Forex-90

Price action on GBP/USD, a daily chart of which is shown, has tentatively broken down below an inverted flag pattern consolidation within the context of an overall parallel downtrend channel that has been in place since the mid-November highs. This tentative flag break hints at continued potential bearishness in the pair in line with the prevailing downtrend. For more technical analysis on this currency pair,

I’m currently at the New York Traders Expo and will be speaking at 3:45 PM (Monday, Feb. 15) in the Ziegfeld Room, Marriott Marquis Hotel, Times Square, NYC. The seminar will be on forex trend trading strategy. My seminar was a late insertion into the program so it did not make it into the printed schedule in time. If you’re in town, hope to see you there!

What is Forex? Forex is an abbreviation of Foreign Exchange (also referred to as FX) and it is the largest financial market in the world.

The Forex market is the place where currencies are traded (currencies are money that is used as an exchange medium). In other words, it is the place where currencies are being sold and bought. In the Forex market all currencies are traded in real time.

Trading with currencies always means that there are two simultaneous transactions taking place. If a currency is being bought, it is also being sold. To better understand this notion, think of currencies as both the goods you are buying AND the method with which you're paying for the goods.

Since the Forex market is the place where currencies are traded in real time, people may trade one currency for another and make a profit off of this transaction. Profits are made when one is able to determine which currency's value will increase by the end of a pre-determined time period (such time periods may be short or long). The Forex market is open 24 hours a day, five days a week and it is based in four major cities: New York, London, Sydney, and Tokyo. The Forex market is open to individuals over the age of eighteen.

While Forex trading may sound daunting, it really isn't. It can be easily comprehended and understood without prior experience in finance or economy. It is challenging and exciting, thought provoking and manageable, stimulating and filled with opportunities.

Some Forex Basics:

• The first currency listed in a currency pair is called the "base currency".
• The "base currency" is usually the U.S. Dollar. Traders will generally trade the U.S. Dollar against another currency, which is called the "counter currency".
• Currencies are quoted in pairs. For example: The pair U.S. Dollar and JPY will be quoted in the following way: USD/JPY equals to 2.5 (This means that 1 U.S. Dollar can buy 2.5 JPY).
• When a quote increases, it means that the "base currency" has risen in value and the "counter currency" has weakened in value. For example: If the USD/JPY quote used to be equal to 2.5 but is now equal to 2.6, then this means that the dollar has strengthened (because 1 U.S. Dollar can now buy 2.6 JPY as opposed to the mere 2.5 JPY it could buy beforehand.)

If you want to trade successfully there are some rules you need to follow. For example picking a good trade and avoiding the bad ones. A bad choice carries big losses since they are detrimental to your self-confidence. You need to make a lot of decisions during your trading day. Without systematic discipline emotional impulses will ruin your trading skills since you will be choosing the wrong tools in wrong time.
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Many short-term traders take trading as some sort of gambling. Without planning and discipline they are throwing out their money to the market. Some of them may make one or two accidental winning trades that only confirm this gambling attitude that will lead them to total collapse. Without discipline and money management these people quickly become victims of market.

Technical analysis teach trader to follow the rules based on numbers and timing. It helps to develop discipline that allows a trader to distance form his gambling attitude. Through consistent trade execution and right money management system trader begins working in market and stops gambling.

Market repeats the same patterns many times. The science of trend following helps you to build your system rules based on those repeated patterns and avoid chasing the shadows of profit.

The following golden rules will help you to avoid many mistakes in your trading and make it more consistently profitable.
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1. Forget the news watch the charts. If you are not very confident in your experience of defining how the news will affect price movement watch the charts. They have already incorporated all the news in themselves.

2. If trend is up buy at the first retracement form the new maximum. If trend is down sell at the first retracement form the new price minimum. There is always an opportunity.

3. Buy as close to the support level and sell as close to the resistance level as possible. Everyone sees the same levels and waiting for the opportunity to take a trade at those lines.

4. Short rallies are not sell offs. When price retraces sellers take profit and market is ready to continue its major trend.

5. Do not buy below the main moving average and do not sell above the main moving average.

6. Do not chaise the move if you don't know where you will be exiting. Let's say you entered the market and it reversed you need to know exactly where are you going to exit to cut your losses.

7. Trends test the previous support and resistance levels. You can enter the market at those levels even if they are breached a little.

8. Always trade along the trend. Do not be a hero. Go along the trend.

9. Price has a memory. Whatever it did the last time it will probably do again at the same level.

10. Trends rarely reverse abruptly. First sell off always find its buyers. Look for consolidation patterns

Average Daily Ranges*
for use during the trading week of
February 15 to 19, 2010

	EUR/USD	GBP/USD	USD/CHF	USD/JPY	USD/CAD
Upper BB	218	229	170	198	171
Avg. Daily Range	133	164	104	100	111
	AUD/USD	NZD/USD	EUR/CHF	GBP/CHF	EUR/GBP
Upper BB	197	177	161	248	116
Avg. Daily Range	133	110	61	159	76
	AUD/JPY	CAD/JPY	EUR/JPY	GBP/JPY	NZD/JPY
Upper BB	312	276	370	427	253
Avg. Daily Range	166	145	187	227	135

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Price action on EUR/USD, a daily chart of which is shown, has continued its steeply-angled bearish trend after making yet another bullish correction/consolidation earlier in the week. This minor bullish correction, in the rough form of yet another inverted flag pattern, was halted just above key resistance in the 1.3800 price region. The current bearish trend continuation has established yet another new 8-month low in the pair after having broken down below the low of the prior week. For more technical analysis on this currency pair,

Price action on USD/CHF, a daily chart of which is shown, has been following a steep uptrend support line since the mid-January lows. Within this steep uptrend, the bearish corrections have been relatively shallow while the bullish trend moves have been relatively strong. Currently, price is in the process of recovering from a bearish correction, and appears poised to reach for a new 6-month high if the last high around 1.0817 is surpassed. For more technical analysis on this currency pair,

Price action on EUR/JPY, a daily chart of which is shown, has reached down and made a tentative bounce off key support in the general 122.00 price region. This occurs after the currency pair broke a long sideways consolidation by breaking down below another key support level in the 127.00 price region. The substantial recent bearishness in the pair established a new 11-month low late last week before making the current tentative bounce. Despite the bounce, price action is currently following a very steep medium-term downtrend extending from the mid-January highs. For more technical analysis on this currency pair,

Price action on GBP/USD, a daily chart of which is shown, has finally begun to show a bearish emergence from the sideways consolidation that has characterized this currency pair on a long-term basis for several months now. A clean breakdown below the 1.5700 support region last Friday represented a tentative breakdown below the consolidation, in line with a medium-term downtrend that has been in place since mid-November 2009. In the process of this breakdown last Friday, the pair has established a new 8-month low near the bottom of the noted medium-term parallel downtrend channel. For more technical analysis on this currency pair,

Price action on EUR/USD, a daily chart of which is shown, has displayed continued marked bearishness recently, strongly confirming a new downtrend in the pair. This new downtrend was initiated after the previous long-term uptrend was broken decisively to the downside in early December. After that breakdown, the bearish trend has been characterized by several short-term bullish retracements and consolidations in the form of inverted flag patterns, but each time these trend interruptions were broken strongly to the downside. For more technical analysis on this currency pair,

Price action on AUD/USD, a daily chart of which is shown, continues to languish in a sideways consolidation, although the last couple of weeks have been decidedly bearish for the pair. After price reached strong resistance around 0.9325 in mid-January (just shy of the 15-month high around 0.9400 that was hit in mid-November 2009), the directional bias has been steeply bearish, forming a well-defined short-term downtrend resistance line. For more technical analysis on this currency pair,

Price action on EUR/USD, a 4-hour chart of which is shown, has made yet another bullish retracement within the context of the new overall downtrend. The current leg of this new downtrend extends from the January 13th high, and has formed a valid bearish resistance trendline. Within the context of this downtrend resistance line, price has made several breakdowns of both short-term uptrend support lines and horizontal support levels. As might be expected, these breakdowns have continued the dominant downtrend with significant downside follow-through. If the current leg of the prevailing downtrend is to continue, a key continuation trigger would be a breakdown below the current short-term uptrend support line. For more technical analysis on this currency pair,

Price action on AUD/USD, a daily chart of which is shown, continues to languish in a sideways consolidation, although the last couple of weeks have been decidedly bearish for the pair. After price reached strong resistance around 0.9325 in mid-January (just shy of the 15-month high around 0.9400 that was hit in mid-November 2009), the directional bias has been steeply bearish, forming a well-defined short-term downtrend resistance line. For more technical analysis on this currency pair,

Price action on EUR/USD, a daily chart of which is shown, has displayed continued marked bearishness recently, strongly confirming a new downtrend in the pair. This new downtrend was initiated after the previous long-term uptrend was broken decisively to the downside in early December. After that breakdown, the bearish trend has been characterized by several short-term bullish retracements and consolidations in the form of inverted flag patterns, but each time these trend interruptions were broken strongly to the downside. For more technical analysis on this currency pair,

Price action on EUR/JPY, a daily chart of which is shown, has reached down and made a tentative bounce off key support in the general 122.00 price region. This occurs after the currency pair broke a long sideways consolidation by breaking down below another key support level in the 127.00 price region. The substantial recent bearishness in the pair established a new 11-month low late last week before making the current tentative bounce. Despite the bounce, price action is currently following a very steep medium-term downtrend extending from the mid-January highs. For more technical analysis on this currency pair,

Price action on USD/CHF, a daily chart of which is shown, has been following a steep uptrend support line since the mid-January lows. Within this steep uptrend, the bearish corrections have been relatively shallow while the bullish trend moves have been relatively strong. Currently, price is in the process of recovering from a bearish correction, and appears poised to reach for a new 6-month high if the last high around 1.0817 is surpassed. For more technical analysis on this currency pair,

Price action on GBP/USD, a daily chart of which is shown, has finally begun to show a bearish emergence from the sideways consolidation that has characterized this currency pair on a long-term basis for several months now. A clean breakdown below the 1.5700 support region last Friday represented a tentative breakdown below the consolidation, in line with a medium-term downtrend that has been in place since mid-November 2009. In the process of this breakdown last Friday, the pair has established a new 8-month low near the bottom of the noted medium-term parallel downtrend channel. For more technical analysis on this currency pair,

Price action on EUR/JPY, a daily chart of which is shown, has reached down and made a tentative bounce off key support in the general 122.00 price region. This occurs after the currency pair broke a long sideways consolidation by breaking down below another key support level in the 127.00 price region. The substantial recent bearishness in the pair established a new 11-month low late last week before making the current tentative bounce. Despite the bounce, price action is currently following a very steep medium-term downtrend extending from the mid-January highs. For more technical analysis on this currency pair,

Oil may be headed back to $60 /b in 2010

OPEC latest forecast predicts that energy demand in 2010 will increase by 800,000 b/d. This is 70,000 barrels a day stronger than the forecast made by OPEC in November. We believe this news only lends modest support to what still is a weak fundamental position for oil. The fact that the USD is showing signs of a cyclical recovery also suggests that oil prices could be pressured lower in 2010.

Inventories in developed countries have been above the seasonal average for many months. Despite persistently high levels of inventories, oil rallied this year between February and late October in tune with the general upswing in risk appetite. We feel the rise in prices was out of step with the ample supply and suggests that optimism, with respect to the strength of the global recovery, is likely overstated by the price even in consideration of OPEC's latest upwards revision in demand. Unemployment in the US has risen to above 15 mln, this is more than double the 7.4 mln registered in the spring of 2008 while oil prices were only around 30% softer than they were in April 2008. As in many other countries, US unemployment is likely to rise further before recovering. Growth returned to the US in Q3 2009. However, this would have been almost non-existent if it were not for the government's fiscal support. In 2009, the US will be one of just a handful of countries in the G40 to suffer a double digit budget deficit/GDP ratio. Fiscal expenditure will have to be reined back not just in the US, but in the UK and in many Eurozone countries in the New Year. The combination of very high unemployment and the reined back of fiscal incentives is consistent with our view that growth in the US, Eurozone and the UK will remain below trend at least through 2010 and that prospects for a recovery in energy demand by OECD countries in general are low.

The USD index has strengthened by around 5% during December 2009. This coincides with a modest increase in expectations about Fed policy tightening but we believe it is also a response to a generous credit facility by the BoJ and a reaction to bad news related to budget deficits and creditworthiness in the EMU region. We feel there is still a huge amount of political will in the Eurozone and in Japan in favour of a stronger USD which is likely to affect policy decision of both the BoJ and the ECB during 2010 and beyond. It is possible that the USD index will steer away from its recent lows in the coming months 2010 and this should cap upside potential of oil prices and other USD denominated commodities and least through the early stages of 2010. Later in 2010, the likelihood that the Fed will precede the ECB and certainly the BoJ on the issue of interest rate hikes could reinforce the better tone of the USD index.

We think the prospect of a slow recovery in oil demand from OECD nations in 2010 and the prospect that the USD may have begun a cyclical recovery vs. the JPY and the EUR should cap the upside potential of oil prices into 2010 and opens the potential for a downwards correction back towards the USD60 /b.

Silver May Have Another Bright Year in 2010

We think silver is uniquely positioned to continue its stellar rally in 2010. Valuations compared to gold remain extremely attractive, demand from the investment community is robust and the metal's industrial demand will rise as the global economy recovers. Our base case is that silver has potential to trade well above $20 in the year ahead.

Silver has markedly outperformed gold over the last year, turning in a stellar 53% year/year return through December compared to a 30% gain in the yellow metal. We do not expect this to change in 2010 and look for the value of silver relative to gold to continue to track higher. Gold is currently valued at 65 times that of silver. Next year we expect this ratio to revert back to levels that dominated between the better part of 2006-2008. In other words, a gold to silver ratio of about 50. Taking our expected range for gold into account, at $1050/1250, this would mean silver returning to a zone closer to $21/25.

The speculative position in silver is a net long 43,000 contracts as per December 11, a -20% decline from the nearby October highs. Thus unlike gold, silver is not at an extremely overbought level at the moment. And while gold has clearly staked out new all-time highs, silver remains well below its post-1980 record of $21.34 set back in 2008.

The industrial application of silver relative to gold is another factor that will lead to an outperformance of the former in the year-ahead. The latest data available show that 54% of total silver fabrication goes to industrial applications. The amount used for coin and metal production is a mere 8%. As such, even a flight away from silver as a safe haven asset would not necessarily dent prospects for higher prices. With the global economy conservatively expected to expand 3.1% in 2010 (IMF projections) and most of that growth coming from developing nations, silver is in a unique position to prosper.

The growing middle class in the developing world will have a budding appetite for things where silver is a critical component, with little possible substitutes. Most notable is silver's use in the electronics space. Including but not limited to silver membrane switches (used in buttons on televisions, telephones, appliances), printed circuit boards (used in phones, computers), and plasma display panels (computers, televisions). Thus it should not surprise anyone that silver and the S&P 500 Technology sector both enjoyed 50% gains in 2009 (compared to 22% for the overall market). Should the tech sector revisit even the recent 2007 highs, this should put silver prices comfortably back above the $20 zone.

To any view, there are of course downside risks. Thus we will provide some technical levels to keep in mind as 2010 kicks off. For support, we are focusing on a daily up-trendline and the 100-day moving average which converge in the $16.60/50 area as of this writing. A daily close below this zone would open up potential towards $15 on the follow. The upside is likely to be challenged first and foremost at the $18 level, which looks like a very good pivot on the daily charts (multiple highs/lows around there). Daily trendline resistance then comes in near $19.50 and above there would target the $21.34 high back to March 2008.

Gold May Lose Its Luster in 2010

Summary Outlook: Gold prices surged higher in 2009 as part of broad commodity rally and USD decline, culminating in a classic parabolic advance in October/November, followed by a 10+% collapse in December. Given ongoing concerns over sovereign and corporate debt burdens globally, we think gold prices are most likely to remain relatively elevated, and we do not expect gold prices to see much below the $850/900/oz. level. By the same token, we anticipate an extremely benign inflation environment in 2010 together with a broadly stable, though relatively weak, USD, which should work to limit gold's upside to the $1200/1250 zone.

Economic Analysis: The traditional drivers of gold prices are inflation, inflation expectations and the perceived value of the USD and other fiat currencies. Gold is also frequently viewed as a safe haven refuge in times of financial market turmoil, though that effect failed to materialize during the worst of the 2008 upheaval, but was apparent during the 1Q 2009 market relapse. Overall, on inflation we think a weak global recovery, undercut by consumer deleveraging and high and rising unemployment across most of the G-10, will restrain inflationary pressures throughout 2010. In the US, the December Univ. of Michigan consumer sentiment survey foresaw a 2.1% inflation rate over the next 12 months and a 2.6% inflation rate over the next five years. European and UK inflation forecasts are similarly benign while Japan has recently slipped back into deflation. Only in the event of an unexpectedly stronger global recovery would inflationary pressures come into play.

Fiscal and credit concerns are likely to be the most supportive factors for gold prices, but even here, we expect them to be less of a factor as 2010 wears on. In the second half of 2009, speculators focused on the high level of deficits and overall debt in major economies and began to question the inherent value of major currencies and gold appreciated steadily. However, recent events (credit rating downgrades to Greece, the Dubai debt standstill and the nationalization of a regional Austrian bank) coincided with a sharp drop in the price of gold. Rather than propelling gold to further heights, increased risk aversion had the opposite effect on gold, suggesting speculative forces were primarily behind the run-up in the yellow metal. Indeed, according to the COTR for Dec. 15, 2009, speculative gold net longs were only slightly below all-time highs of 262,000 contracts, despite a nearly 10% decline in price. As stimulus efforts wind down in early 2010 and governments move to more fiscally sustainable policies into the end of the 2010 and into 2011, the appeal of gold as an alternative to currencies will continue to diminish. As well, global central banks will move to withdraw extraordinary accommodation and eventually tighten lending rates later in the year, raising the relative cost of carry of gold vs. currencies (it costs to own gold, while FX investors can earn once rates begin to rise, eliminating gold's free ride vs. zero interest rate currencies.) As such, we think gold supportive factors will fade into the second half of the year, and so we would bias the risk to greater downside potential for gold prices.

In terms of supply and demand, high nominal gold prices continue to see scrap gold add to overall supply, in addition to mines and refineries working in overdrive. Conversely, demand for jewelry remains under pressure due to high relative prices and restrained consumer spending. Demand is still strong among speculative and physical investors, but the risks here are biased lower should the global economic recovery prove more resilient than expected. Finally, near-record high speculative long gold positioning also biases the risks to the downside, as there has been only minimal reduction in the face of an 11.4% price retreat in December, leaving open the potential for a larger position exodus.



Technical Analysis: Gold made a significant medium term high in early December just above $1225/oz and has since retreated over 10% from that high. Immediate resistance is in the 1125/30 area, followed by 1150. Initial support comes in at 1070/73 October market highs, which coincides with the base of the Ichimoku cloud at 1067 (but rises sharply in coming weeks). Below 1065/70 exposes the 1020/25 September highs, and then the 1000 psychological support level , which sees the 200-day sma just below at 988 currently. We think there is further downside corrective potential to the 1020/25 area early in 2010 as overstretched longs exit. From that level, we would look for some consolidation and perhaps for a new base to build, but we would not hold longs should price drop below the 975/980, as that would suggest a further decline to the lower end of our expected range at 850/900.

Price action on the majors as of Thursday (4/16/2009) morning, as shown on the accompanying EUR/USD daily chart, continues to consolidate in a relatively tight range. On EUR/USD, this consolidation is taking place just below a long-term downtrend resistance line extending from the second test of 1.6 back in July. The lower border of the consolidation appears to be around the 1.3100 support region. Any significant breakdown below 1.3100 should quickly meet further support around 1.3000. And any breakdown below this latter level would be a substantially bearish indication that could target March lows. To the upside, the noted long-term downtrend resistance line should continue to provide strong dynamic resistance for the pair.

UPDATE: As of Friday (4/17/2009) afternoon, price action has descended all the way down to approach the 1.3000 support level mentioned above. Price is continuing to experience significant bearishness. Any true breakdown below 1.3000 should signal continued substantial bearishness in the pair going forward.

List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

"Investors will be looking ahead to Friday's employment report for the next reading on the economy. The employment number will probably be bad, perhaps another elimination of 600,000 jobs," said Frederic Dickson, chief market strategist, D.A. Davidson & Co.

Market watchers trying to get a handle on the count of unemployed got a preview of sorts in the ADP private-sector payrolls survey released Wednesday. It found companies axed 697,000 jobs in February. Read Economic Report.
"There is no firm correlation between this report and Friday's employment report, but obviously ADP has quite a large footprint in the private sector, so if they're seeing losses it can't bode well for the economy overall even if it's not [correlated one-to-one] with the employment report," said Dan Greenhaus, an analyst at Miller Tabak & Co.
"Construction lost jobs for the 25th straight month, bringing the total number of losses in that sector to over [1 million]. Manufacturing lost jobs for the 36th month in a row, while the goods-producing [category] lost jobs for the 26th month in a row," said Greenhaus.
Also ahead of Friday's Labor Department report, the employment component of the ISM non-manufacturing index for February came in for scrutiny. Read more.
"Only two industries reported increased employment this month, and surprisingly, one of those was the real estate, rental, and leasing sector," said Omair Sharif, an analyst with RBS Research.
Fourteen industries pointed to lower employment levels in February, while two reported no change -- findings "consistent with significant losses in service-sector jobs," said Sharif, who forecast another sharp drop in nonfarm payrolls in February of about 625,000, with the unemployment rate climbing from 7.6% to 7.9%.
A separate tally, also released Wednesday, found major U.S. companies laid cut 186,350 jobs in February, more than double the year-earlier figure. But the unscientific findings of job-cut announcements compiled by Challenger Gray & Christmas also found last month's reductions slowing from January's pace, when layoff announcements tracked by the outplacement firm hit a seven-year high of 241.749. See detailed report.
Following rallies overseas, U.S. stocks climbed after succumbing to five straight days of losses, with energy and materials fronting sector gains.

Once again, price action on USD/JPY (a daily chart of which is shown) has descended to critical support in the key 94.50 price region. This level is important not only because it is a significant previous support/resistance level, but it also represents the level of the peak in early January between the 87.00 double bottoms. Therefore, this pair is once again at a critical juncture. The clear intermediate head-and-shoulders formation hints at a potential bearish bias. Any strong breakdown below the current 94.50 level could target further key support around 91.00. Near-term upside resistance in the event that the 94.50 level is respected resides around the general 96.00 region once again.

UPDATE: As of Thursday (5/21/2009) afternoon, New York Session, bearish price action has broken significantly below the 94.50 support.

After breaking out above a couple of key resistance levels price action on EUR/USD has reached all the way up to test and slightly surpass the 1.4000 psychological milestone, and does not look to be relenting much as of Friday (5/22/2009) morning. The pair is currently due for some kind of a correction within the context of the currently accelerated uptrend (extending from the low in late April). In the event of this correction, the broken 1.3900 support/resistance region should now serve as tentative downside support, followed by the 1.3735 region once again. A key upside resistance target on an expected upside continuation resides firmly in the 1.4300 price region.

USD/JPY (a daily chart of which is shown) was overall mixed in the past week, as directional indecision characterized the pair for much of the week. Indeed, the close of this past week at 94.80 was separated by the prior week’s 95.05 close by only 25 pips. Generally, however, the sentiment this past week was bearish, as price made fresh two-month lows on its way potentially to fulfill the bearish forecasts of a large head-and-shoulders formation. Price should begin the upcoming trading week of May 25-29 slightly above the key 94.50 support, but re-breaking below this level would not be a difficult feat, as the technical bias is currently bearish overall. Immediate downside support below 94.50 resides in the 93.50 region, a breakdown of which should target further major support around the key 91.00 region. Upside resistance on any bullish correction within the current downtrend should meet strong resistance around the important 96.00 support/resistance region.

EUR/USD (a daily chart of which is shown), after breaking out above the 1.3735 prior resistance on Wednesday of this past week, went on to make substantial bullish strides for the rest of the week. In the process, the pair has broken out above key resistance levels in the 1.3900 and 1.4000 price regions. On Friday, a 2009 year-to-date high of 1.4050 was reached before price retreated to close out the week right around the key psychological 1.4000 figure. The dramatic one-directional upmove that occurred during the entire past week, which has caused a sharp increase in separation between price and the already steep uptrend support line extending from the late April lows, hints at a potential impending exhaustion of upward momentum and a possible bearish correction. For the upcoming trading week of May 25-29, any correction of this nature should find tentative support right around 1.3900, and then, once again, around the 1.3735 region. Overall, however, the trend is bullish. Any bearish correction notwithstanding, a continuation of the current uptrend would be confirmed on a strong breakout above 1.4050, which should then target major resistance in the 1.4300-1.4350 price region.

Price action on USD/CAD, a daily chart of which is shown, has attempted a bullish retracement after falling to yet another support level, this time around the 1.1200 level. Recently, this pair has been exhibiting textbook downtrend behavior, with drops to successively lower support levels followed by minor bullish corrections. The current situation appears to be no different. Any continuation of the current bullish retracement should meet strong resistance in the key 1.1470-80 price region. Any breakdown below current support around 1.1200 should target dynamic support around the long-term uptrend support line extending from the November 2007 low, followed by the important 1.0800 level further to the downside.

UPDATE: As of Wednesday (5/27/2009) morning, price action on this currency pair has indeed broken down well below the 1.1200 level after an apparently failed bullish retracement. The directional bias currently continues to be bearish, with further downside support targets still valid as outlined above.

Price action on USD/CHF, a daily chart of which is shown, has consolidated right at a key support confluence area. This support region includes a long-term uptrend support line extending from the March 2008 low, as well as a key support/resistance price region in the 1.0810-1.0850 zone. At the same time, price is also traversing a steep short-term downtrend channel. Any breakdown of the support confluence within the context of this downtrend channel should indicate substantial bearishness going forward. In that event, the immediate further support target resides in the region just above 1.0700, with yet further major support around 1.0600. Upside resistance within the context of the current downtrend resides around the top line of the steep parallel downtrend channel.

Price action on USD/CAD, a daily chart of which is shown, has finally reached a key downtrend resistance line extending from the fourth test of 1.3 back in March. After reaching up to touch this line precisely yesterday (06/25/2009), the pair has tentatively respected the trendline by bouncing down off of it. This bounce occurs after a substantial bullish correction extending from the 1.0800 lows, and signifies that this pair is still entrenched in a valid overall downtrend. Barring any breakout to the upside of this trendline, a major downside support target off this bounce resides in the 1.1300 price region. In the event of a subsequent breakout above the trendline, further key upside resistance resides in the 1.1800 support/resistance region.

USD/JPY (a daily chart of which is shown) broke down below a triangle-like configuration early last week, pulled back to re-test the lower triangle border, and then descended once again. This can be viewed as a potential breakout-pullback-continuation progression that carries some significant bearish potential. Of course a continuation in the direction of the breakdown would only be confirmed on a significant break below last week’s 94.85 low. If this occurs, a key downside support target resides around the 93.50 price region. Any breakdown below that level could target further major support in the 91.00 region. To the upside, the lower border of the noted broken triangle should continue to provide dynamic resistance amidst the current bearishness in the pair.

EUR/USD (a daily chart of which is shown) continued its sideways consolidation this past week, even after having broken out above a short-term downtrend resistance line (in red) extending from the 1.4335 uptrend high. This trendline break was significant, but on the day after the breakout occurred (in the beginning of the past week), price retraced all the way back down to around the point of break. Closing out last week, the pair then rebounded off the trendline, now treating the line as support where before it was resistance. EUR/USD is currently still entrenched within a textbook uptrend, and the recent bearishness as represented by the noted short-term downtrend line can be viewed simply as a normal correction/retracement within the prevailing uptrend. Unless price breaks down substantially below the 1.3750 region, the pair can continue to be considered as moving within an overall uptrend. Furthermore, the potential head & shoulders reversal pattern that recently grabbed the attention of many forex traders has, for now, been effectively invalidated. For the upcoming trading week of June 29 to July 3, a strong breakout above last week’s high of 1.4135 would lend strength to the bulls’ hopes for an uptrend continuation. In this event, the next major resistance target to the upside would be a re-test of the 1.4335 uptrend high. A further breakout above that key resistance level would confirm an uptrend continuation. To the downside, the noted 1.3750 price region should provide major support for the current uptrend.

This is a very common affliction, especially among technical traders. Paralysis by analysis can occur when traders have too many studies on their charts and seek endless confirmations before taking any action. This is the polar opposite of traders who initiate trades recklessly based on “gut feeling” alone. Paralysis by analysis may be the lesser of the two evils, but both of these afflictions can be extremely detrimental to forex traders.

There is a lot of good in being cautious and conservative when deciding to take trades, but becoming paralyzed by the decision-making process can be totally counterproductive. Having all of the latest and greatest indicators on your charts can be exciting, but will it really help you become a better trader? Maybe, but probably not.

A good remedy against paralysis by analysis is a combination of solid risk control and money management. Technical analysis is very helpful in setting risk management measures like a logically-placed stop loss that’s not too tight and not too loose, and a good reward-to-risk ratio. And money management is an absolute essential for any trader who wants to be successful. With these prudent measures in place, traders need not be paralyzed by the trade entry process. A trader will never come anywhere close to 100% correct, even with 50 indicators, oscillators, trendlines and squiggly lines pointing in the same direction at the same time. But that’s perfectly okay, as long as risk and money management are in good order.

This is not at all to say that traders should ever just jump into trades without first doing their proper analysis. As mentioned, that is an evil in and of itself. But there are many traders that are utterly unable to pull the buy/sell trigger unless all of the many stars in the galaxy are perfectly aligned. This almost never happens.

Stick to the essentials and only what works best for you over time. When a good opportunity presents itself according to your careful analysis, take it. But always have strict risk controls and money management guidelines in place.

Some thoughts on using technical market analysis to determine risk management in forex trading. Perhaps the greatest strength of technical analysis is that it allows traders to quantify precisely, and thereby help control, the risk factors inherent in trading. The most obvious risk control application of technical analysis is stop loss placement. Technical analysis employs a simple and elegant rationale for determining the location of stop losses. When the reasons for getting into a trading position are no longer valid, that position should be abandoned, usually at a loss. The purpose of a stop loss, after all, is to cut losses while those losses are still manageable.

For example, in a breakout situation where a trade is entered on a price breakout above a certain resistance line, if price falls back significantly below the line, the reasons for entering that trade would no longer be valid. Therefore, the stop loss should be placed at some pre-determined point directly underneath the line, where the break will have proven itself to be either false or premature. A failed breakout, as described above, is certainly a good reason to get out of a trade with a manageable loss.

Another example of risk management from a technical analysis perspective is as follows. For a trader who has entered a long position on a pullback to an uptrend support line, if on one of the subsequent pullbacks price breaks below that uptrend line by a significant amount, a good location for a stop loss would be at some pre-determined point directly below the trendline. A breakdown below the ascending trendline would mean that price is no longer pulling back and continuing the uptrend, but might perhaps be reversing its trend. If this is the case, the original reasons for getting into that trade (uptrend continuation) will have begun to be invalidated, and a properly placed stop-loss below the line can potentially prevent a great deal of pain.

Risk management with the use of technical analysis is both logical and straightforward. By using technical analysis to help dictate stop losses, a forex trader is allowing the market to determine when to cut losses. This is much more reasonable than setting stop losses merely according to an arbitrary number of pips or some random point of pain.

Pin bars are essentially the equivalent of hammers and shooting stars in the candlestick world. These single-bar price action indicators can be exceptionally effective confirming factors for potential market turns in the forex market. Used in conjunction with other trade decision factors, most notably support and resistance, pin bars can give valuable hints of market directional bias. The basic concept of a bullish pin bar, or a hammer candle, is a long protruding bar pointing down, with the period open and close very close to each other near the top of the bar. These occur after bearish price runs. The basic concept of a bearish pin bar, or a shooting star candle, is a long protruding bar pointing up, with the period open and close very close to each other near the bottom of the bar. These occur after bullish price runs. Two pin bars are highlighted on the accompanying forex chart. Not only is the shape of pin bars important - the placement is also crucial. In order to be effective, these bars should follow well-defined directional runs. Pin bars, AKA hammers and shooting stars, represent a potential exhaustion in previous momentum, as well as a potential triumph of bulls over bears (for hammers), or bears over bulls (for shooting stars).

Price action on EUR/JPY, a daily chart of which is shown, has started out this week with what is looking like a breakdown below a very important uptrend support line extending from the late January lows. This trendline has been respected in a precise manner at least eight times since its inception, so it was an exceptionally valid trendline before today’s breakdown. Currently, price has descended to approach key support in the 131.00 support/resistance region. Any further subsequent breakdown below that level would be a substantial bearish indication that could potentially go on to target further major support in the 126.00 price region.

Viewing daily forex charts, one can see that the past several days have been marked by clear trendline breaks on multiple currency pairs. These include:

EUR/USD - On 7/3, broke down below an uptrend support line extending from the late April low. The pair then pulled back up and has now descended once again.

GBP/USD - On 7/2, broke down below an uptrend support line extending from a late April low. Has continued its bearish run since.

AUD/USD - On 7/2, broke down below an uptrend support line extending from an early March low. The pair then pulled back up and has now descended once again.

GBP/JPY - On 7/8, broke down below an uptrend support line extending from the late January low.

EUR/GBP - On 7/6, broke out above a downtrend resistance line extending from the mid March high.

AUD/JPY - On 7/6, broke down below an uptrend support line extending from the early February low.

EUR/JPY - On 7/6, broke down below an uptrend support line extending from the late January low.

NZD/USD - On 7/2, broke down below an uptrend support line extending from an early March low. The pair then pulled back up and has now descended once again.

Price action on EUR/USD, a daily chart of which is shown, made a substantial bullish move as of Wednesday (7/15/2009) morning, but is still in an overall continuing consolidation. This consolidation has taken the form of a triangle pattern, where price has just reached the upper triangle border for a third touch. Any breakout to the upside of this triangle should meet immediate resistance in the 1.4200 region, the level of the last significant high within the consolidation. And any subsequent breakout above that level should easily target major resistance at around 1.4335, the level of the uptrend high and the very top of the triangle. Strong downside support on any subsequent breakdown below the triangle pattern continues to reside in the 1.3750 price region,

EUR/USD (a daily chart of which is shown) spent this past trading week essentially continuing its consolidation within what has turned out to be a significant, well-formed triangle pattern that began from the double-tested high back in early June. Towards the end of last week, price had reached up to the upper border of this triangle, and had threatened a breakout to the upside. By the close of the week, however, the pair had retreated slightly, to just under the upper border once again. The current consolidation notwithstanding, price can still be considered to be in general uptrend mode, with signs pointing to a potential impending uptrend continuation. Any bonafide breakout above the upper border of the triangle during the upcoming trading week of July 20-24 would lend significant strength to this bullish outlook, especially if price then goes on to breakout above the last swing high around 1.4200. In that event, the clear upside resistance target would be the uptrend high around 1.4335. And any breakout above that level would confirm an uptrend continuation for the pair. To the downside, dynamic support continues to reside around the lower border of the triangle consolidation, with further key support around the major 1.3750 price region. Any subsequent breakdown below that important support/resistance level would likely invalidate, and possibly reverse, the current uptrend.

Over the past few trading days, the British pound has been confined to a very tight trading range. The following chart illustrates the predicament that GBP/USD traders find themselves in right now and I believe that the breakout will be to downside with the GBP/USD testing 1.60 in the near term.

This morning, Standard & Poor’s announced that “We no longer classify the United Kingdom (AAA/Negative/A-1+) among the most stable and low-risk banking systems globally” and I have to say that this is HUGE. S&P had already lowered the U.K.’s place in its Banking Industry Country Risk Assessment gauge to Group 3 from Group 2 on Dec. 21. The risk of investing in the U.K. is now on par with the risk of investing in countries like Portugal, Saudi Arabia, Ireland, Chile and Austria. You can imagine what this means to investors looking for a place to put their money.

Here’s a daily chart of the GBP/USD.

January 30th, 2010

EUR/USD trend: sell.
GBP/USD trend: sell.
USD/JPY trend: buy.
EUR/JPY trend: sell.
GBP/JPY trend: sell.

Floor Pivot Points
Pair	3rd Sup	2nd Sup	1st Sup	Pivot	1st Res	2nd Res	3rd Res
EUR/USD	1.3418	1.3640	1.3751	1.3972	1.4084	1.4305	1.4416
GBP/USD	1.5583	1.5780	1.5882	1.6079	1.6181	1.6378	1.6480
USD/JPY	87.50	88.32	89.29	90.10	91.07	91.89	92.86
EUR/JPY	120.28	122.55	123.83	126.10	127.38	129.65	130.93
GBP/JPY	139.19	141.42	142.84	145.06	146.48	148.71	150.13

Woodie’s Pivot Points
Pair	2nd Sup	1st Sup	Pivot	1st Res	2nd Res
EUR/USD	1.3612	1.3695	1.3945	1.4028	1.4278
GBP/USD	1.5756	1.5835	1.6055	1.6134	1.6354
USD/JPY	88.36	89.36	90.14	91.15	91.93
EUR/JPY	122.30	123.34	125.85	126.89	129.40
GBP/JPY	141.21	142.43	144.86	146.08	148.51

Camarilla Pivot Points
Pair	4th Sup	3rd Sup	2nd Sup	1st Sup	1st Res	2nd Res	3rd Res	4th Res
EUR/USD	1.3679	1.3770	1.3801	1.3831	1.3892	1.3923	1.3953	1.4045
GBP/USD	1.5820	1.5902	1.5929	1.5957	1.6012	1.6039	1.6066	1.6149
USD/JPY	89.27	89.76	89.93	90.09	90.42	90.58	90.75	91.24
EUR/JPY	123.16	124.14	124.46	124.79	125.44	125.76	126.09	127.06
GBP/JPY	142.25	143.25	143.59	143.92	144.59	144.92	145.26	146.26

Fibonacci Retracement Levels
Pairs	EUR/USD	GBP/USD	USD/JPY	EUR/JPY	GBP/JPY
100.0%	1.4194	1.6276	90.92	128.36	147.29
61.8%	1.4067	1.6161	90.24	127.01	145.90
50.0%	1.4028	1.6126	90.03	126.59	145.47
38.2%	1.3989	1.6091	89.82	126.17	145.04
23.6%	1.3940	1.6047	89.56	125.65	144.50
0.0%	1.3861	1.5977	89.14	124.82	143.64

The Great Recession is now in our rear-view mirrors and with GDP growth of 5.7 in the fourth quarter, the recovery looks well underway. However, the surge in growth is unlike anything we have seen in a while. The recessions of the early 2000’s and 1990’s saw inconsistent growth after the recession ended. After the 2001 recession, growth peaked at 3.5% before falling back to 0.1% by 2002. The early 90’s recovery saw growth reach 4.5% before declining to a tepid 0.7% a year later.

However the 1980s recession may once again be our best guide for how the current recession may fare.

The recession ended in 1982 and by 1983, the U.S. economy was growing at extremely healthy rates. Between Q1 of 1983 and Q2 of 1984, average GDP growth was more than 7 percent. This is not to say the U.S. economy will replicate this pace of growth in the quarters ahead, but we have previously seen the rubber-band effect after deep recessions and there is no reason why it couldn’t happen again.