Price action on USD/CAD has tentatively poked out above a key downtrend resistance line extending from the fourth test of the 1.30 price region back in March. This tentative break places the current downtrend in potential jeopardy. For more technical analysis on this currency pair, please click here for Tuesday’s (6/30/2009) Chart of the Day.

UPDATE: As of Wednesday (7/01/2009) morning, dollar-weakening price action has shown yesterday’s trendline break to be a false one. As of this writing during the New York morning session, price action has retreated and descended back down to the 1.1450 support price region.

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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

This is a very common affliction, especially among technical traders. Paralysis by analysis can occur when traders have too many studies on their charts and seek endless confirmations before taking any action. This is the polar opposite of traders who initiate trades recklessly based on “gut feeling” alone. Paralysis by analysis may be the lesser of the two evils, but both of these afflictions can be extremely detrimental to forex traders.

There is a lot of good in being cautious and conservative when deciding to take trades, but becoming paralyzed by the decision-making process can be totally counterproductive. Having all of the latest and greatest indicators on your charts can be exciting, but will it really help you become a better trader? Maybe, but probably not.

A good remedy against paralysis by analysis is a combination of solid risk control and money management. Technical analysis is very helpful in setting risk management measures like a logically-placed stop loss that’s not too tight and not too loose, and a good reward-to-risk ratio. And money management is an absolute essential for any trader who wants to be successful. With these prudent measures in place, traders need not be paralyzed by the trade entry process. A trader will never come anywhere close to 100% correct, even with 50 indicators, oscillators, trendlines and squiggly lines pointing in the same direction at the same time. But that’s perfectly okay, as long as risk and money management are in good order.

This is not at all to say that traders should ever just jump into trades without first doing their proper analysis. As mentioned, that is an evil in and of itself. But there are many traders that are utterly unable to pull the buy/sell trigger unless all of the many stars in the galaxy are perfectly aligned. This almost never happens.

Stick to the essentials and only what works best for you over time. When a good opportunity presents itself according to your careful analysis, take it. But always have strict risk controls and money management guidelines in place.

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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

Price action on GBP/USD has continued progressing sideways within the converging triangle consolidation that has been in place since the beginning of the month. This continued consolidating price action occurs within the context of a steep uptrend (extending from the late April lows) that has not been broken as of yet. For more technical analysis on this currency pair, please click here for Monday’s (6/29/2009) Chart of the Day.

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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

Here are some key support/resistance price areas to watch for (breaks/bounces/targets) in the forex market during the upcoming trading week of June 29 to July 3, 2009:

EUR/USD - Support 1.3890 / Resistance 1.4135
USD/JPY - Support 94.85 / Resistance 96.55
GBP/USD - Support 1.6185 / Resistance 1.6660
USD/CHF - Support 1.0590 / Resistance 1.1020

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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

EUR/USD (a daily chart of which is shown) continued its sideways consolidation this past week, even after having broken out above a short-term downtrend resistance line (in red) extending from the 1.4335 uptrend high. This trendline break was significant, but on the day after the breakout occurred (in the beginning of the past week), price retraced all the way back down to around the point of break. Closing out last week, the pair then rebounded off the trendline, now treating the line as support where before it was resistance. EUR/USD is currently still entrenched within a textbook uptrend, and the recent bearishness as represented by the noted short-term downtrend line can be viewed simply as a normal correction/retracement within the prevailing uptrend. Unless price breaks down substantially below the 1.3750 region, the pair can continue to be considered as moving within an overall uptrend. Furthermore, the potential head & shoulders reversal pattern that recently grabbed the attention of many forex traders has, for now, been effectively invalidated. For the upcoming trading week of June 29 to July 3, a strong breakout above last week’s high of 1.4135 would lend strength to the bulls’ hopes for an uptrend continuation. In this event, the next major resistance target to the upside would be a re-test of the 1.4335 uptrend high. A further breakout above that key resistance level would confirm an uptrend continuation. To the downside, the noted 1.3750 price region should provide major support for the current uptrend.

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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 triangle-like configuration early last week, pulled back to re-test the lower triangle border, and then descended once again. This can be viewed as a potential breakout-pullback-continuation progression that carries some significant bearish potential. Of course a continuation in the direction of the breakdown would only be confirmed on a significant break below last week’s 94.85 low. If this occurs, a key downside support target resides around the 93.50 price region. Any breakdown below that level could target further major support in the 91.00 region. To the upside, the lower border of the noted broken triangle should continue to provide dynamic resistance amidst the current bearishness in the pair.

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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

EUR/JPY has been consolidating right underneath the key 135.00 support/resistance level for the last week and a half, while still respecting a parallel uptrend channel that has been in place since late April. On a longer-term basis, a strong uptrend actually extends all the way back to the long-term extreme low hit in January. For more technical analysis on this currency pair, please click here for Friday’s (6/26/2008) Chart of the Day.

Price action on USD/CAD, a daily chart of which is shown, has finally reached a key downtrend resistance line extending from the fourth test of 1.3 back in March. After reaching up to touch this line precisely yesterday (06/25/2009), the pair has tentatively respected the trendline by bouncing down off of it. This bounce occurs after a substantial bullish correction extending from the 1.0800 lows, and signifies that this pair is still entrenched in a valid overall downtrend. Barring any breakout to the upside of this trendline, a major downside support target off this bounce resides in the 1.1300 price region. In the event of a subsequent breakout above the trendline, further key upside resistance resides in the 1.1800 support/resistance region.

Price action on USD/CHF has once again reached the top of a slightly-angled parallel uptrend channel with two primary touches on the bottom and three primary touches on the top. Currently languishing near the top of the channel after recent substantial dollar strengthening, this pair is also exhibiting clear price-oscillator divergence. For more technical analysis on this currency pair, please click here for Thursday’s (6/25/2008) Chart of the Day.

In any financial market, including forex, trading breakouts can often be a tricky ordeal. False breaks are a common occurrence that frustrate even the most dedicated forex traders.

One high-probability approach to entering into a breakout is to wait for a pullback/throwback to occur. Very often, momentum on a breakout will wane shortly after the break and retrace to re-test the point of break, resulting in a pullback/throwback move.

A throwback is simply a return to the point of breakout on an upward break. A pullback is a return to the point of breakdown on a downward break. If the breakout is true, price should hit and then bounce off the breakout price region, before surpassing the point at which momentum waned and price turned. This is illustrated on the accompanying diagram.

Many prudent breakout traders will wait for a pullback/throwback before getting in on a breakout move. Traders who do so may miss some potential trading opportunities, but that extra patience often pays off in higher probability breakout trades that have a greater likelihood of following through in the direction of the break.

As a side note, I will be speaking at the Forex & Options Expo in Las Vegas on August 3rd, 2009. The topic of the 2-hour workshop that I will be giving is entitled, “High Probability Breakout Trading in the Forex Market,” and it will feature effective professional techniques for trading forex breakout opportunities. Here is the link for more details: http://www.moneyshow.com/lvfx/WorkShopDetails.asp?wkspid=1C565A972C0E408C906EB11624490B12 . Hope to see everyone there in August!

- James Chen, CTA, CMT

* I will be key speaker at FXstreet.com’s International Traders Conference in Barcelona, Spain in October 2009 - for more information, please go to: www.traders-conference.com .

* 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