Just a quick note on the AUD/USD pair. Today, it just reached a new 24-year high, hitting and poking slightly through a strong resistance level before promptly retreating back down. We’re watching this pair very closely, as technical signs seem to be indicating exhaustion at the extreme highs.

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

Please check out today’s Chart of the Day by clicking here. This was just updated about a half hour ago, and provides an update on the technicals for the EUR/USD, which is quickly plummeting along with Cable.

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

[Please click on the accompanying chart to enlarge.] Depending upon how you draw the long-term downtrend line on the USD/JPY daily chart, as shown, today’s price bar has appeared to have reached down and bounced off the line after having broken down below the short-term uptrend line on Friday and Sunday. This bounce off the long-term line coincides with the Stochastics turning up from overbought. Therefore, there is oscillator confirmation of this turn up and possible bullish bias. In the event of continued momentum to the upside, 108.50 represents a major resistance region to the upside.

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

Many readers of my Chart of the Day analysis notice that I primarily use the Slow Stochastics as my confirming oscillator of choice. Why? From my experience, this particular oscillator provides reliable indications of momentum and overbought/oversold conditions, especially during ranging markets. Do other oscillators do similar things? Absolutely. But each trader/analyst does his/her own experimentation to find what personally works best and is most comfortable and intuitive to use. A long time ago, I settled upon the Slow Stochastics as one of my primary confirming oscillators, but this doesn’t mean that things won’t change in the future.

The Stochastics oscillators comes in several different flavors – fast, slow, and full. Whichever variety is chosen, the purpose is similar to other oscillators – identify momentum and overbought/oversold conditions, as well as to provide divergence signals. The mathematical formula for Stochastics compares the currency pair’s closing price to its price range over a set period of time. Because Stochastics has two lines as opposed to other oscillators’ (like RSI’s) one line, Stochastics can give off an additional signal that results when the %K line crosses the %D line. Slow Stochastics is a smoothed version of Fast Stochastics.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

Cable has risen pretty dramatically during New York session this morning. It’s just managed to reach resistance at the very top of the short-term parallel uptrend channel that I have been talking about. In fact, as of this writing, it’s poked through the top line a bit. At this point, technical traders are looking for a turning point, where the quick run-up finally exhausts itself and begins a correction or consolidation. This should be coming soon. Have a great weekend, everyone, and see you on Sunday night, New York time!

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

Just some quick notes on the the Parabolic Stop-And-Reverse (SAR) indicator created by J. Welles Wilder. It is one of my favorite indicators because it stresses solid stop-loss management, and it provides logical placement of trailing stop and reversal points. Trailing stops are extremely useful elements of an overall risk management strategy.

The Parabolic SAR dots follow price such that if a dot is below the price bar, the trade should be long with a dynamic stop-loss at the dot. Conversely, if the dot is above the price bar, the trade should be short with a dynamic stop-loss at the dot.

The biggest problem with this indicator, though, is that like many other indicators, the Parabolic SAR can be prone to vicious whipsaws where the trading signals result in a string of losses due to lack of trend. But the fact that this indicator stresses a logical use of the trailing stop-loss functionality makes it a valuable tool for me.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

Update on the GBP/USD 4-hour chart, as shown. After breaking out above the long-term downtrend resistance line yesterday, price has approached the top of the short-term parallel uptrend channel that I outlined yesterday.

After price approached the top of the channel, it retreated, as a loss of upward momentum set in. Oscillators like the displayed Stochastics are confirming this loss of momentum, as they are extremely overbought and turning down. If this downward spiral continues in the short-term, we’re looking for support targets at the long-term downtrend line or the short-term uptrend support line, whichever comes first. To the upside, resistance for the time being continues to be around the top of the rising parallel uptrend channel.

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

Some basic info on point & figure charting. It is an older, but still popular, form of technical analysis that constitutes an entire trading methodology in and of itself. Some may characterize p&f charting as trading based upon pure price action. This is because only price, which is undeniably the most important aspect of technical analysis, is customarily included on this type of chart (in the form of X’s and O’s). Other data that can readily be found on bar and candlestick charts, like volume, time, and period opens/closes, are generally excluded on p&f charts. This leaves only the uncluttered purity of price action.

Trading from a point & figure chart, like the EUR/USD chart shown here, generally involves a good amount of looking for breakouts. For example, whereas double and triple tops on bar charts are usually thought of as reversal patterns, they are considered breakout patterns on p&f charts. There are some intricacies to learning how to use point & figure, but they offer a whole new technical viewpoint to the typical foreign exchange trader.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.