Friday, July 8, 2011
Market trend analysis for 8th of July 2011
Hi, everyone. The trading week is over and let me do my market trend analysis for today. Markets had reversals after yesterday’s moves. Yesterday’s winner Euro became a pretty big loser. Currency pairs formed reversal patterns over Asian session and collapsed during European session. You can clearly see it in eur/usd and eur/jpy, the pairs that skyrocketed yesterday. If you looked at yesterday’s price action in those two pairs you might think that you are looking at one security (such great similarity in price action of both pairs!). eur/jpy even did not stop falling today. And news from US accelerated the fall even more. Let us look at some possibilities to trade currencies today.
Nonfarm payrolls has always been a very important event in financial markets. As far as I remember, looking back to my trading experience of 8 years, this piece of news has always created great volatility, especially in forex exchange market. I traded quite many of these events and know that it is both risky and profitable. You would have been profitable trading most pairs today. I have noticed that commodity currencies (usd/cad, nzd/usd and aud/usd) perform worst during those events, so I would not even analyze them while preparing for trading the event. You could have been profitable trading eur/usd, gbp/usd, usd/chf and usd/jpy though.
Let me look at gbp/usd pair and see how it was possible to trade it during the event. I hope you will be able to do your own analysis for other pairs after that. I believe you have to learn analyze markets trends first before trading them. This gives you a background for profitable trades. It is good if you are able to scroll back your charts and do analysis of the whole year looking how markets reacting to this or that piece of news. Then you can create the best trading strategy with various filters to filter your trades.
When I look at 1 hour chart in gbp/usd I see that perfect resistance and support levels for placing your orders were 1.5985 for going long and 1.5930 for going short. The first order for placing had to be long as the price was further from the level 5 minutes before the news release (see my post about forex news trading to understand better how to trade the events) and sell stop had to be placed 1 minute before the news came out. The market was moving downwards just before the announcement. It is better if you place the order as further away from the price as it is logical (in case markets suddenly start moving upwards when news comes). I think 1.5920 level would have been good for selling the pair.
So, news came and gbp/usd exploded upwards. You could move your stop loss order together with the market placing it under valleys of 5 minute chart. That would have gotten you out of the market at 1.6053 level.
Hope you enjoyed the market trend analysis.
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.