Foreign Exchange: A Rock and a Hard Place
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June 19, 2009
It's been a very interesting time in the currency markets. Mind you, I can't remember too many boring times since I started trading these markets!
After spending more than a week going nowhere fast, the US Dollar/Japanese Yen currency pair (FXUSJY in ProfitSource) broke out of its trading range this week and at time of writing (Wednesday, June 17, afternoon) is heading south.
Chart 1 below shows the current market action in ProfitSource.
Chart 1
click here to enlarge
The market found resistance around 98.90, which was right on 50% of the range down from the 2008 yearly top to the January 2009 low, as shown in Chart 2 below.
Chart 2
click here to enlarge
The market pulled up right on this 50% level on Friday June 5th. WD Gann says in How to Make Profits in Commodities that you can make a fortune by following the 50% rule alone and this is something I cover in more detail in my Active Trader Online Coaching classes.
After touching the 50% level, the market spent a week going sideways, falling sharply one day and then rising sharply the next.
However, it never got back to the 50% level. It was struggling against another resistance level - the 62.5% (5/8th) level of the range down from the April 6th top (the current yearly high). Chart 3 below shows this.
Chart 3
click here to enlarge
Both of these resistance levels are strong in their own right, but they are more important when they are both close together. When the market is struggling against two strong resistance levels, you'd be a brave trader to be going long. That's not to say the market is guaranteed to fall - it just has a lot of work to do if it is going to go up.
Once you see the market begin to hammer away at these levels and make short, sharp ranges up and down, it's a pretty good bet the market is winding up and getting ready to break out.
I remember seeing a very similar pattern in July 2006 on the Share Price Index, (AAi-Spotv in ProfitSource). And we all know where the market went from there!
In Chart 4 below, Time by Degrees analysis shows us that for 2009, lows have been forming late in the month, while around the 5th or 6th of each month has been producing highs.
Chart 4
click here to enlarge
With this in mind, June 22nd would be the next area to watch for an intermediate low and July 7th will be an interesting place to watch for a high.
If you are heading out to OASIS (Optionetics Annual Super-Investor Summit) in the United States this week, be sure to catch Aaron Lynch's Time by Degrees presentation there, where he will go into this simple but powerful timing technique in more detail.
Be Prepared!
Mathew Barnes
Trading Tutors Team
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