Trend Alert & Warnings

Welcome back traders to our daily article!

Today’s focus is on the USDJPY and GBPUSD.

There are a couple of mega interesting concepts and facts we will review and address!

Make sure to read this entire article as to be fully prepared for this last trading week of the month.

Last but not least, don’t forget that the last (and first) week of the month can cause different effects on trading, just like the first and last trading day of the week, and first and last trading month of the year.

Especially this Friday can be tricky trading as it is both a Friday and the last day of the month (month end closure).

In case you are in need of analysis on other currencies, please check out yesterday’s analysis “Crucial Forex Weeks Ahead” and “Forex Compass Outlook Analysis”.

GBPUSD

The Cable has broken the gigantic multi-year wedge to the downside as expected. And it did so in a major fashion: 10 weeks of downside saw the GU drop in value from 1.63 to 1.48 for a 1,500 pip drop.

More recently the GU has corrected back to the 500 Fib. The question is whether it will continue its downward path immediately? Or will it make one more upside correction before falling back to the downside?

MAY 28 2013 WEEK GBPUSD

The current support levels are crucial for that decision.

1)      A break below the 1.4830 bottom would most likely see the GU move down to the targets at 1.4420 (-0.272) and 1.39 (-0.618).

2)      A bounce off the 786 Fib could see this currency correct to the upside one more time to the 0.-272 target and the 618 Fib retracement confluence.

MAY 28 2013 DAY GBPUSD

A move back to the upside would most likely behave in a similar fashion as the first move up (first think purple line). A break above 1.5280 would increase the odds of a bigger correction taking place.

MAY 28 2013 DAY GBPUSD 2

If we zoom into the 4 hour chart we are able to see that a break above the 1.5280 price level would have to mean that price has boxed through all of the resistance lines (red) and down trend line (black). Any downside confirmation would only take place under 1.4990 with support levels at the 886 Fib at 1.4920 and the bottom at 1.4830.

In my opinion the best shorts are between 1.4990 and 1.4920, and then between 1.4920 and 1.4830 and below 1.4830. The best long is when trend line is broken and the currency hooks back to bounce off the same trend line.

MAY 28 2013 4 HR GBPUSD 2

What do you think is most likely? A move back up or a down trend continuation?

USDJPY

The UJ is a classical example of a grand cycle / super large trend. And even though trading with the trend is usually what is advised for traders, actually capitalizing on these super grand cycles is not an easy feat as the currency extends a lot further than the usual parameters. Trading a trend correctly is an art in itself and that is why we from Winners Edge Trading are for. We will show you the best path how to trade trends in Forex, starting with the UJ.

The UJ currency pair has made a decent correction to the downside last week.

The biggest clue is the bearish engulfing candle stick pattern on the week chart. The last time that happened on the USDJPY weekly chart was way back in the 1st week of November 2012.  Read more on charting without indicators in this article on “trading without indicators”.

Almost 7 months have passed in the mean time and out of the last 34 week candles 22 were bullish, 5 were doji’s and only 7 were bearish, of which 5 of the 7 were inside candles.

MAY 28 2013 WEEK USDJPY

These statistics confirm the obvious: a tremendous uptrend. In that regard engulfing bearish twins is a rare phenomenon.

First let’s answer these questions:

1)      Is this a first sign of my downside correction side? It could but it doesn’t have to.

2)      Is this a first sign of the uptrend ending and a downtrend starting? No, not until we break the major support levels at 100.60 and 100. Other key support levels are at 96 & 97.

On the day chart we can see that the currency:

a)      Is still strongly in an uptrend with clear higher highs and higher lows;

b)      Is showing a rising wedge formation (angle of the top trend line is shallower than the angle of the trend line connecting the bottoms);

c)       Has retraced back to the 500 fib at 100.90 and bounced back to the upside at 100.60, not even making it all the way back to the huge psychological level of 100.

MAY 28 2013 DAY USDJPY

To sum it up:

Even though the trend might be bending a bit, the uptrend is still strong and it has met a huge upside support. The best advice on how to trade trends in Forex is never under estimate the with the trend trades, even though a rising wedge has appeared on the charts.

The -0.272 and -0.618 targets at the 104.50 confluence are serious and very viable targets for the currency to reach.

Hope this article has helped with guiding Forex traders on how to trade trends in Forex.. Thanks so much for reading!

Please leave a comment down below and any sharing of this post is really appreciated!!!!!!!!

Good Trading!!

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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