Forex Break Outs Around The Corner

Hello Forex traders,

The USD weakness continued yesterday against the majors such as the Euro, Pound, Yen and Australian Dollar like expected in yesterday’s article. Read that article here, or take a look at Nathan’s premise regarding the Aussie and how to trade it. It is very important to make sure to leave your opinion on that article.

Today’s article will be focused on Forex opportunity. The first currency I want to highlight quickly is the EURCAD, followed by EURJPY and GBPAUD.

EURCAD

We have discussed the EURCAD in full length and lots of detail in last week’s article, so I definitely want to refer you to this article. It really goes in-depth into the currency and the analysis is still valid.

The currency is in an interesting setup after it break the weekly trend line (purple) to the upside but then failed to move up much higher (breaking green) and corrected back to a 500 Fibonacci retracement.

AWESOME BULL FLAG

The only reason why I wanted to mention it again is because the currency seems set and destined to make that upside break at any moment. Price has been fighting to break the corrective trend line (orange), but has so far failed to accomplish this feat which has caused many wicks at the top of the candles. Yesterday’s candle for example had a pretty decent wick on its top.

The daily support level (dark blue horizontal line) will be pivotal for this setup. A break below might indicate that the bulls were not strong enough to push the currency above the bull flag formation (orange). A break above the bull flag (orange) and horizontal resistance (dark red) would be a great trade up to the -0.272 target at 1.4018.

23- 7- 2013 EURCAD DAILY

EURJPY

The EURJPY has finally broken out of the major resistance after it had struggled to move upwards, yet failed to move to the downside (and never broke green). The cautious break of the correction (orange) reflected the tough spot the currency had found itself stuck in.

The tables might be turning as the major resistance level (red) and potential right shoulder of the currency at 131.10 has been broken and the currency is hooking back to that same broken level. This level is now a 4 hour support fractal as well.

Often enough a broken level will have the opposite affect on a currency after its break. This means that broken resistance will often become support and that broken support will often become resistance. This is not always the case, but if it could be very useful if used in conjunction with other tools of confluence.

MAJOR BULLISH CLUES

Other major bullish clues are the following:

1)      Bounce off the 382 Fibonacci retracement

2)      Oscillator had a decent strong reading

3)      The EJ broke other resistance trend lines (pink and orange)

4)      The currency seems to be making a bull flag which is a bullish continuation pattern (purple)

One element to be cautious of is the fact that the currency has 4 hour divergence between the 2 most recent tops (black). This could cause the currency to correct deeper, back to the 500 Fibonacci retracement (blue circle) and enlarge the bull flag to great proportions.

23- 7- 2013 eurjpy 4 hr

THE SIGNAL

The signal of course to trade the upside potential would be to wait for one of the following:

a)       A break of the bull flag (best monitored on the 1 hour chart)

b)      A break of the bull flag and horizontal resistance (dark red)

c)       A break of the bull flag and pullback to broken bull flag

d)      A break of the bull flag, pullback and continuation (most conservative)

e)      A retracement back to the 500 Fibonacci retracement level

f)       A bounce off the 500 Fib (candle stick formation)

The target is the -0.272 at 133.57, which ties into the bigger resistance top at 133.80.

If you want to know more about these concepts I mentioned above regarding how to catch the actual trade and break of the EURJPY bull flag, please do not hesitate to ask us in the comment section below.

GBPAUD

Last but not least the GBPAUD. This too is in an interesting situation. To make a long story short, I only drew 3 trend lines and 2 horizontal lines. These lines represent the most important measurements for the GBPAUD. In fact when assessing the trend lines, the GBPAUD could be displaying a typical wedge formation.

A break above the first resistance line (purple) could see the currency move up to the next resistance level (green). Even if the currency clears the next resistance (green), it would quickly encounter the horizontal resistance (red).

In this scenario the best break a Forex trader can wish for is the break of the horizontal resistance (red), which should shelve any of the aspirations of the bears. Any break of the support levels such as the support trend line (orange) and key horizontal support (blue) would be an indication that the upside has lost its steam. A break of the horizontal support (blue) would be the absolute minimum for me before attempting any shorts.

Considering the massive uptrend prior to this wedge formation, a break to the upside has higher statistical odds than a break to the downside. Here too we can use the same break out strategies as mentioned with the EURJPY.

If you have any questions regarding the above, please feel free to ask those in the comment section down below.

23- 7- 2013 GBPAUD DAILY

Thanks again for your time and sharing of the article!

Good Trading!

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