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Nice Example "How Support Becomes Resistance"

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Nov 21 2011

Pound is one of the weakest today, down almost 300 pips from Friday highs, currently trades around 1.5600. We at www.ew-forecast.com anticipated that move, on some basics of technical analysis "how broken support becomes resistance".

Here is the chart and comments that we shared with our subscribers on Thursday, Nov 17th 2011 past week
  • Cable broke through the 1.5860/90 support region which could be start of something bigger to the downside, especially if we consider that prices slipped below the support line of a trading channel as well. But notice that even if we still count move from the top in a corrective way, such as double zig-zag, we still need one leg lower (wave (C)) after wave (B) bounce, which may occur in the coming session or two. Alternate count also signals for weakness after corrective retrace into 1.5860/90 area which will now tend to react as a resistance either in wave (2) or (B) wave! "Support becomes resistance; Resistance becomes support". Bottom line: Weakness to come after any pull-back higher, while pair trades below 1.6090!



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And here is now the updated chart:




Eur/Jpy: Downtrend To Extend

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Nov 17 2011

Eur/Jpy moved significantly lower from start of November, as three-wave of recovery from 100.70 found the peak at 111.50 region, where "C" wave was equal to wave "A" almost on pip! When an impulsive decline occurred two weeks back from top and then price action slowed down for a few days, we warned our subscribers that this is just a first leg of three down, which were our minimum expectations at that time, and that Eur/Jpy will fall deeper. Since then pair fell nicely, another 340 pips into the 104.70 region. But notice that this level was broken, so now we actually have five legs down from November highs, so we count the move as one-two one-two extremely bearish set-up. But even if you count the move corrective way from the top, the downtrend is incomplete! Why? Because corrections are never structured in five waves, so even if we count it as a double zig-zag the bearish trend is incomplete!

For more detailed analysis, you can also review video that was recorded for subscribers at that time.



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Usd/Inr Bullish Towards 51/52 Area

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Nov 16

Pair Usd/Inr is clearly in bullish mode, identified by higher highs and higher lows. In fact we can see a nice impulsive structure since late July already, and from the most recent 48.50 swing low as well. We see no reason why trend would change here, so its better to stay with a trend, and any pull-back from the highs will be considered as a corrective move and buying opportunity, while pair trades above support line of a trading channel, but more importantly above 48.51 critical support!

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Higher US Bond Prices Will Support The US Dollar

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Nov 14 2011

The risk is off today with Euro reversing significantly lower from 1.3800, and almost erased all gains seen on Friday. As such possibility for stronger US dollar remains in play for this week, but in such case, S&P500 needs to weaken towards and below 1215, while 1292 resistance holds.

One of the main reasons why "for now" higher dollar possibility exists is a bond market, which still shows bullish technical set-up on the TLT chart below. In such case US yileds will weaken which will send the US stocks lower and dollar higher. What we also want to point out here, is that moves higher on stocks and majors, seen on Friday are not confirmed by a bond market! So, if all markets are not showing the same direction, then something is wrong here. Now the question is to which market we should trust!? Well, we know that troubles in the Euro zone are not anywhere near the end and that any rally is just temporary hope. Based on this, we suspect that stocks are overbought and that sooner or later they will turn lower, which agrees with forecast for higher bonds; TLT in our case.

On the chart below we have five waves up followed by a slow price action, called consolidation. Its a contra-trend move from where market should break to the upside, above 119.50 wave (1) peak.

TLT 1h chart:



TLT; iShares Barclays 20+ Year Treasury Bond Fund (the Fund) seeks investment results that correspond generally to the price and yield performance of the Barclays Capital U.S. 20+ Year Treasury Bond Index (the Index). The Index measures the performance of public obligations of the United States Treasury that have a remaining maturity of 20 or more years.


Eur/Usd The Breakout Point; "Weakness In Progress"

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Nov 10 2011

The US dollar moved significantly higher in recent sessions, as Risk trade fell sharply, driven by fears over the euro zone crisis! It was the worst day in six weeks for the US stocks market which lost more than 3%. It was also one of the worst days for Eur/Usd pair which lost more than 300 pips from its daily highs, and found the recent support just above 1.3500. Well, this appears to be just a temporary low for the pair, because based on the 4h chart we can see that downtrend has just started, if we consider a broken neckline of a head and shoulders pattern that we paid attention for some time.

Well, if we do just simple measurement from the head to the neckline and then from the breakout point, we can see that projected target for the pair comes even below 1.3. We also need to be aware that broken support, like neckline in our case, usually becomes resistance, so watch for sell-offs after any pull-backs. Of course, its never easy to call a target like that, but that’s it what market is telling us right now. So the concept is very simple here, pair is bearish as long the price trades below 1.3860!
If you want more detailed technical analysis regarding the USD strength which was expected from technical point of view, please review the video below.

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08/11/11Video Analysis:





Eur/Usd Intra-day Update

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Nov 08 2011

No doubt, bounce from 1.36 is corrective move, so we know that larger trend will continue lower. But the question is when wave 2) will finish!? Well those correction are usually very tricky and hard to follow all the sub-waves, so for now, we think its better to stay aside, and wait on possible test of higher resistance. Nice area of resistance and possible turning point comes in at 1.3900/50!





US Dollar Strength Is Unconfirmed

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Oct 31 2011

We can see some massive dollar moves after BOJ intervention which obviously caused cause some selling pressure on other majors as well, and not only against the Japanese yen. We are sure that many traders out there are considering a change of a larger trend on many FX pairs; in fact, even we did. But we however, must keep in mind that just few hours of reversal does not necessarily mean “change of a larger trend”. On our latest 4h updated counts, you will notice that all pairs are still trading above/below their critical regions, which means that these moves can be temporary as well! In fact, if trend has really changed because of the BOJ, then we also need to keep in mind that any Usd/Jpy recovery after the intervention was mostly limited, and did not last more than 48 hours.

The next important thing that we need to mention is Euro/SP futures correlation. We know that these two markets are mostly trading together! Well, if that’s the case, and if this dollar gains are for real, then of course we would expect lower levels on SP Futures also. Well, on the chart here, we can see that there is actually a “gap” between those two markets, which means that current dollar strength is not confirmed by a stock market. Even oil prices did not move lower as we would expect while dollar is rising. Now the question is which market will catch up the moves!? Will Euro move higher or S&P lower?!

So, what is our bias here!? Well, from a long-term we expect a decline on stocks, so if we get weaker SP and broken critical levels highlighted on 4h FX pairs, then we will go with dollar bulls. So until then we remain cautious.



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