The short term charts of the 15, 30, and 60 minute EUR/USD are moving within a distribution cycle on the heels of yesterday’s big rally.   The Dow’s strength pushed the U.S. Dollar Index lower as risk appetite in equities roared back.  In the shadows of a +199 point day in the Dow is today’s -29 pre-market as traders aren’t sure just how much the GDP number reflects the long uphill climb ahead for the U.S. economy:  buy now, ask later was the rule for the rally.

If traders decide to be non-committal in front of the weekend, there are some near term exhaustion shorts that be set up off the triple (soft) top between 1.4859, 1.4858, and 1.4853.  The distribution cycle holds the validity for this aggressive short.  If the market flattens out to accumulation, it turns in a breakout/breakdown strategy.

There’s also a rising wedge on this chart and the uptrend line support could be helpful if the Dow climbs again after the 8:30am, 9:45am, and 9:55am EST data releases.

Chart created with MT4 and the Autochartist Chart Pattern plug-in.

I’m not an active GBP/JPY trader mainly because it’s, well, you know, CRAZY!  But I’ve been getting to know this pair and studies like the PowerStats have helped.

This is a one month sample so I am looking at the most current volatility characteristics for the pair I hear they call the “twisted sister”.  This is a 24 hour clock on Eastern Standard Time and you’ll see that the highest average movement is between 2:00am and 11:00am which is the heart of the Frankfurt/London?New York overlap.  So I have a good idea of what to expect in term of pip movement and I know when I will see it.  I can also add to this by making sure I keep track of the economic data releases that will push prices towards the upper ranges of probability.

Having said all that, I still need the set up.  Here’s a look at the 60 minute GBP/JPY.

There is a channel down pattern which would set up a short off the downtrend line resistance just above 148.80.  This short is a trend follow as this time frame is in mark down.  The top line of the channel is also lining up with the 34ema low.

“Price movment range” courtesy of PowerStats. Price chart was created with MT4 and the Autochartist Chart Pattern plug-in.

When economic releases approach it’s important to consider the volatility that could accompany the data.  Tonight’s 7:00pm EST CB Leading Index release will likely dictate which of the swing entries I will consider.  If prices are very close to the triggering the swing short on teh 15 minute chart (top) then there is more risk as prices could be more volatile right near the entry price and stop my trend follow out as prices settle down.  However if prices shoot lower from the 0.8993 area the 30 minute chart (bottom) may not trigger at all.  So here’s the question you must ask yourself:

Since you don’t know the future the main issue is your own risk tolerance.  If prices are near the 15 minute trigger you could wait for the more conservative swing short IF you have a low risk tolerance.  If your risk tolerance is HIGH then take the 15 minute entry…it’s the bird in the hand.

Both charts were created with MT4 and the Autochartist Chart Pattern plug-in.

Here’s an ABCD Fibo on the intraday fiber.  The ABCD suggests the possibility of prices to

1) Reach the projected resistance (R) at 1.4940 which is the 1.000 Fibo Extension from the ABC move and…

2) If/when the extension is reached which would be the projected high, the subsequent retracement is plotted on the chart to show the support as prices move lower from the the high (R).

This type of two step (automated) Fibonacci  analysis is considers both the upside extension resistance and essentially offers a more classic Fibonacci retracement series from the “C” support to R providing the support levels after the high is reached.

For more information on automated chart patterns and Fibonacci levels visit Autochartist.com

The support of the channel up pattern on the 240 minute cable has allowed for buying support and a subsequent rally to the 1.6400 level.

The uptrend line support came in at the 1.6300 level as the uptrend began to stall as indicated by the Initial Trend.  In fact, the uptrend on th2 240 has transitioned to a sideways market cycle despite prices finding support and heading higher.  The market cycle flattened as prices sold off on October 23rd.  Since the pair has rallied over 100 pips since the uptrend line bounce, the 15 and 30 minute chart are in a mark up cycle so look for pullbacks to buy into on those two short term time frames.

The uptrend line still strong enough support corrections as the EUR/USD has pulled back to just below the 1.5000 level.  While is break of the psychological level does show that there is selling pressure to the “000″, this is hardly a break that has broken the back up the uptrend.

Look for for a corrective entry off the uptrend line support of the wedge and keep in mind that there is 34ema Wave support extending down to the 1.4940 level.

Setting up BUYS in a major downtrend is usually left to bottom pickers and traders that aren’t already short.

That being said, there’s a certain logic to “too far, too fast” bu the trick is to make sure there is a valid trade behind the entry rather than the illogical thinking of “the market’s sold off too much”.  There NO SUCH THING as too much…not until you see zero anyways.

Th best approach is either very neat term or very long term which means a 15 minute chart or a daily when trying to set up a sell-off buy.

The 15 minute chart here has a channel down pattern that could set up a buy if prices can rally up through the downtrend line resistance and the 1.6350 major psychological level.  Since the time frame is short, your stop loss should be kept tight around the 1.6320 level since if prices can’t maintain support above the “50″ pip you probably don’t want to argue with the landslide!

While the Autochartist pattern alert will indicate a likelihood for continuation or reversal…in the end it’s the lines of the pattern that will dictate which to do.  Reversals of an uptrending pattern like this come only when prices can break the support.  If prices correct but do not break the support AND if the market cycle is still up THEN a swing buy is triggered.

Secondarily the 34ema Wave can be used to identify the support as prices may “wiggle” around the uptrend line as the New York doldrums lead into the Sydney then Tokyo open.

I’ll be doing a 9am EST webinar about the 1-2-3 steps to chart pattern trading as a reference to the updates that I post here.  You can also follow me at Twitter for intraday updates.

In the meanwhile…

The 240 minute cbale is heading higher as the trend remains strong and UP.  The rejection at the top line of the formation is actually a good thing as I wait for a correction in order to play the uptrend.  Entering long on the correction of an uptrend is a swing buy.  I will look to enter long off the support of the wedge.

Here’s the pattern as it is overlayed on my MT4 platform with the Autochartist plug-in:

EUR/USD swing buy on the 30 minute chart BUT the trend may not be as strong as it was between 9am and 1pm EST so the support between 1.5025 and 1.5005 becomes vital to a upside continuation and is the line in the sand to a potential breakdown and trend reversal on the 30 minute chart.  If prices break 1.4995 watch for a move to 1.4950 then 1.4920.