After breaking down below a key uptrend support line late last week, price action on USD/JPY dropped below major support in the 96.00 price region before displaying some dramatic bullishness by regaining all of the losses it had made after the trendline breakdown. For more technical analysis on this currency pair, please click here for Thursday’s (4/30/2009) Chart of the Day.

UPDATE: As of Friday (5/1/2009) morning, price has broken out above both noted trendlines and has reached up to approach the first mentioned resistance zone in the 99.65-100.00 price region.

Price action on GBP/USD, a daily chart of which is shown, has once again been rejected by resistance in the zone just around the 1.5 price region. This mirrors the EUR/USD’s inability to close above 1.3300 in recent days. In the case of GBP/USD, a high of 1.4945 was reached before price fell back down in the early morning hours. Since mid-January, this pair has repeatedly attempted to close above 1.5, but has been rejected by this key resistance level at least five times since then. Currently, strong downside support, in the event of a continuation of the fall from resistance, resides in the 1.4400 price region. To the upside, the 1.5 zone should continue to serve as major resistance for the pair going forward.

Price action on EUR/USD (a daily chart of which is shown) as of Wednesday (4/29/2009) morning, has risen once again to approach a confluence of resistance factors which include the key 1.3300 support/resistance price region, the top of a short-term parallel downtrend channel, and the area just under the long-term downtrend resistance line extending from the second test of 1.6 back in July. Therefore, this pair is once again at a very important technical juncture. If price succeeds in breaking out substantially above this confluence of resistance, it would be a significantly bullish indication, and price could then go on potentially to target further resistance in the 1.3550 region. If, however, price is rejected at or around this resistance confluence, support targets immediately to the downside include, once again, the 1.3100 and then 1.2900 price regions.

Price action on USD/CAD is currently consolidating just below a key downtrend resistance line extending from the fourth test of the 1.3 area high back in early March. For more technical analysis on this currency pair, please click here for Tuesday’s (4/28/2009) Chart of the Day.

As of Tuesday (4/28/2009) morning, substantially bearish price action on USD/JPY, a daily chart of which is shown, has continued its bearishness all the way down to, and tentatively below, strong support in the key 96.00 price region. This occurs after price broke down cleanly below an important uptrend support line late last week. Currently stalled around the 96.00 support/resistance level, further bearishness in this pair could very well target significant support to the downside around the 94.50 level. And any true breakdown below that level should confirm a major change in trend. To the upside, the short-term downtrend resistance line that price has adhered to since the 101.43 swing high was reached three weeks ago should serve as strong dynamic resistance.

UPDATE: As of Tuesday (4/28/2009) after the close of New York session, USD/JPY has retraced much of the bearishness it had experienced in the very early morning hours. By the New York close, the pair had already risen substantially above the 96.00 level. More updates to come as price action develops into Wednesday.

Price action on EUR/JPY is continuing to display its bearishness after breaking down below a key parallel uptrend channel two weeks ago. After the channel breakdown, price found its downside target and stalled just above the major 126.00 support/resistance level. For more technical analysis on this currency pair, please click here for Monday’s (4/27/2009) Chart of the Day.

UPDATE: As of Monday (4/27/2009) afternoon in New York, price has tentatively poked below 126.00 on some significant euro bearishness. More updates to come as price action develops further.

EUR/USD (a daily chart of which is shown) displayed some significant bullishness in the past week that extended all the way up to around the key 1.3300 resistance level before retreating this past Friday. Currently, this 1.3300 level coincides approximately with a major downtrend resistance line extending from the 2nd test of 1.6 all the way back in July. Therefore, the upcoming week of April 27 to May 1 finds the pair at a critical juncture. Will EUR/USD respect both static and dynamic resistance by reversing the bullish retracement of last week and ultimately targeting February and March lows. Or will the pair breakout above 1.3300 and the long-term downtrend resistance line, potentially to end the overall downtrend that has been in place for many months now. Price action early in the upcoming week should provide some clear-cut direction. Any strong breakout above 1.3300 and the long-term downtrend resistance line should jeopardize the downtrend and potentially target further resistance in the 1.3550 price region. If price is rejected at resistance and turns decisively to the downside in the beginning of the week, a clear target below 1.3100 support resides around the key 1.2900 price level, the approximate region of the last swing low.

UPDATE: As of early Monday (4/27/2009) morning, price has respected the 1.3300 resistance at the week’s open, and has approached the noted 1.3100 support.

UPDATE 2: As of Monday (4/27/2009) afternoon in New York, price has dropped well below 1.3100 support, and still appears bearish. Further downside support is as outlined above.

James Chen, CTA, CMT

* For information on my book, Essentials of Foreign Exchange Trading (Wiley), please click here.

* Follow my intraday forex updates on Twitter: http://twitter.com/JamesChenFX

USD/JPY (a daily chart of which is shown) broke down below a key uptrend support line this past Friday as bearishness prevailed for most of the week. This uptrend support line extends from the second test of 87.00 back in January. The trendline was unable to contain the bearishness of the pair, which has followed a short-term downtrend resistance line extending from the 101.43 swing high hit just three weeks ago. The upcoming week of April 27 to May 1 should confirm whether the uptrend line breakdown was, in fact, real or not. Continued downside momentum on the bearish break of the uptrend support line could easily shoot for 96.00, and then potentially further down around 94.60, the peak between the 87.00 double bottoms. If the trendline breakdown proves during the upcoming week to have been false, a re-break above the line could once again target resistance in the 99.65 price region.

James Chen, CTA, CMT

* For information on my book, Essentials of Foreign Exchange Trading (Wiley), please click here.

* Follow my intraday forex updates on Twitter: http://twitter.com/JamesChenFX

One high-probability method used by traders to trade the forex market is to look for significant increases in volatility. The essential idea behind this trading methodology is that periods of high volatility often follow periods of low volatility, or consolidation. In cases where high volatility follows low volatility in this manner, the result is often a one-directional move, which can offer a significant potential for profit. Besides the use of support and resistance levels, many traders use two important indicators to aid in identifying potential volatility breakout opportunities in the forex market. Changes in these two indicators signal contractions and expansions in volatility, which can be used to gauge tradable volatility shifts. Following are excerpts from my book, Essentials of Foreign Exchange Trading (John Wiley & Sons, 2009) regarding these two indicators:

“Average True Range (ATR) is an average measure of recent volatility. It is calculated as a moving average of a given past period of price ranges. When the ATR has a high reading, recent volatility has been high. When a low reading is given, recent volatility has been low. ATR is used by technical currency traders to determine the recent level of trading activity and volatility for a given currency pair. ATR can also be used for setting logical stop-losses and price targets based upon volatility, among other uses.”

“Bollinger Bands consist of a simple moving average (SMA) with two additional lines, one that is a certain number of standard deviations above the SMA and the other that is the same number of standard deviations below the SMA. By default, Bollinger Bands are usually set at a 20-period SMA with 2 standard deviations above and below the moving average. But these settings can be readily changed to suit the trading environment. The primary purpose of the Bollinger Bands indicator is to measure a currency pair’s volatility around the mean. The Bands are often used to give indications of impending volatility increases (when the bands tighten).”

- Excerpted from Essentials of Foreign Exchange Trading (John Wiley & Sons, 2009) by James Chen, CTA, CMT. Please click here for more information on this book.

* Follow my intraday forex updates on Twitter: http://twitter.com/JamesChenFX