really announce a top in place.

EUR/USD

Although not visibly in an ending diagonal, but going on almost the same premise, that because we have not rejected the new recent high in a very dramatic fashion we are likely still in the topping process and should see another 100 to 400 pip move higher to form a blow-off top. Remember what happened to the USD/CAD back in November when it dipped all the way down to .9000, the reversal from there was 1000 pips in just a few days. 

PS, look at your charts and see what the volatility was like in July and August of last year.

Pierre

EUR/USD

Last week's rejection of 1.5912 lasted for a few days however after Friday's move above that price point we have to assume a new high above 1.6020 is possible. What is recommended here in trading a currency that is this volatile is to actually have more patients and enter only when absolutely all your conditions for a  trade have been met. In short, when things are this crazy one needs even more patients.

AUD/USD

Last week I wrote about this pair looking to make one last high before a potentially very strong reversal. We have approached that tipping point now. We should see a little more up-side before the blow-off top appears. (100 to 200 pips). If we see a strong reversal pattern in this current price range, we need to see this as a signal that a top may very well be in place. So be patient but vigilant on this pair as the risk/reward is very attractive.

Cheers and have a good trading week.

Pierre

EUR/USD

As one of my mentors ‘Zoltan Vass’ would say; Believe what you see!

Once again we have seen another volatile reaction after important economic news. And this was the strongest reaction so far. It is also important to note (as Zoltan pointed out to me) that this reaction is quite a contrary move to the news that preceded such a strong rejection.

How to trade this

For now it is best to look for selling opportunities. Thursday’s move produced a strong Engulfing Bearish candle and all other such candles have seen continuations after such moves. What is most likely here is a three wave move back up and then a continued drop down. It will be after the expected second drop down that caution is advised. For now I see the initial target to breach as 1.5555 which is the .618 re-tracement of this most recent move up.

AUD/USD

Somebody should tell the AUD/USD traders that the party is almost over!

Of all the majors trading against the USD the AUD seems to partying on a little late. What appears to be happening here is the final throws of an ending diagonal. We should see one more final wave up targeting the upper trend-line. I can’t accurately predict the top or whether we will strike the upper line but I can suggest that when the final top is in place there will be no subtlety to the reversal. Watch this pair closely over the coming week(s).

How to trade this

Look for a reversal Candlestick pattern in the reversal zone between the two top trend-lines. Remember there will be no subtlety to the reversal so the signal should be strong.

Good trading and happy Canada Day and 4^th of July!

Pierre

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.