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Sunday 23 August 2009
EURUSD
In my last post I showed EURUSD at a critical price level. Since then, price has made a couple of failed breakout attempts, and has been pushed backwards by the surprising announcement from the Bank of England to increase the levels of quantitative easing. However, positive economic reports keep being delivered to the market - there are no signs of momentum weakening, and a bullish breakout is still on the cards.
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Sunday 2 August 2009
News Events for the Week
Well of course it's the 1st week of the month, so the biggie is the Non Farm Payroll announcement on Friday at 13:30 BST. No matter what instrument you follow (FTSE, DOW, EURUSD) prices are at a critical level and on the verge of a new trend. The consensus expectation is for the unemployment levels to increase by 345k. This would be the smallest increase for almost a year, and compares to 467k for last month. A figure lower than this may tilt the balance and cause the dollar to breakout lower, whereas a significantly higher figure may bring a return to dollar strength with more risk-averse trading.
Thursday brings interest rate decisions for the Bank of England at mid-day and from the European Central Bank at 12:45. The expectation is for the BOE rate to remain at 0.50% and the ECB rate to remain at 1.0%. These announcements should be non-events if the consensus prevails, though there may be reaction to the small print regarding BOE's bond purchasing scheme (printing money, quantitative easing, whatever-you-want-to-call-it).
Tuesday brings the Reserve Bank of Australia interest rate decision at 5:30 BST. The AUD has been strong recently and is at historically significant levels. Current interest rates are at 3.0% and expected to remain unchanged. As with the BOE, the commentary is likely to be more significant, especially if there are clues to a potential increase in rates within a specified timeframe.
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Thursday brings interest rate decisions for the Bank of England at mid-day and from the European Central Bank at 12:45. The expectation is for the BOE rate to remain at 0.50% and the ECB rate to remain at 1.0%. These announcements should be non-events if the consensus prevails, though there may be reaction to the small print regarding BOE's bond purchasing scheme (printing money, quantitative easing, whatever-you-want-to-call-it).
Tuesday brings the Reserve Bank of Australia interest rate decision at 5:30 BST. The AUD has been strong recently and is at historically significant levels. Current interest rates are at 3.0% and expected to remain unchanged. As with the BOE, the commentary is likely to be more significant, especially if there are clues to a potential increase in rates within a specified timeframe.
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Trading Divergence Part 3
Step 2: Validation of the divergence setup
In the example I gave in Part 1, price is in a downward trend making a low D1 followed by a lower low D3, whereas a technical indicator fails to make a new low at the time of D3. These points are shown in the chart below. D2 marks the high point between the lows D1 and D3.
Validation looks at the price level D3 in relation to D1 and D2. If you draw a fibonacci expansion based on the length D2-D1 then D3 should lie on either the 123.6% or the 138.2% level. The platform I use doesn't provide a tool to do fibonacci expansions, so this is how I do it: draw a line segment from D2 to D1. Move the segment so that it starts at D1. In the chart above the segment is shown as D1-P21. Now draw the fibonacci retracement levels from P21 to D1; D3 should lie on the 23.6% level or 38.2% level. In the example above, D3 is precisely on the 23.6% level.
The next step is to determine a potential target level. This is based on fibonacci expansion levels from D3 to D2. I use the same trick as before and draw the line D2 to P32. The usual target level I take is the 61.8% expansion level. The minimum target I would use is the 23.6% level.
The next step will be to look at the entry criteria ...
In the example I gave in Part 1, price is in a downward trend making a low D1 followed by a lower low D3, whereas a technical indicator fails to make a new low at the time of D3. These points are shown in the chart below. D2 marks the high point between the lows D1 and D3.
Validation looks at the price level D3 in relation to D1 and D2. If you draw a fibonacci expansion based on the length D2-D1 then D3 should lie on either the 123.6% or the 138.2% level. The platform I use doesn't provide a tool to do fibonacci expansions, so this is how I do it: draw a line segment from D2 to D1. Move the segment so that it starts at D1. In the chart above the segment is shown as D1-P21. Now draw the fibonacci retracement levels from P21 to D1; D3 should lie on the 23.6% level or 38.2% level. In the example above, D3 is precisely on the 23.6% level.
The next step is to determine a potential target level. This is based on fibonacci expansion levels from D3 to D2. I use the same trick as before and draw the line D2 to P32. The usual target level I take is the 61.8% expansion level. The minimum target I would use is the 23.6% level.
The next step will be to look at the entry criteria ...
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