Before I give you a trade recommendation, I would like to challenge you to offer half of your profits to help the survivors of the Haiti earthquake. You can easily donate at http://www.google.com/relief/haitiearthquake/. In a separate note, I think the resumption of economic growth in the United States is likely to trigger a change in expectations for inflation and possibly influence the Federal Reserve monetary policy. Eventually, a widening of the interest rate differential between the United States and Japan will help the US dollar, in particular against lower yielding currencies like the yen and Swiss franc. So, I have been holding a long position in the US dollar against the Japanese yen since the beginning of December when the USDJPY was trading at 86.


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My favorite trade at the moment is long the USDCAD.  With the pair failing to immediately extend losses below 10250, we must entertain the idea that the decline from the December high is an ending diagonal.  The diagonal would potentially complete the entire decline from 13068.  Price is testing trendline resistance this morning.  Given the implications from the diagonal (strong rally that quickly retraces the decline from 10750), a bullish bias is warranted.  Risk is less than 100 pips and the minimum objective is 10750.

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The British Pound is currently showing signs of failure at the confluence of especially important resistance, as the 1.6280-1.6400 region represents a combination of 50 and 100-day Simple moving averages, falling trendline resistance, and the 50.0% Fibonacci retracement of the November-December decline. A failure here opens up a big move to the downside, so keep an eye out for a weekly close below key resistance line for a potential trading opportunity.

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The euro took a nasty tumble Tuesday morning; and the backing of full liquidity means potential breakout moves have a higher probability of turning into trends. However, while there is a steady fundamental pressure against the currency; defining a true trend change on domestic factors alone is a tall order when underlying concerns like general risk appetite are stabilizing the broader markets. Therefore, while there are a few prominent technical breakouts from key euro pairs; we cannot immediately qualify these drives as new trends.

With meaningful volatility for the currency however, there are pairs with great potential. My EURUSD range from last week was stopped out for a moderate loss when the ill-defined floor on its rising trend channel was overwhelmed. Yet, this has not taken out the necessary boundaries to define a revived, medium-term bear trend (a clear dollar breakout would be the most likely driver for that scenario). Looking at the price chart, we can see the 200-day SMA is standing in as support with the series of lows from December and January solidifying its influence. If the euro is in fact not breaking down or the dollar’s recent strength is temporary, the EURUSD is in a good position to rebound. I will take a reduced entry near 1.4280 and set a stop approximately 70 points lower (to cover December’s swing low). My first target will be one-and-a-half times risk and the second objective will be set around 1.45. For a contrasting setup, I was looking to short EURGBP yesterday with a limit entry order; but spot never made it back up to the level I had set (I was a little too aggressive). After six consecutive down days the pair has dropped nearly 300 points. While runs this substantial have developed in the past; there is still a good probability of a retracement before the pair extends its burgeoning trend. As such, I will set a limit short order just above 0.8800 with a stop 50-70 points higher. My first target will be around 100 points and the ultimate objective will be left opened to a trailing stop.

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I initially sold EURUSD at 1.4881. Prices found near-term support above the 1.42 level and bounced to re-test support-turned-resistance at 1.4515, with the up move guided by a minor rising channel. Prices are now testing the channel bottom (1.4361) , with another upswing possible before bearish momentum resumes. Still, these moves look corrective in the context of a larger downtrend and I will remain short, retaining a stop-loss at the break-even mark (1.4881) as well as the revised soft target at 1.4143.

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A break below the 20-Day SMA at 1.4377 inspired a small short EUR/USD position but I remain cautious without a break below the 200-Day SMA which held again today. The major technical level has been formidable as the pair has traded above it since May, 8th 2009. I will maintain my bearish bias until I see a break back above 1.4565-38.2% Fibo of 1.5141-1.4218. Risk appetite is wavering as the prevailing concern remain that once government stimulus dissipates then we could see a dip in global growth. However, a strong earnings season may ease those concerns and with several blue chip names due to report over the next two weeks a will continue to proceed with caution.

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The EUR/GBP extended the decline from the previous week, with the exchange rate slipping to a fresh monthly low of 0.8730, and the pair may continue to trend lower as it breaks out of the descending triangle/wedge formation. However, as the daily RSI slips into oversold territory, we are likely to see a pullback following the six-day decline, and as a result, I will wait for corrective retracement before taking on another short euro-pound trade. Nevertheless, we may see the EUR/GBP test 0.8700 for near-term support, which coincides with the 23.6% Fib retracement level from the 2009 high (0.9652) to the low (0.8400), and a break below this level could lead the pair to retrace the advance from August as the pair maintains the downward trend from October.

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The current rally in the pair is still classed as corrective with the market triggering a minor double bottom on the daily chart that could project gains up to the 1.6500 area before the market stalls out and carves a fresh lower top. Ultimately, we do not see any gains extending much beyond 1.6500 and recommend looking to build a short position on approach to the psychological barrier. The 61.8% fib retracement off of the November-December high-lows comes in just ahead of 1.6500, and we will use this level as our sell entry. STRATEGY: SELL @1.6480 FOR AN OPEN OBJECTIVE; STOP 1.6630. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY. 3X LEVERAGED.

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