Dirty Big H&S in the EUR/USD

Hey guys,

I spy a dirty big head and shoulders breakout that happened on friday. Coupled with the break of the trend channel that has been in play since Aug 16th, which also happened on friday, I think this is a good short signal. I will wait for a retrace back to 1.45-1.46 area, weekly pivot point at 1.4530 may be a good entry (this is also the neckline). Hope we get it!!

Target is around the 1.41 but there may be some strong support at 1.4200-1.4170 which shows confluence of the 50% fib retrace of the daily trend and 23.6% retrace of the weekly trend.

I'm sure everyone has seen this, it's kinda hard to miss, but for those of you that havn't - enjoy!

Why you dont post picture of your chart, it is easier to udnerstand what you mean,......



(but i know, for others who dont like reading)

I would, but dont know how. Sorry

Ok, think I got it -http://img137.imageshack.us/img137/3463/hsrt0.png here goes

ps Pivot Points arn't drawn on chart

Almost

Is it really certain for Eur/usd to retarce the level of 1.46 before continues its downward trend ?

No, I just hope...

This is a solid break so I would not be surprised if I don't get in. Also, IMO the EUR does retrace as much as other currencies. But the trade is not worth the risk to get in now purely based on this signal IMO.

The retrace target is not set in stone either. It all depends on PA up to that level. I would prefer a deeper retrace into the H&S - the deeper the better for me (just means less chance of running through target, but better R:R). The shalowest down trendline or, maybe even the shoulder level on a spike, would be the most I would expect for max effect (ie reach target with no additional signal) but I will be looking for short even above the high of the pattern around the 1.5 mark, but not much higher. But it would all depend on PA up to that point. I may be long halfway through monday...but I doubt it

I like to veiw reversal patterns like H&S as a signal that something is wrong with the major trend rather than a precise tool. Some TA techniques are better treated as precise, IMO, patterns are not (at least in forex).

Failing the retrace, hopefully I will catch a trade in a smaller time frame that I will be able to hold a portion of for the entire move. Be on the lookout, good chance of no retrace.

Hey guys,

I forgot to mention, the very top of the head is a H&S on the 4H chart, also the whole head is a H&S type formation (althought the shoulders are too small compared to the head to be a real H&S by itself). I have found that the same pattern within the major pattern is a good indicator that it is a "real" signal. Also, if a H&S forms in a smaller time frame around my suggested entry point or beyond...

Be careful in using technical analysis with the EUR/USD over the semi-longer term/long term. The fundamentals will almost always override.

Right now I believe that there are simply too many hands involved in EUR/USD trading (hedge funds, wealth funds, etc...) to make any serious long-term predictions. The spread makes this pair attractive for the short-term, other wise stay away from it, unless you are making one trade in one direction (as a hedge).... EUR/USD is behaving kinda like a stock at the moment.

The reaction to the PPI/CPI reports shows how crazy this thing really is. Stick with AUD pairs, some modest carry trades, and stay small.

rudenstein

Thanx for the concern rudenstein,

I rarely hold trades for more than a day, nearly always make sure I am flat, or very close to flat, by the time I go to bed. Like to take things as they come and not forcast to far into the future,

BUT....

I do keep on the lookout for signals like this on the daily chart. We should at least get some scalps off the neckline purely due to the pattern. Also, any short trades I take in the EUR/USD next week I will be looking to hold at least a portion of the position to the 1.42 mark (if things run smoothly). This is especially true for any trades taken in my target retracement zone.

Not a big fan of the Aussie pairs (even though I am an Aussie). When I started in Forex the AUD didn't seem to move too much and the spread was 3 pips I think, so it was an expensive instrument to trade. I now get 1 pip and it seems to move around a bit more these days, but I'm all wrapped up in EUR, GBP, USD and JPY now.

Why do you say this though? Have you found the Aussie to be of a more technical nature than other currencies? My observations of the Aussie are that when it moves, it moves with force and does not retrace alot. Your views?

And just a point on the fundamentals overiding technicals. I don't think TA and FA work against each other, but rather they work in concert, if this is a "real H&S" then I think you will find that the fundamentals will come out accordingly. I personally would rather predict the outcome of cirtain fundamental data releases using the charts as a guide rather than trying to predict the chart direction using fundamentals as a guide.

THE CHART SHOWS ALL!!!

Posted in the EURUSD thread on Dec 12.

http://www.forexfactory.com/showpost...postcount=3205

Didn't they already? What else would you call the highest inflation reading in 18 months? Analysts were predicting up to 3-4 more cuts in the Fed Funds in 2008, Friday's CPI throws away much of that possibility.

Well there you go. I didn't know this. I just make sure I am aware of the time that big news is hitting the market. I only know the expected impact and the expected outcome (from FF calander). I do look at the result, but don't really compute and remember it. I only look to see whether it is higher or lower than expectations will not tell me to buy or sell.

However, the markets reaction to the announcement paired with the higher or lower than expectations information will sometimes present a trade. For example, result way below expectaions, price has a sharp, but moderate move in terms of magnitude down, but spikes back up just as quick and finds support. BUY!

Agro,

I'll explain what I mean. No this doesn't apply to all AUD pairs.
Check out a daily 10 year chart of EUR/AUD. Nice large moves with a bias toward the AUD over this time period. 9/11, DOW crash of 2002 are all very easy to point out. Also duing the August and November crisis times of this year, it's easy to see what investor were up to how they felt. Of course, the higher spread makes this a pair to trade over the long-term.

I find that the trick is to see how traders feel about the AUD by tracking negative movement in stock markets with movement toward the EUR in the EUR/AUD pair. Around dec 6, a -50 drop in the DOW sent the investors racing to the EUR (by about 200 pips) since they were still touchy after the crazy market movement in November. However, the -178 drop on friday had only marginal impact on the AUD. This could be a good signal to go short the EUR/AUD and could mean that carry traders are getting ready to take some risk.

The best thing about the AUD is that it relies a lot on general global risk aversion sentiment not just one news announcement and it relies also on whether traders have become immune to bad news after a month like August or November.

But for short term? I'd forget AUD pairs generally.

Please comment back and take care!

rudenstein

Hey rudenstein,

Very interesting and involved stuff there - thank you for your insights.

To be honest, I didn't follow you 100% there. I gave up on fundamentals in my stock trading days. The reasons were two fold - firstly, I couldn't seem to make it work and secondly, I don't have the head or the patience for it. I enjoy reading charts (well, at least I used to, not so much fun anymore).

This is why I take the market from a short term view and will generally never be in any longer term positions unless I have a portion from a scalp (well, when I say scalp I mean trades that target anywhere from 30-200 pips depending on the pair and market conditions) that worked perfectly. Someday though, I will get into the fundies side of things and try to work out 'why' the market is going where its going.

Cheers mate, and good luck this week!

I agree the H&S is quite powerful, but I'm not ignoring the fundamentals here. Any sign of weak US data this week should bring the Eruo back up.

Thats what I'm hoping for - retrace, retrace, retrace!!!

Hi Agro,
I understand why traders like to trade short term: you
are done at the end of the day, you secured your profit and can sleep soundly.

Btw. which part did you not follow? I'd be more than
happy to elaborate.

My point was basically that in currency pairs were the
interest rate differential is largest, you see the most
volitility, (with a lot of market noise over the short
term) but great oportunities over the long-term, since
it's clearer what's going on... i'll explain...
Another point is that investor are always looking for the
highest possible return on their investment with minimal
risk. (This is as close to a mathematical law as you will
get in forex.)
With the AUD it's simple, when investors get scared (due
to a market crash or a political crisis) they dump the
AUD for a lower interest rate yielding currency (EUR for
example) ... i.e. a safe-haven currency.
The behaviour of EUR/AUD duing AUG/NOV/DEC this year was
and still is a dream! Notice something important. the
bullish candlesticks are the longer than the bearish
ones. Why? because people are more likely to dump the AUD
for the EUR during crisis times (subprime, nothern rock,
etc...) and do so very, very quickly. That's why the bearish candelsticks are shorter than the bullish ones on the EUR/AUD chart. But when the dust settles, they want to go back into AUD asap, since it yields a better return, but only do it cautiously (bit by bit, day by day). That's why the 2 consolidation channels formed in August and now in December.

The pink lines show a period of consolidation after
turmoil, since investors are slowly coming out of their
EUR safe-haven to test if it's safe to go into the AUD.
Day after day they weigh every piece of news and get less and less scared (immune) to bad news until they break out of the consolidation channel (pink line) and start buying up the AUD again. Look at the first set of pink lines (from the left) it took them a month to get back into the AUD.

I can look at the EUR/AUD and tell you how the stock markets are doing. The correclation is that strong.

The EUR/AUD is consolidating right now. Let's see how immune AUD traders are to bad news next week (there is enough to go around)

Please ask if something doesn't make sense.

rudenstein

falcon, there should be plenty of bad news for the US, next week... TIC securities report has been and will be a bummer + the current account (need I say more). Then to finish a great week we have the consumer report on Friday.


rudenstein