The quiet breakout before the storm

Smooth seas do not make skillful sailors. – African Proverb

Greetings. There’s only one day left until the Fed will (as expected) resume the program of assets purchases, trying to support the economic recovery. Current question is not “Will the Fed announce QE2?” but rather “How much money will the Fed print inject into the economy?” According to Bloomberg’s Survey – it could be around $500 billion. With (or without) RBA’s “help” – the EUR is well bid against the buck today, flirting with 1.4050 at time of writing. Layered all the way to 1.4150, resistance points starting at 1.4050 were good selling levels in the last 4 weeks. However, judging by the daily charts, it’s obvious enough that we were not dealing with any (major) trend reversal patterns in October, as the whole consolidation was normal, after such a strong recovery started in June; resumed in late August – early September, after retracing half of previous gains. It is also obvious that the QE2 announcement is already priced in, but the beauty of this market is that you never know for sure how it will digest the news. I’m sure you already know how, for instance, those NFP reports are – when the number comes close to your expectation/prediction – but the market reaction is totally different than you expected, so you stare at the charts saying “wait! WHAT?!”. Never underestimate the unpredictable path of the most liquid and volatile market… it hurts.

Technically speaking – one of the important upside barriers has been taken out today, around $1.400. The said resistance point is formed by connecting previous 3 lower highs of the 4-hrs chart, as seen in the chart below.

I kept my eyes on such breakout setups in the last weeks, like a hawk. They are some of my favorites and I reckon I feel like a fish in the water when the reasons are solid to buy high or sell low. Yes, that’s right – the opposite to buying dips and selling high. What’s “high” in uptrends? Or, what about “dips” in strong downtrends?

According to the COT figures above, sentiment is little changed. A minor correction in net longs occurred ahead of this week – on profit taking.

Some fellow traders asked me about the COT figures – why I use them? how I use them? etc. Well, no secret about it. I am both a short-term and medium term trader. I use the COT data when timing my longer term positions in various pairs. Such data is really valuable when trading on longer term time frames (holding positions for weeks / months) but quite irrelevant to day traders and scalpers.

USDJPY

I am not a fan of USD/JPY. Although I ‘scan’ tons of pairs and other instruments in search for setups – I usually avoid USDJPY. Not sure why. However, if I don’t trade it too often doesn’t mean I can’t comment on it. I know it’s been a pain for the bulls lately, as most recoveries were short-lived – despite the help from BoJ/algos or whatever caused the flash spike from 80.40 to 81.54 yesterday. For more than 2 weeks now, 82.00 was unreachable. And this 82 level reminds me of a song I’d like to share wih you :-)

Now that we know Mc Hammer’s prediction on the 82 barrier, we can check some charts.

Since today is Election Day in US, still speaking of USDJPY, here’s an old (but still good) joke:

Japanese opinion: So few elections in USA… we have election evely molning.

Other interesting trade setups to watch:

EURCHF

AUDUSD

CADJPY

Some great articles for you to enjoy this evening:

• Welcome To The “QE2 Goldilocks” Matrix
• Daily FX Summary: November 2
• A Look At Global Economic Events In The Upcoming Most Important Week Of The Year – All Aboard The QE2!
• Marc Faber on Bloomberg QE2
• Dollar Death Bed: Aussie Beyond Parity For First Time In 28 Years
• AUD at parity after surprise RBA hike

Btw, join innerfx if you are on Facebook. Unlike Playboy Mansion Clubs – entrance is free. You also get free cookies. :-)

Cheers, good night

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Post tags: AUDUSD, CADJPY, EURCHF, EURUSD, USDJPY