With sterling facing such poor fundamentals, what could rally this beleaguered currency? The answer: RISK. Friday's release of the non-farm payrolls (jobs) report was better-than-expected with the unemployment rate dropping from the previous month and the country loosing fewer jobs than expected. The market took that report as a signal that the world's largest economy was still recovering and as such investors' risk appetite increased. When risk appetite increases in the markets, $GBP benefits every single time across the board. Now while I don't believe that sterling can truly rally with such a bleak economic, fiscal, and monetary landscape, I do believe in technical corrections.

Now that price has broken above the 50% Fibonacci retracement level of the 2nd bearish wave on the daily chart, watch what price does at 1.5250. If price can get above AND CLOSE above that level, I am watching for the rally to extend towards 1.5300 where we may find resistance at the 50% Fibonacci level on the weekly chart. The $GBPUSD has already corrected past the weekly 38.2% Fibonacci level so the possibility of a return to the downtrend is very likely. Price action towards and at 1.5250 will hold the clue to whether this rally continues toward 1.5300 or reverses back towards 1.5000.

It's actually a light calendar this week from both the US and UK. From the US, this week is retail sales and trade balance numbers. Out of the UK, we have trade balance, GDP estimate, industrial production and manufacturing production. A light calendar makes the pair much more vulnerable to comments coming from the BoE members or European Union officials so be aware of what is coming off the newswires.

And as always, trade what you see folks, not what I think!

$EURUSD:

I definitely see it testing the 1.3660 level before NY trading.  If it breaks and holds above that level, it should run to the 1.3700 level where if that holds, it's game on to 1.3771.  As you can see from the chart, it's essentially forming a bearish wedge.  From what I see, for this wedge to be confirmed, it needs to break down and hold below the 1.3625 level which will warrant a run to the 1.3580 area.  Then to the 1.3540 level with continued weakness.  The orange circle on the chart represents (in my eyes) a false breakdown.  BASED ON THE PRICE ACTION I am still bearish on this pair.

$AUDUSD

This pair has been testing the .9000 level over and over again with no success.  If it were to hold above it, we will see the .9075 level shortly.  With a break down and hold below .8965 it should run to the .8930 level then to the .8900 level with continued weakness.

WATCH $CL_F & $GC_F!!!!!!!!

Good luck trading today!  Watch your stops and the price action!

Kevin M. Hughes is the President/Head Trader at K.M. Hughes & Associates, Inc. which is a currency trading firm based in Charlotte, NC.  If you would like to learn more about Kevin or his firm, please visit www.hughesincorporated.com

...a rally to complete the quarter to 1.5750. But after that target is hit, it is time to watch price to determine what cable does at these levels. To the upside lie a number of resistance levels: 1.5764, yesterday’s high; 1.5774, the high on February 5; and then 1.5800, the 50% Fib. If price breaks above these levels with confirmation, then price can continue to rally back towards the 1.6000 large quarter point and major psychological level. To the downside, if price remains below 1.5750 even after a break of that level, look for a return to 1.5560 support and a possible break down to 1.5500.

The $GBPUSD spent most of last week consolidating within a narrowing range between 1.5560 on the bottom and 1.5750 on top. Before the Fed's surprise, between-meetings announcement, the $GBPUSD was actually looking very bullish. The range narrowed and price actually produced a breakout to the upside breaking the aforementioned resistance levels with a high of 1.5814. Despite that bullish performance, price quickly fell away from the highs and closed the day way below 1.5800 at 1.5686. That was a first bearish clue as price did not find support at any of those former resistance levels.

Then the Fed provided the catalyst it needed to break out of its holding pattern. After the Fed raised the discount rate on Thursday, cable plummeted 340 pips to test MT support at the 1.5370/50 area. It is a very bearish development that price would test the MT support so quickly after breaking 1.5531 ST support and the 1.5500 whole number. So price exhaustion immediately after the Friday, Feb 19 low at 1.5345 is not very surprising after such a price move. However, the weekly close below 1.5500 at 1.5462 is a very bearish development.

Another bearish indicator that gives the bears more of a case is the wave count. The consoldiation on the daily chart zeroed the wave counter giving price the "rest" needed if it was going to break such strong support levels below 1.5531. The now first bearish wave on the daily chart marks the beginning of another leg of the downtrend meaning cable could still break new lows. However, one red flag that gives me caution in that scenario is the wave count on the weekly chart. This chart is in the beginning of its 3rd bearish wave. Cable could move below 1.5350 but a substantial move may possibly be muted. Price targets 1.5250 after a break of support at 1.5345.

The current correction rally could face resistance at 1.5509, the 50% Fibonacci level on the hourly chart as Friday's price move was a simple correction of the Fed-induced price breakdown on Thursday. Back to the daily chart, the current correction rally could take the $GPBUSD to 1.5525 which is the 38.2% Fibonacci retracement level. This Fibonacci level is very important because not too far above that is major resistance-turned-former-support at 1.5531 that held for 8 trading sessions after making the February 8th low at that price point. This level is expected hold and a break above would require confirmation of a weekly close to turn the pair bullish. If price stages a continuation back to the downside, as expected, watch price action at 1.5350. If price gets back there, this would be a second attempt at that level and it could give way. A break targets 1.5250 as price slowly makes its way towards MT support at 1.5050 and the 1.5000 major psychological level.

Fundamentally, the Fed's discount rate hike gives the $USD a clear edge over the $GBP. The Fed is now seen as hawkish and the FOMC member Hoeing's dissent at the last meeting gives this sentiment change even more credence. The Fed is even slightly more optimistic about the US's economic recovery. While the Bank of England (BoE) remains unchanged, the market suspects more quantitative easing may be necessary from the central bank especially in the face of the UK's rising fiscal debt. This stark contrast in monetary policy and central bank sentiment gives the $USD a clear edge over the $GBP. This week's calendar sees both UK and US GDP releases on Friday as major releases for cable as both countries' economic growth will be contrasted. The calendar is quite stark from the UK before then. The US will release manufacturing numbers, durable goods, home sales and consumer confidence all this week. There is a glut of economic news from the Eurozone which will affect the market's risk appetite as the markets will watch to assess the effect, if any, of the PIIGS on the rest of the Eurozone (i.e. Germany and France). Any increase in risk aversion will support the $USD and a continued slide the in the $GBPUSD exchange rate.

As always, trade what you see folks, not what I think!

February 14th was the first day of the 2010 MoneyShow Trader's Expo ($EXPO10).  It brought together the elite traders of our time as well as the beginners looking to catch a whiff of some the talent that walked around them.  In the FOREX realm, there was Ashraf Laidi, who I believe can sell ice to an Eskimo after watching him present at his booth, Greg M (won't butcher his last name) with a PHENOMENAL presentation, on the equity side we had the ability to watch Brian Shannon talk about how he trades.  You can't get that sort of expertise at your finger tips unless you pay an obscene amount of money!

Or can you?

The answer is YES, YOU can.  Right here, right now in the StockTwits community.  I don't need to go into detail as to why I am neck deep in the community that ranges from beginner traders to advanced traders, from equity analysts to forex analysts, from financial media anchors to WSJ editors to investor relations departments of major corporations...  The proof is in the pudding (or the stream in this case).  Sunday afternoon there were A LOT of StockTwits community members that descended upon the Big Apple from SnoopyJC, Raghee Horner, the California Girl Lydia Finkely, Brian Shannon & the must follow, fashionably late, Derek Hernquist.  We all met at dinner with the StockTwits brains Phil Pearlman, Leigh Drogen & Juston Petirno (I probably spelled his last name wrong), the other 'New Yorkers' like SMB Capital & the ever so happy Doug Estadt.

The dinner was like the 'Who's Who' of StockTwits.  The most asked question I heard being chattered around the table was "What time frame is that?" If SnoopyJC was asked the question I think he may have answered the 100 year chart where I would answer with the 1 minute chart (I think SnoopyJC is going to live forever because that's how long he'll hold a position FOREVER)...  And the statement I heard the most was "I don't understand FOREX"...  The Expo itself was great, I got to meet (in person) Joe Donohue & Anne Marie... GREAT PEOPLE!!! Monday night at the StockTwits Tweetup in SoHo at Antartica brought out even the stylish of us like Christian Gagnon, Jim Gobetz & Josh Brown.  That was a GREAT night!!  Enough said.

The StockTwits community is growing by leaps and bounds.  It's expanding quicker than most people thought it was going to; the community is strong, real time and most importantly, trustworthy!  You can't find another community out there that takes the time to nurture what it has and give access to the elite of the elite for FREE!  The article by TechCrunch and also ReformedBroker speaks VOLUMES about the quality of the community...  You can learn a lot and enhance your trading...  It's enhanced mine ten fold!  If you need to bounce trade ideas or bust someones butt, there's always someone listening.  It's just getting better!  Hence the new website!

If you're not on the desktop (which is free), you're losing money because you're not taking advantage of the expertise.  If you missed this Trader's Expo, there will be more, go to them, learn from the community.  Let's face it, most of the speakers at these Expos, are StockTwits contributers!  LEARN FROM THEM like I have.

Unfortunately, I was not able to make it down to Wo Hop...  But rest assured, when I come back to the Rome (NYC), I will be there, with my bib on and ear plugs for when the waiters yell at me...

As the signature on my emails read: "...sometimes wrong, but never in doubt."

I'm back to my five minute daytrading set ups that I had outlined here at the blog before, you can read that here.

Comments. Questions? Leave 'em here at the blog!

Here's a look at the $EURUSD 30 minute chart:

The price is CLEARLY below the 200 ema as well as the 21 ema.  It's resting on the support level (just created) at 1.3530 & is creating a bear flag.  I drew the diagonal line to help me gauge a break out.  Below the 1.3530 is a confirm to sell it.  But there is also the risk of the pair retracing to the upside and a break above 1.3570 will warrant a run to the 1.3600 level.  Again, I expect a pullback on the $USDX; the move with China was not warranted and a correction will probably be made (I'll be watching price action to confirm a pullback)...

For the commodity countries, all three played the game well after the Chinese reserve decision.  Here is the $AUDUSD:

As I am writing this, the price of the $AUDUSD is at .8812; a little different that the chart.  The .8812 is important because it is the 200 ema.  The support below that needs to be watched is .8771.  Below that level you can bet that there will be a nice drop.  If the price action HOLDS above the 200 ema, then we'll be heading back to yesterday's range (above .8840).

Again, when it comes to trading the commodity pairs ($AUDUSD, $NZDUSD, $USDCAD) make sure to watch the price action and your positions on $CL_F

Have a great day!

I encourage all out your to also "Talk Your Book". Send me your You Tube videos and maybe I'll post it here or you could see it over at Talk Your Book!

- Raghee

Questions? Comments. Leave 'em here at the blog.

The $AUDUSD finally broke out of the intraday congestion I had been avoiding after the 30 minute chart I had been swing trading long transitioned into a sideways market. (see update at http://chart.ly/vkqbwh) Knowing when to avoid a chart is as important as knowing when to look for a set up on it.  This evening's spike has pushed prices higher towards the daily resistance waiting at the 38.2% Fibonacci Retracement level.  The shallower (and more aggressive 23.6%) has been broken.  The 34ema low is waiting just above the Fibo resistance...that's the window of opportunity for a short sell.  A swing entry always feels a little uncomfortable since the entry itself is contrarian to the near term trend.  But remember the entry is an overall trend follow.

The original $AUDUSD chart update is at http://chart.ly/rd5e3g

The $USDCAD daily has pulled back to my swing buy trigger at the 34ema high and the 100% Fibo Retracement.  Some candlestick traders may see these last three candles as a "Three Black Crows" pattern.  It's not a perfect example of the pattern but it's likely popping up on some traders' radar.  I also temper this with what I have also seen when the market falls three candles in a row...and it's influenced by Fibonacci numbers patterns.  A possible pattern is three candles down followed by two candles up.  Obviously these two ideas conflict so I should be ready for either scenario.  But since prices have traded lower to a support level that I feel is reliable, I will look for the two rally days.  I will also pay close attention to how price action behaves around the 1.0600 major psychological level.

The original $USDCAD chart update at http://chart.ly/qbsp3n

- Raghee

So far the yen seems pretty unaffected by today's dollar sell-off through the major psychological level 80.00 and the Dow's rally back up through 10k.

For most traders the $USDJPY is the risk barometer of the markets.   For those unfamiliar, here's the Cliff's Notes version...

Update:  "Risk barometer" is basically my way of assessing risk appetite (equities strength) or risk aversion (a flight to safety).

As the $USDJPY rallies it generally represents the dollar gaining on the yen or the yen losing ground against the dollar.  It also means that the equities market is weak as traders/investors flock to the dollar for "safety".  It's a risk aversion play.

Update:  The whole "flight to safety" is not set in stone as to where the money goes.  You must follow and never assume it goes to the same place all the time.  Such as the relationship between the $USDJPY, the $INDU, and the $USDX.  The $USDJPY does not always follow the $INDU, and usually when it does not, it follows the $USDX.  I do not believe that there is a sustained flight to safety to the yen itself because that means that nations around the world are diversifying away from the dollar en masse.  Just my assessment - my opinion. I think it also reduced a yen rally to a flight to safety play.  There can be other reasons for moves higher, one such hypothesis is that the yen will benefit from other countries reducing their dollar holdings.  But I have not seen enough of this to conclude that the dollar is not longer the world's reserve currency.  I believe it still is.  Again, this leads me to conclude that flight to safety moves still rally the dollar.

As the $USDJPY declines, we're looking at the opposite side of the risk coin.  The yen rallies as there is more risk appetite and subsequently $USDJPY chart shows a downtrend.

We all know what the stock market did July '09 to January '10.  Here's a look at the $INDU and $USDJPY.

The risk appetite play is basically borrow (buy) a cheap currency (most often the yen) in order to buy higher yielding assets (stocks).  That's why the inverse correlation is seen clearly on the $INDU and $USDJPY charts.

This does not mean that from time to time the $USDJPY will not move with the U.S. Dollar Index ($USDX)...it can and does.  As a rule of thumb, I will watch which the $USDJPY is moving with, the $USDX or the $INDU.  This relationship can be checked both intraday and end-of-day because the psychology does shift session to session and even intra-session.  My perception of this is that whichever the $USDJPY is correlating with is usually the driver behind the move.

So the yen is telling an interesting story today as it really seems to not be moving dramatically with either the $USDX or $INDU.

So what's the takeaway?

A couple things.  First, I personally look for price action first and then see what the surrounding fundamentals are that may be effecting near and longer term psychology -  but price rules my decisions.

I am also thinking what many of you are probably already thinking too and price action confirms this.  The $USDJPY looks uncertain here - and I'm not picking sides in this intraday sideways market cycle!  If the yen is not rallying with today's strength in equities, what's it waiting for?  I can acknowledge that there are some traders who feel that the February 4th sell-off discounted some of this equities strength.  The rapid sell-off from 91.08 to 88.53 showed some dramatic yen strength in the face of a strengthening $USDX.

So here's where the rubber meets the road.  I've always thought all this discussion and no trading idea is a waste of everyone's time...I will fade the floors and ceiling on the 30 minute chart.  This means I am expecting exhaustion at the range highs  and range lows.  I keep a tight 10 pip stop on these aggressive entries and if momentum continues, go with it.  A more conservative approach would be to wait for the sideways  channel or  "rectangle pattern" to breakout or breakdown.  I'll use the MACD Histogram to confirm the break.

- Raghee

Questions?  Comments.  Leave 'em here at the blog!

I'm not a big fan of the afternoon entry as the hours between Noon and 6pm EST tend to see price action "wander" until the Asian session gets underway.

However, IF we see a break higher, then there's another set up that I think this breakout could lead into.  So the first step would be the breakout momo (momentum" but with MACD Histogram confirmation.  The second would be the resistance waiting on the 240 minute chart which is still in a mark down cycle.

I take the market cycle reading with my 34ema Wave which is pointing down in what I call a "four to six o'clock angle" as prices are currently congesting just below the 1.3700 major psychological level.

The conservative swing short would trigger off the 34ema low which is currently at 1.3756.   Using a Fibonacci retracement, the correction seems to be a solid ceiling with the 0.382 retracement resistance.  I am not usually a fan of the shallower 23.6% as it typically does not represent "enough" correction.  If you DO like this level -- especially since prices have stalled here which has probably just as much to do with the "00" overhead -- then the short trigger validity (think stop loss) would rely on the near term highs between 1.3716 to 1.3707.

I don't expect to see any decent follow-through until between 6:00pm (take a look a the graph above and when price action ranges begin to expand) and 8:00pm EST but watch the 4:00pm Dow close.

The stagnant Dow ($INDU) and Dollar Index ($USDX) will have to wake up to before seeing any trigger on the $EURUSD:

In the meanwhile, my *age-old* five minute intraday trades have been my "go to" set up.  You can check out the details of that strategy here.

- Raghee

p.s. hope to catch up with my StockTwits peeps in NYC this Sunday and Monday at the Expo!

Comments.  Questions?  Leave 'em here at the blog!