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Tuesday, May 17, 2011

Trend for 17th of May 2011

Today I wanted to show you a nice technical pattern in gbp/jpy that caused a breakout upwards in the pair.  If you analyze the conditions under which the breakout occurred you will see that it was based on technical conditions rather than fundamental news. The news from Great Britain (Consumer Price Index) that could cause a move was scheduled to be released at 9:30 GMT. If you looked at the charts you would see that the move beyond the range gbp/jpy was in occurred 3 hours before the above mentioned announcement. This leads me to a conclusion that the trend upwards was purely technical.

However you could easily foresee the move in advance. How? Firstly, you could see it coming by looking at price action. On the 13th of May the pair made a short term low and jumped off it. It then formed a few consecutive higher lows. It means that the price isn’t willing to go lower. Actually there were three more lows made after the 13th of March (130.26 low). You also can see two points of resistance made at 131.50 level formed on 13th and 16th of May. 

If you consulted RSI it was oversold on both 4 and 8 hour charts and a clear divergence can be seen on both time frames. As the pair is in a range, oversold and overbought levels as well as traditional divergences work very well. In this case they told us about upcoming reversal from downwards to upwards. Preliminary support is at 131.50-70 level with a possibility of dipping to 131.00 level. I am slightly bullish now as I am bullish about commodities: silver, oil. It is a general rule that when commodities (especially oil) go up, yen goes down and Australian, Canadian and New Zealand dollars go up. 

Where was the point for exiting this long trade? The first point could have been at 132.00 (first even number). The next point of resistance was at a previous resistance (look at the chart), which also coincided with another even number of 133.00. If the pair continues going up you might expect it to reach another even number of 134.00. We have tomorrow data from England coming (Bank of England Meeting Minutes) and this could trigger some nice day trends in various currencies. So, let us patiently wait for tomorrow’s European session and be ready to go both directions, wherever the market takes us.

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Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.