A-B-C-D Trade - page 49
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Before we review Sept 23rd EUR/JPY, and the whole intervention subject, let's recap EUR/USD the last Euro session on Sept 24th.
In background of suspected intervention on USD/JPY, we'll look in on EUR/USD. We knew data at 08:00 (EU) and 12:30 and 14:00 (US) were scheduled.
A wide ABC plot during Asian had parameters of Asian Low = A, Asian High = B, and 07:55 pivot low = C.
Since data set for 08:00, we'd wait. Pair pivoted after data and ABC plot became:
A = 07:55 low 1.3310
B = 08:10 high 1.3377
C = 08:15 low 1.3361 (Max Stop-Loss)
Entry open of 08:25 candle price of 1.3392, as previous breakout candle quite large.
FE 100 = 1.3433 (target - hit) Reward = 39 pips
FE 127 = 1.3452
FE 161.8 = 1.3477 (hit)
These fibs are in black on attached 5-min chart.
This set-up was about 34/39 based on stop loss just below Point C. The number of pips for risk is larger than normal, but the entire trade is scaled to % risk, rendering this concern moot. What made this trade set-up so attractive was the small pullback for Point C, which was only 23.6%.
Now let's compare the ABC to a regular extension, which we have integrated recently. We use the fib retracement tool and pull from Asian High of 1.3356 to Asian Low of 1.3287.
This produced regular extensions (red fibs on chart):
138.2 = 1.3382
161.8 = 1.3399
261.8 = 1.3468
You can compare the 2 tools and their respective results.
Why did pair end up at 1.3492 (at time of this post)? This is result of last climb and mini-ABC of:
A = 12:55 low 1.3437
B = 14:10 high = 1.3476
C = 14:40 low 1.3453
FE 100 = 1.3492
While this small extension is tradable (15 gross pips), it can be used primarily for exit if a trader is still in a long position ahead of the round number 1.3500. The 1-Hour ABC had a FE 61.8 at 1.3482.
EUR/USD hasn't seen this level since April 20th. Key was break of 1.3333, which can be seen on the Daily chart.
Since it's Friday and end of week, we do not like to stay in too close to closing. This means we sit out after pair hit FE 100 of 1.3433. And yes, if we re-plotted after pivot at 09:05, the FE 100 = 1.3461, which was achieved at 13:15. We monitored that as well, but still opted out at original target.
We danced around the data on this one.
Attached is split screen EUR/JPY with 5-min and 1-Hour charts for Sept 23rd.
The 1-hour chart has retrace fibs plotted from the low of Sept 21st 111.47 and high of Sept 22nd 113.53. This produced:
23.6% = 113.04
38.6% = 112.74
50% = 112.50
61.8% = 112.26
78.6% = 111.47
We can see price action retrace to the 38.2 during Sept 22nd U.S. session.
Pair bounced and made an attempt to revisit high, but failed. End of Asian session saw it sit right on the 23.6% fib.
Data release from 07:00 to 08:30.
Now let's look at the 5-min chart. As mentioned in previous post, we plot retracement fibs on previous Euro session Sept 22nd, from low of 112.55 to high of 113.53.
We plot 2 ABCs point down.
1st ABC:
A = Sept 23rd 07:00 high 113.43
B = 07:35 low 113.12
C = 07:45 high 113.32
FE 100 = 112.99
FE 127 = 112.91
FE 161.8 = 112.79
2nd ABC:
A = 07:45 high 113.32
B = 08:05 low 112.94
C = 08:15 high 113.09
FE 100 = 112.71
FE 127 = 112.60
FE 161.8 = 112.47 (target - hit)
The chart labels an entry for 08:35 at 112.86, but the GBP data had just been released at 08:30. This is a no trade since it is too close to data. If we jumped in later, the extension was well on its way. It did, however, bounce off the FE 127 back up to the FE 61.8 of 112.85. Some could have entered the sell here.
Our live time comments suggested a bounce off of previous session low of 112.73 or 112.76 which was another fib. The thrust of the extension, fueled by reaction to data blew by the support. Those levels eventually acted as resistance later. 112.74 is also the 38.2% fib on the 1-Hour chart.
The extension hit its 161.8 as well as its regular 138.2 (blue fib) from retrace pull of Sept 22nd Euro session (per above). The hit to the 138.2 was quick.
The EUR/JPY pair has been trading well above Yen intervention levels. That is not the case of USD/JPY. Nevertheless, we were not enamored with shorting any Yen pairs.
Our cautiousness was reaffirmed when, less than 24 hours later, alleged intervention by BOJ occurred. As intra-day traders, we have smaller stop-loss distances and can be hurt with spikes against our position. Look at the next Asian session around 04:00 GMT. The initial 5-min candle went 80 pips to the upside.
We'll address intervention more later.
The 4-Hr chart has good confirmation of resistance end week, per attached.
A = 16:00 low 1.3107
B = 12:00 high 1.3439
C = 0:00 low1.3286
FE 61.8= 1.3491
FE 100 = 1.3618
FE 127 = 1.3708
FE 161.8 = 1.3823
Here's the rest of the 4-Hour.
Green Fibs:
A) Low = June 29th 12:00 1.2151
B) High = Aug 6th 12:00 1.3333
C) 61.8% fib =Aug 24th 12:00 low 1.2587
Blue Fibs:
1) Aug 24th 12:00 low 1.2587
2) Sept 6th 04:00 high 1.2918
**138.2% = 1.3044
**161.8% = 1.3123
Red Fibs:
1) Sept 10th 00:00 low 1.2643
2) Sept 17th 04:00 high 1.3159
**138.2% = 1.3356
**1618% = 1.3478
Maroon Fibs:
This is the ABC per last post.
****
Monitor the longer interval charts and figure out the S&R, as well as ascertain the swings on a larger basis. Practice plotting ABCs between each label.
EUR/USD traded in a tight range through Asian, establishing its high and low during the first hour and a half.
There were two breakouts, one to downside around 08:45 and one to upside around 12:15 GMT. Each went for approx. 20 gross pips.
A bounce trade upon Euro open also materialized, providing about 20 gross pips from 1.3448 - 1.3469. The 61.8% retrace fib was 1.3467.
There were no higher impact data scheduled and might explain the lack of direction.
USD/JPY tested previous Friday's low of 84.10 but did not venture any further. Trading the bounce at the end of Asian would have produced about 10 net pips.
EUR/JPY extended 17 gross pips to the downside early Euro session before shifting back up to Asian high area.
Trade of the day for this pair was the bounce off the Asian High that captured about 40 gross pips. Plotting the retracement from Euro session low to high, the bounce hit the 61.8% fib.
Gross profit to (Blue fibs):
38.2% = 23 pips
50% 113.41= 31 pips
to 61.8% 113.32 = 40 pips
If we didn't exit our entire position, we look for further assistance by plotting a mini-ABC from the top near Asian High. (attached 5-min chart)
Black fibs:
A = 13:15 high 113.71
B = 13:40 low 113.49
C = 13:45 high 113.56
FE 100 = 113.33 (precise hit)
Point B was the bounce off of the 38.2%. This entire price action off the top was very systematic.
If the trader took partial profit at the 38.2, trader would "trend balance" with assistance from mini-ABC AND move stop-loss to just above the mini-ABC's Point C. This money management protects profit on remaining lots.
Note that we use the Tokyo open time and price for Asian High was 113.72. Others may respect earlier Asian country's "open". If we look a little earlier, we can see that level. The market respected a price slightly above the Asian High based on the Tokyo open.
In any event, any entry around 113.65 to 113.70 was a great trade and risk/reward. Worst-case stop-loss was just above 113.81, the high since market reopened. Risk/reward = projected 12/37 net pips if trading to the 61.8% fib.
Our humble comments.
Intervention
There are two types of intervention, verbal and physical.
Verbal Intervention can be in the form of statements by a country’s Central Banks, a government executive, or politician. Sometimes it can be very simple, such as “we are not comfortable at this level”. It can also be in the form of a telegraph of future economic decisio
Physical Intervention is when a country’s Central Bank actually buys or sells its currency in an effort to manipulate its exchange rate direction. It can also be influenced by adjusting interest rates
Since this thread’s start in early May, we have seen two confirmed examples of physical intervention. In May, the Swiss National Bank (SNB), intervened in EUR/CHF in order to weaken the Swiss Franc. They sold CHF and bought EUR, which is to say they shorted EUR/CHF. Her's an article on that:
FT Alphaville Swiss intervention in context
On September 15th, the Bank of Japan (BOJ) swooped in and bought USD/JPY to weaken the Yen. A second “alleged” intervention occurred on September 24th, but remains unconfirmed. The BOJ had stated that they will not comment on Forex interventions, even though they did just that with the first interventio
Why do countries intervene? They either feel their currency is too strong or too weak. To quote one of the articles linked here, it seems like everyone wants a weak currency now. This is due to the global recession. Countries want to “export their way out of recession”. It creates jobs at home in the manufacturing secto
After the U.S. Dot Com bubble burst, the U.S. moved to effectively weaken the USD. They did this by lowering interest rates. The European Union complained as this made the cost of their exports higher. Unfortunately, the U.S. strategy resulted in a second bubble on top of the first one.
Is intervention a form of currency manipulation? You bet.
Does intervention work? Perhaps the best answer we have is that it might work in the short-term. However, the snap-back can be fairly quick, as with the most recent BOJ case. USD/JPY has retraced about 61.8% since the first intervention. The second intervention retraced completely within a couple of days.
Why is the Yen so strong? Normally, one metric used in economics dictate that we look at a country’s debt against their GDP to assess the strength or value of a currency. Another point is the country’s interest rates. Usually, an increase in interest rates will increase the value of the currenc
In Japan’s case, neither metric is indicative. It has a very high debt-to-GDP ratio as well as a near-zero interest rate
The Japanese interest rate level has been in place for some time, initially providing an advantage. It helped created an era of deflation. The flip side is the residual effect of heavy borrowing at low interest rates by both local and overseas investors.
At some point, these loans have to be repaid, and Yen must be bought. This is the “carry trade”. It is a form of arbitrage. An example is to borrow Yen at .25% to purchase U.S. Treasury Bonds at 1%. The investor must then sell the Yen he borrowed and purchase USD to invest in the T-Bonds. If the USD/JPY exchange rate moves against them, the investors rush to “unwind” their trade since it can eat up profits or result in a loss. Even if the exchange rate is stable, when the investment period ends, they must buy Yen and sell the other curre
With a strong Yen, Japan’s exports have built up large inflows of cash, which is one of the items explained in this article by BBC.
BBC News - Q&A: What's moving the Japanese yen?
Aside from Japan’s account surplus, investors might also like the fact thatJapan’s debt is self-finance versus borrowed. This is a very important point. However, things might change according to this expert:
Kyle Bass Betting Big On A Collapse Of The Japanese Bond Market
The U.S has telegraphed QE2 (quantitative easing 2). Some estimate this to occur in/by December 2010, and these investors are starting to price it in now. Here is an article on quantitative easing.
Economist Online: Quantitative easing: Lessons from Japan
In the end, there must be start of inflation (to reflate) for the U.S. plans to work.
Another article of interest on the role of Japan and the U.S. during the last important crossroad:
How Japan financed global reflation
EUR/USD bounced off last European Low and now at 50% FIB for + 16 pips
After waiting through 08:30 GBP data, EUR/USD bounced down off resistance 1.3426. This is the same price mentioned on last post for bounce up.
It is also the 50% retrace fib from Asian high to low.
Bounced to 23.6% fib of 1.3402 at the moment, and good exit price for about 20 net pips.
While Euro Data (German CPI) came in as anticipated, EUR/USD thrusted upwards at 14:00 on negative U.S. Consumer Confidence.
Breakout candle obviously moved very fast, creating higher price entry. As far as trying to plot extension levels, it did arrive at a FE 161.8. However, if you're not sure and need a quick estimate, utilize the retracement fib tool.
Pull from Asian Low of 07:40 1.3381 and high prior to data release 13:10 1.3510. Result is 138.2% = 1.3559 and 161.8% = 1.3590 (hit).
Pair channeled between those two points until now - a large spike up. Back in a minute.
OK back. Spike could be ue to favorable French data at 06:45.
Yesterday's Euro session also saw USD/JPY dragged down below support of 84.10. Market testing resolve of BOJ.
Flight to safety also to CHF as USD/CHF dropped to a 138.2% extension from;
High = Sept 23rd Euro session high 08:00 hour .9899
Low = Sept 24th Euro session low 14:00 hour .9779
138.2% extension = .9733 which was hit about an hour ago during Sept 28th Asian session. The major move was during yesterday's Euro session of 140 pips 12:00 through 14:00 GMT.
EUR/JPY movement post-U.S. Consumer Confidence similar to EUR/USD except with more extremes during Asian.
****
Negative Japan Tankan Report released 23:50 created initial Yen weakness. Since then, Yen has been see-saw in EUR/JPY but strong to downside with USD/JPY.
Meanwhile, market all but convinced of U.S. Feds easing soon, further explaining USD weakness.
Heading into the Euro session, we must plot our fibs. For EUR/USD pull from last significant high to low.
High = 16:15 1.3594
Low = 13:45 1.3442
138.2% = 1.3652
161.8 % = 1.3688
When pivots form, plot ABCs.
Do this for all pairs of interest.