The US Dollar Index pre-Fed Announcement

As we approach yet another Fed announcement where no change in rates is expected, we wanted to do our usual analysis of the US Dollar Index to see if there is anything critical from a technical perspective that we should be aware of heading into the news.
So let's have a look at the US Dollar index daily chart with a regression channel off the lows and the exhaustion 9-bar counts:
US Dollar Index
One key feature of the 9-bar exhaustions is that when they line up against key support and resistance, they are high-probability turning points in the market. Today's bar, once it completes, will be the ninth bar of the move. Now, remember that even past the ninth bar, the setup phase of the exhaustion doesn't have to terminate until we get the dashed box drawn around the area. For example, if you look at point A that I have designated on the chart, you'll see that the box ended right there, which was several bars past the 9-bar count. This was also against the upper regression line and thus led to a downward turn for a month in the US Dollar Index. You can then see the 9-bar move up that followed, where the box is drawn and terminates at B, also just outside and above the upper regression line. That one led to a pause but not much of a pullback in the market as the energy exhausted.
In both cases, the ninth bar itself occurred close to the upper regression line, and then the setup box completed a few days later at or even above the line. For purposes of this general analysis, we'll ignore the 13 bar buy and sell signals on the chart as the energy setup moves themselves can be useful.
Now, let's consider where the chart is today at point C. This is the ninth bar of the count, but we are in the middle of the regression channel. Therefore, while the market may have expended upward energy to get here, we aren't yet near the major resistance that has been the upper regression line. There are a couple of ways that this can play out, and the key will be to see where the box draws that represents the end of the setup move.
If this extends to the upside for a couple of days and we get the signal near the upper regression line, then it will represent another short-term exhaustion against resistance and a short-term sell signal. However, if the box completes sooner, it would indicate that the momentum of this move is less than prior moves. This would give us an earlier sell signal before the upper regression line, BUT, it increases the chances of a more major turn in the market that might break the lower regression line moving forward.
The fact that we have gotten at least the 9 bar completion heading into the Fed meeting day is always interesting. It means a signal is coming soon, and the Fed announcement may be what drives it.


Some Basic Pointers on Stops for GBPUSD

One of the things that we like to focus on is something called Market Direction. We utilize a tool in Forex, Stocks, and Futures that measures three levels of market direction for the day, starting with the open of the market. In Forex, the open is considered 5 pm EST, or global rollover. From that point forward, we compare where the market is compared to the opening price, the midpoint of the session so far, and a 10 EMA. We end up with three lines. If we are above two, we consider market direction to be green. If we are below two, we consider market direction to be red.
Today, we had a short entry on the GBPUSD under a key Gann level at 1.5425. This triggered heading into the European session (charts here are in Pacific Standard Time) at point A. We covered half of the trade approaching S1 at B and kept the second half on, looking to adjust our stop for later:
GBPUSD
By then monitoring the US Dollar Index with our market directional tool as described above, we can see the point in the trade where we would want to exit the final piece of the GBPUSD. Here's the US Dollar Index on a 5-minute:
US Dollar Index
Note how it was approaching the midpoint around 7:30 am PST at A. A move under that line would flip market direction to red, thus signaling us to exit the GBPUSD trade and lock in the gain. That would have occurred around the 1.5360 on the GBPUSD chart above, which I've drawn with a black line.
The midpoint on the US Dollar did not break, and thus we did not stop out of the trade. This kept us in the trade for the next spike, which was a news spike based on debt downgrades. Very important to use logical stops in your trading and not just exit because you feel like things might be reversing. Take a top down approach and let the market be your guide.
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Classic Technical Activity to Start the Week on EURUSD

Gap fills, Pivot series, and Static Trendlines were all in play and behaved properly to start the week. Because all three were present, I thought I would use this as an example of how these various technical factors can work independently.
Here's a look at the GBPUSD 5-minute chart with the tail end of Friday's trading and then the Sunday open with a small gap up. These charts are on PST:
GBPUSD
The first factor was that the GBPUSD gapped up slightly. We know that 80% of gaps fill the same day, and this was in the 80% as the GBPUSD headed down to fill the gap early at A. Gaps in Forex obviously only occur on Sundays, so it is nice to get the fill of the gap out of the way as quickly as possible.
The second factor was proper use of the Pivot series. Our Pivot series calculations are based on the traditional FX trading day, meaning that they are calculated from a 5 pm EST end of day/start of day. This is global rollover. Our trade call was long over the R1 level, and the important factor is how the GBPUSD used that level, triggering long at B breaking through but then exactly retesting the level to the pip at C, which gave traders a second shot at entry since the first move was fairly early in the session.
Our first target to sell half was at R2, and the move occurred from C to D very quickly. There was also a 9-bar move (the dashed box is drawn around that move) that ended at around the same time. The next push higher on the European open terminated in another 9-bar move that ended at E and that was the high of the session. However, this gives us our final technical to look at, which is the Static Trendlines (red line) created by that 9-bar move up to E. Static Trendlines often become trade-to targets and support after an energy move like that, and you can clearly see that the GBPUSD used the Static Trendline exactly at point F.
The rest of the session was spent between the prior high and the Static Trendline.
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A EURUSD New Target?

The daily chart of the EURUSD has broken a key four month trendline. That's news in itself.
However, there is more going on with this move. Let's take a look at the daily chart with the obvious downtrend line drawn:
EURUSD with trendline and MOB
Note that I've drawn the lower MOB (Make or Break) line and a pivot MOB. Here's how it works. If you take the low at A and draw the MOB line off of it (thanks to e-Signal's Advanced GET platform); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES you get the lower blue and pink line. The way that MOB's work is that they give you a potential projection for the market both in terms of price AND time. That last part is what makes them interesting. The two little black hash lines inside the MOB line give you the ideal window where this price would hit, but the main point is that the projection is for the length of the line ONLY and not beyond.
So the MOB calculation from the low at A gives us line C. Note the intersection of that line with the downtrend line that I've drawn in black. The EURUSD broke that trendline to the upside, but then retraced down to not on retest that downtrend line from above, but also hit the MOB just ahead of the ideal window. It hit it to the pip and reversed hard on Friday.
This means that the EURUSD has broken a key trend and retested that trend, turning what was resistance into support. What happens from there?
Well, we need to start thinking about an upside target for the EURUSD on this next move. This can be accomplished by drawing the MOB from the most recent pivot high, which is point B. This gives us the line at D, which is a fairly large MOB line. Again, however, we focus on the space between the two little black lines on the MOB as being the ideal target timeframe, which would put us about 600 pips higher in just over a month. Obviously, the market can go up and down during that move, but there is a better than average chance that the MOB will be hit in that area, so trading strategies to the long side on the EURUSD should be given priority.
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A Classic Value Area Example on GBP/USD

For today's Blog commentary lesson/review, we wanted to show off a key play from last night's action that works about 70-80% of the time on a proper setup, which was the Value Area play on the GBPUSD. The main component here is that the pair started above the Value Area during the European session start (this chart is PST, but you can see volume as to when the European session started). Here is the 5-minute chart. The lines that we care about for this discussion are the light blue (or cyan) Value Area High and Value Area Low:
GBPUSD Value Area
What you can see is that the pair came down to the Value Area High at A, which provides a short entry and a 70-80% chance that a move to the Value Area Low will occur. In this particular case, based on the prior day's ranges and the Levels as provided, we crossed 30 pips to the Value Area Low at B perfectly, and there was some initial support around that area.
Value Area plays are extremely easy to spot with the right tools and provide a simple strategy for traders with a basic stop entry and t/p target. Risk level should be half of the Value Area range.
Think that one was just a coincidence? How about the same concept on the NZDUSD last night, which triggered into the Value Area at A and crossed to the VAL at B for a perfect trade:
NZDUSD Value Area
Note that the NZDUSD stopped right at the VAL at that point TO THE PIP. The market knows these numbers.
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A Unique Situation on the US Dollar Index

One thing that you rarely see in a Forex pair or the US Dollar Index is a gap. In fact, the only practical place where a gap could occur is between the Friday close and Sunday open.
What we do know from other markets is that from a technical perspective, the following are true:
80% of gaps fill the same day
95% of gaps fill within a week
99.5% of gaps fill eventually
Also, we know that when it comes to long-term trendlines, once they are well-established, if they break, they flip from support to resistance or vice versa on a retest.
At the moment, due to a rare gap in the Forex market from Sunday, April 11, we have a strange situation that combines the two concepts. Here's the daily chart of the US Dollar Index with a key trendline that had been critical support for some time:
US Dollar Index
You can see the clear gap down under the trendline at point A. Now, trendlines are considered broken when they break due to price movement, not gaps. In this case, the market gapped down and over the course of the next week or so headed up to fill the gap. So we have met the 95% rule of filling the gap within about a week. However, this now leaves us using the trendline as resistance very clearly instead of support even though the line was not traded through on the downside. Some would call that a conundrum, and while it is extremely unusual and unique in the Forex market, it's probably worth noting how we play out over the next few days and which concept wins (gap fill or getting back above the trendline as it should still be support).
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AUDUSD Breakout Looming?

We're currently tracking a key breakout in the daily chart of the AUDUSD over the 0.9406 level. There is a general inverted head and shoulders formation over six months forming here, which creates a lot of strength as the pair winds up for the breakout:
AUDUSD Daily Breakout Setup
It is important to note that there is no trade until the breakout occurs. However, one key feature is our 9-bar counting indicator. On the chart, the bar counting method draws a dashed box around each count setup. The tool is generally designed to look for energy reversal points in the market. There are six boxes on the chart as shown.
Let's analyze what is occurring, starting with the first box to the left. This is a big box that terminated at point A on the chart and led to a reversal right from that point. The next box was a later turn up that stalled out at B, also a key turning point, and that created the breakout level that we are monitoring now.
Over a month later, we had another upward count that terminated at C and caused a downside reversal again in the pair. We then had the biggest setup count in the last six months to the downside, ending at point D on the chart. That's the biggest energy move, and the buy signal formed at the end of the box ends up being the low since then AND the head of the inverted head and shoulders.
What is the most interesting is that the second half of the pattern should be where strength really starts to build up, and the tool helps us spot that as well. Note that the counts that end at box E and F did not really lead to downside reversals on the AUDUSD. In other words, the AUDUSD is shaking off overbought energy as it heads toward the breakout of this pattern. That is a very critical component of the move and the setup. More details to come as the pattern plays out.


Tradesight Update

A few notes as we head into the week of April 19-23.
Here is a link to the video recap of last week's stock, small cap, and ETF calls along with a general overview of the action for the week.
In addition, we are in the process of adding a page to the site that details all of our current e-Signal tools. And we have reactivated the Blog for market commentary. More to come.


The GBPUSD, A Base, and a Gap to Fill

We saw some unique action that has led to an interesting setup in the GBPUSD to start the week. Sunday, the markets gapped in favor of the US Dollar on the open. This caused the GBPUSD to gap down between the S1 and S2 levels of the Pivot series. Gaps in Forex can only occur on Sundays, and this created an unusual starting place for the GBPUSD. As you can see from this chart, the initial impulse move after the gap was between S2 and S1 (points A and B on the chart):

The pair later broke under S2, giving us a short entry that led to a profitable overnight trade. However, this morning, the GBPUSD has moved back between the S1 and S2 levels, and in fact, it hit S1 exactly at C.
This has created an intriguing base, almost a cup and handle, against the S1 level with a gap to fill way above. Gap fills occur 80% of the time on the same day that the gap is created, but they fill about 95% of the time within a week. Although the session is mostly over and volume has drifted off, we will be watching this area once the new Levels are created after 5 pm EST and looking for an entry into the gap over this prior S1 level. The gap fill itself would be the target.
It is very unusual to get such a setup in Forex, although we see them daily in stocks and futures.