Thread: Trend of the Day

The DailyFX Education Department never stops emphasizing how important it is to be able to identify a trend. This subject is covered with varying degrees of expertise in all of our three trading courses (FX Power Course, Trading the Majors, Day Trading Course). In this thread we will pointing out trends every day. If you have questions about our analysis feel free to ask. We are Here to Help!

DailyFX Power Trading Course Instructors

• Thomas Long
• Matthew Russell
• Richard Krivo
• Gregory McLeod
• Sean Hyman

Watch this video to learn more about FXCM's 3-Step Education Program.

Click Here to subscribe to this thread.

One way to increase the probability of making a successful trade is to look for the strongest trends and then trade in the direction of this dominant trend. In this way, we put the odds in our favor because as the old trading adage goes, “The trend is your friend until it bends.” One such trend can be clearly seen by looking at a daily chart of the USD/JPY that has seen both a new 3 Week High, Week Ending August 16th and a new 3 month high. This is important because the definition of an uptrend is when price makes higher swing highs and higher swing lows. This resembles a staircase pattern. When in doubt, find the nearest 9-year old and show them a chart and they should be able to quickly identify an “upstairs” pattern indicating a strong uptrend or “downstairs” indicating a strong down trend. Adding a 200 Simple Moving Average (SMA) helps to identify strong trends. In the case of the USD/JPY there is a significant amount of price action above the 200 SMA. Compare this with the EUR/USD that has a price action below the 200 SMA indicating a down trend. It is easy to draw a support trend line underneath the rising price action. In an uptrend we look to buy at or near this support line. This gives us a good risk to reward. However, we should avoid trading against the trend. This means avoiding selling in an uptrend because the risk is greater and the rewards are small. Picking tops in a strong trending market like that of the USD/JPY can be a costly mistake for traders.

Another look at a Daily USDJPY chart shows the strong uptrend in tact supported by a better than expected Durable goods number for June rising to 0.8% compared to a forecasted decline to 0.3%. USD/JPY has been trading in a small but tight horizontal range with resistance standing at the 110.88 and support comes in at 107.94. This pause consolidates the recent gains. Overbought Stochastics warns of a pullback may be ahead. The 200 SMA comes in at 106.51. Patience is needed to get the best possible entry at support.

Nearly a year ago since EUR/GBP broke out of its tight multi-year range to explore historic highs in the .8100 area. Rallying over 1000 pips in less than a year, EUR/GBP currently sits in another tight 400 pip range between .7700 and .7100. A break above the .8100 level of resistance could lead to .8300 and beyond. Stochastics are in overbought territory, however, in strong trends, prices can continue to rise.

The AUD/USD has a strong daily down trend that currently rallying up to a resistance channel line. In a downtrend we look to sell at or near resistance while the crowd tries to pick a bottom in this pair.

See the attached chart:

The EUR/USD did not get a holiday off from selling as the pair breaks the psychological 1.4500 barrier. The 1.4567 support level was broken with conviction which opens up the 1.3500 area. We would look to sell any rallies back up to the 1.4500 area.

The Trend of the day is the USD/CHF. After breaking the down back in the middle of July, the Swissy has made new weekly highs. Shortly after crossing the 200 MA at the beginning of August, USD/CHF took a little break from all of its uptrending and settled into a 1.0850 to 1.108 range. Today marks the first time we have a daily candle breaking into new high territory at 1.1145. We could see a test of the upper trend resistance in the 1.1250-1.1300 area.

GBP/USD is showing some strength after the Bank of England left their overnight rate unchanged at 5.00%. The downtrend which has extended some 2200 points since late July may pause momentarily before resuming its trek south. Selling strength as price gets near resistance and Slow Stochastic becomes overbought.

Originally Posted by Gregory McLeod

The EUR/USD did not get a holiday off from selling as the pair breaks the psychological 1.4500 barrier. The 1.4567 support level was broken with conviction which opens up the 1.3500 area. We would look to sell any rallies back up to the 1.4500 area.

Since EUR/USD was placed on our radar as a sell at 1.4484, it has moved 292 pips to a low of 1.4192 before retracing. We could see 14471 tested which is the 38% Fibonacci retracement of the 1.4922-1.4192 down swing. The 61.8% retracement comes in at 1.4643. We wait for this rally north to run out of energy before the downtrend resumes.

Dear Greg,

Can you tell me which start candle did you use to draw the Fib Level to Low Swing in the EURUSD above.

Thanks,
Jaspreet.

Originally Posted by JForex

Dear Greg,

Can you tell me which start candle did you use to draw the Fib Level to Low Swing in the EURUSD above.

Thanks,
Jaspreet.

Hello Jaspreet! I used the two candles at 1.4922 and drew them down to the 1.4192.

Originally Posted by Gregory McLeod

The Trend of the day is the USD/CHF. After breaking the down back in the middle of July, the Swissy has made new weekly highs. Shortly after crossing the 200 MA at the beginning of August, USD/CHF took a little break from all of its uptrending and settled into a 1.0850 to 1.108 range. Today marks the first time we have a daily candle breaking into new high territory at 1.1145. We could see a test of the upper trend resistance in the 1.1250-1.1300 area.

We hit our first target on very volatile trading. After a brief retest of the 1.1116 break out point, USD/CHF continues to power northward. The August triangle breakout allow us to project an initial price target of 1.1627 and a secondary measuring objective of 1.1853.

Originally Posted by Gregory McLeod

Since EUR/USD was placed on our radar as a sell at 1.4484, it has moved 292 pips to a low of 1.4192 before retracing. We could see 14471 tested which is the 38% Fibonacci retracement of the 1.4922-1.4192 down swing. The 61.8% retracement comes in at 1.4643. We wait for this rally north to run out of energy before the downtrend resumes.

We reached a low over night of 1.4046 before snapping back higher as the down trend continued unabated. Oversold daily Stochastic is signaling a pullback is in the cards. Given that we have moved some 2000 pips from the all time highs, a retrace can be expected. However, a penetration of this 1.4046 level could get us in the 1.3900 area rather quickly.

Dollar Strength has bucked Yen strength in other currency pairs as it moves higher after reaching a low of 105.52 on 9/5. Price remains above the 200 MA and oversold daily Stochastic foretells higher prices to follow. We could target the top of the trend channel in the 112.00-25 area.

Last night, New Zealand Cut interest rates 50 basis points to 7.50% narrowing the interest rate spread with Australia. This has resurrected the AUD/NZD uptrend. Finding support at its 200 SMA at 1.1951 and the 50% Fibonacci level of the 1.1158-1.3000 up move, AUD/NZD could reach the 1.2600 area. A close below 1.1951 would abort this projection and further weakness to the 1.1200 area would result.