Trading setups to consider next week

Quote of the day: As long as people believe in absurdities they will continue to commit atrocities. — Voltaire

EURUSD

The euro had a good run against the dollar in the last 2 weeks, gaining 450 pips per week – being up 6.4% this month. Or I rather say “the dollar is down 6.4% against the euro”? – technically it is the same thing, but we can’t speak about a “strong” euro yet – just look at other pairs. In my last weekly outlook I mentioned that I am bullish on EUR against USD and I don’t see any reason to sell yet. We are over 400 points higher from last week’s trading levels and I maintain my bullish stance as long as pullbacks won’t revisit the 1.2900 region and below. Interesting enough is that the latest COT data shows a positive change in sentiment for the first time this year – so if you are on the buyers side, you are certainly not alone!

Some would argue and say it is overbought and will start falling like a rock but I’m one of those who prefer to follow the market without questioning it. I know it won’t answer.

Looking at the 4-hrs charts, we can see some layers of support starting around former resistance at 1.3435, backed by 1.3285/00 and 1.3150. At first sight – a good region to look for buy on dips opportunities would be 1.3150 to 1.3200 as I don’t think that 1.3285 – 1.3330 (top side of August) will hold another test, and since we’re already a bit too high this month – there is enough room for a correction. Important upside targets are seen at 1.35 which is the median retrace of the full decline from 1.5145 to 1.1875, followed by the 61.8% of same move, at 1.3900 – and, of course, the round 1.4. Buying on break above the 50% at 1.3500/10 is another good strategy to consider.

USDJPY

BoJ’s intervention effort to weaken the yen failed to impress and the dollar is again below 84.50, after rejection in the 85 territory. Bank of Japan Governor Masaaki Shirakawa reportedly said Sunday that they are closely monitoring the effect of the yen’s appreciation on the economy – and they are prepared to take appropriate steps if required. So, is a new intervention likely? Will it have longer term effects or will simply fade after few days?

I for one know I don’t want to sell it – since a new intervention could be just around the corner. Nor buy it, because there will be no intervention then, and will be trapped in a wrong trade, a la Murphy’s Law. Therefore, I think it is better to wait for now. I’d prefer to buy it but last attempt higher was a failure, although other pairs were better performers – such as EURJPY and AUDJPY. So if you really look to sell the yen, don’t do it against the dollar: consider AUDJPY, EURJPY, CHFJPY, NZDJPY

EURJPY

AUDJPY

Same story as in chart above

S&P500

Last week I said that I am expecting a break above 1130, which eventually occurred – and 1130 is currently providing support. More upside action will support the bullish scenarios in the yen charts above. However, be cautious because market confidence is still far, far away.

AUDUSD

A week ago I mentioned that a 2nd failed attempt against .9450 could have been a good selling opportunity – if support at .9330 fails. But it didn’t. The Aussie dollar found solid support around .9350 and resumed uptrend, breaking above former resistance at .9450 – hence providing a buying opportunity. I said many times that important levels in history act as magnets and this is the case, again – pre-crisis all time high at .9850 being current target, now that last year’s .9400 top is history. I don’t say I am expecting a correction, but if it happens – I might be one of the buyers. Buying dips and breaks higher are both good strategies for now.

Some great articles for this Sunday:

• Weekly Contrarian COT Index and Retail Positioning Analysis
• Gold Excitement Builds Around $1300 Round Number
• Relaxing While Trading
• End of the trend strategy
• Currency crisis has begun
• BoJ: Dear Yen Traders, We’re Going To Dropkick You Again And Again
• On the Secret Committee to Save the Euro, a Dangerous Divide
• The Week Ahead for the EUR: Sept 27th-Oct 1st

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Have a great week and thanks for reading this article!

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Post tags: AUDJPY, AUDUSD, EURJPY, EURUSD, SPX, USDJPY