Yen weakness toward the end of the 2009

Yesterday EURJPY daily range start with a bottom in early Asian session and the top at lunch time New York session. Forex market yesterday was dominated by USD strength and weakness of JPY against the EUR . Although it seem that EURJPY moved substantially during New York morning session the general movement in yesterday EURJPY price range was equally divided between the three session-Asian, European and New York .

EURJPY formed a declining wedge that originated in late afternoon New York session in the previous day. (the blue color triangle on the chart). The declining wedge has more than three touches each at the top resistance line and the bottom support line indicating a break of the S/R line with follow by a significant move. The break will retest the S/R before continuing its path. EUR penetrate the resistance line at 4:15(3:15 GMT) retest the line at 7:00(6:00 GMT) before moving upward.

Last Week of 2009

After more than 18 months trading using indicators such lag, Double CCI, BB MACD and the stealth Buy & Sell, the end result was not that fantastic and the trading was a bit confusing. The entry was a bit breeze but the exit was a different story-sometimes I exited too early or sometimes too late.

For the next year, I resolved to trade using less indicators as not to confound my tactics and based my strategy on traditional support and resistance (S/R) level either horizontally or diagonally, and chart formations of classical technical analysis. This will simplify my trading plan. The indicators I used will be the BB Macd and lag to determine the overbought/oversold (O/S) market position.

To validate the S/R level or chart patterns in my trading plan I used moving average-9,20,60 and 200 period and pivot points(daily and hourly).

In trading EURJPY my preference for trading session is at the end of Asian session and early European/UK session (5:00 GMT to 9:00 GMT). My profit target for the day is still maintain at 50 pips per day. Further details of my trading plan will be explain as we go along in this blog.

Let us look to my trading on Monday (28^th December) and Tuesday(29^th December).

Monday.

The EURJPY uptrend on the last day of last week-Thursday 24^th December was halted in early New York session. Prices moved downward within a channel that formed a flag pattern up to early Asian session. A flag is a continuation pattern and with a break of the top of the flag border indicated a reversal to the upside. Prices did moved up but it then went sideway forming a horizontal resistance line with a diagonal support line indicating a ascending triangle.

A ascending triangle indicate an upward break-away, but a false break of the diagonal support initiated a rectangle or horizontal channel with the top resistance border at 131.768 and the bottom support border at 131.523. As normally in a false break, the breakout is a minor aberration and price will move to its intended path, upward. Two hours after London open, EURJPY broke the upper resistance line as expected.

Tuesday:

The flag and the horizontal channel did not meet the target price as expected. A consolidating horizontal channel was formed instead, beginning from the mid New York session and end I n late Asian session.

This clearly indicated a low interest in market activity as this week is the last week of the year.

There was a false break of the lower support line of the channel toward lunch time in Tokyo.

The last week of the year is normally a dead market with low activity where traders normally on holiday mood or planning action for next year. A thin market is susceptible to market manipulation where a break of S/R level can be false move.

By the way a false break in the chart patterns is an indication of market choosing the opposite direction for the sizeable move.

In the case of horizontal channel;

1. 1. The majority of the first break of the S/R of the channel is always false.

2. 2. After the break, price move into the same direction for a few candles before it came back into the channel.

3. 3. After price returned to the channel, it penetrate the opposite border.

4. 4. The second break will be follow by a significant move that usually exceed the channel width.

In the triangle formation, after two highs and two lows it is possible to draw lines that will become the border of the triangle. This early triangle identification will create a possibility of making 1 or 2 trades inside the triangle formation by opening position from the top/bottom side in the direction of an opposite side, which will be the target price.

Usually, a real break occur after price has touched each sides three times.

Dubai World Debt

The big story by the end of the month was the announcement by Dubai World, the investment arm of Dubai, that it is having trouble making payments on nearly $60 Billion. The funds were borrowed for various large-scale projects, ranging from man-made islands to massive hotels and skyscrapers, many of which are hemorrhaging money in the wake of the real estate crisis.

The news rattled forex markets with risk aversion is the name of the game which predictably sending “safe-haven” currencies like the Dollar and Yen up, while sending everything else down. The reasoning is that the Dubai debt bomb could easily spread to other emerging market economies, triggering a wave of sovereign defaults and even a second credit crisis. Credit default swaps (which function as insurance against default) on emerging market bonds soared on the news, by 60% for Dubai bonds and 16% for Greece, for example. The situation has been likened to the defaults of Russia in 1998 of Argentina in 2002, both of which massively destabilized global capital markets at the time. Despite the recent gains, financial markets remain shaky and a sovereign default would likely reverberate around the financial world.

The JPY crosses have been a bit oversold in the panic one hour before Tokyo session open but bounced up after the opening on November 27^th (Friday). On the previous day-26^th Nov, EURJPY fall to 129.50 after breaching the descending wedge formation with support at around 131.70 which has been maintained since Nov 19. On the 30^th(Monday) volume was thin and prices moved sideways between 130.60 to 129.00.