The recent 4-hourly chart of EURUSD and USDCHF shows that both currencies are negatively correlated.
We posted yesterday on EURUSD having a possible triple bottom formation. It is observed that USDCHF made a triple top.
Thus, it is worthwhile to analyze these 2 pairs together for your trades.
EURUSD having triple bottom
USDCHF forming triple top
This morning on H4 chart of EURUSD, it seems like there are 3 valleys (V or U letter shaped pattern), which is the classic triple bottom chart pattern. The triple bottoms, which spans over 3 weeks, could be a hint of a Bullish Reversal move underway.
How to trade the triple bottom?
As with double bottom formation, the bullish view is only confirmed when Price Action breaks out of the neckline. The additional criteria for the validity is that Price Action should not make a new lows beyond the triple bottom.
If there is a new Low formed in the coming days, then the triple bottom is invalid. Instead, it can be a possible rectangle pattern, which is a consolidation of the Bearish Trend move.
The last COT Report for EURO FX showed that there is high open interest and extreme levels of Commercials and Non-Commercials.
Weekly Chart of EURUSD with COT Analysis
3 observations can be made from the chart.
1. Extreme Bullish Sentiments of the Commercials
The recent levels of the Commercials is on a record Bullishness level, unseen for the past 7 years.
2. Extreme Bearish Sentiments of the Non Commercials
Likewise, the recent levels of the Non-Commercials is on a record Bearish level, unseen for the past 7 years.
3. Rising Total Open Interest
The rising total open interest means that there were new orders for EURO-FX, thus implying increased market interest on this futures contracts.
What does all this mean?
The high open interest with extreme levels of sentiments usually precedes a possible Big move or a start of a trend reversal. As seen from the chart above, it could be a mean possible halt of the current down trend move, which could mean that EURUSD may have a bullish reversal and moving uptrend again.
The Euro has reached a key retracement level of its 2009 rally. At the moment, this 38.2% level is a support to watch.
EURUSD retraces 38.2% of 2009 movement
2 conditions give us a clue to whether the the Euro will rally from here or continue on its downtrend in the daily chart. A downward trendline now prints its resistance. As long as the trendline is not violated, the EURUSD will continue to retreat against the Dollar.
But there is another level to watch.
1.4216 is December 2009 low. Based on current price levels, 1.4216 will become a resistance and it comes before the downward trendline meaning that bulls and bears will be fighting this level first. If this resistance is breached convincingly in the near future, the technical picture of Euro may change. This outcome will make price movement below 1.4216 a ‘bear trap’ so that a downward wedge with bullish implications will form.
Critical level in Euro decides downtrend or bear trap
It is difficult to figure where the Euro is going. An inspection of the daily and 4-hour charts reveal 2 possible scenarios.
Bearish flag
The daily charts suggest that the Euro may continue its downward move because of this continuation pattern. The flag is characterized by the flagpole and which suggests a lot of momentum. A body of the flag completes the pattern. This body is usually perpendicular to pole. A body that converges into a triangle is called the pennant.
For the flag to be valid, price remains within the resistance and support of the flag. It is ultimately confirmed when it moves downward and breaks the support level (see dotted line motion).
Daily charts print a possible bearish flag
Reversal
The 4-hour charts paint a slightly different picture that can be visualized as a bullish reversal. The Euro was range bound the past 2 weeks (last week of 2009 and first week of 2010). This week price made an upside movethat was higher that last weeks high. Action till now seems to suggest that a support has been formed. If the bullish picture is true, price will find a base and penetrate Monday’s high level. Otherwise, the downside move below support will support the bearish flag scenario.
Weekly high
The charts show a potential reversal of fortune in the EURUSD and USDJPY.
The USDJPY hourly chart plots a double top that has broken its horizontal support. While this is traditionally a reversal chart pattern, confirmation has to come from another chart – the 240min. In this case, an upward trending support is clearly visible and this has not been violated.
A double top in the hourly chart shows resistance over 2 days whereas a trendline in the 4-hourly chart is a multi-week support.
Double top in the hourly chart
As for the Euro, a potential head and shoulder patten is now clearly visible awaiting confirmation by breaking the neckline. A break and throwback play is now the prudent strategy.
Inverted head and shoulder awaiting confirmation
If both reversals materialise, we are looking at a retracement move in the Dollar.
Price takes the path of least resistance. So which one is more likely to give? Erwin and I are watching.
Which is harder? The channel resistance or the horizontal support?
This week prominent channels being reinforced.
This Euro channel is steep and might be defied soon
Kiwi may be strong enough for a rally
Sterling showing the downwards channel as well
Major currencies continue to lose against the dollar. On a week-by-week basis, we saw that the following:
Late week, we see EURUSD, GBPUSD, AUDUSD and the NZDUSD find support on thursday and friday. When trading begins next week, the validity of this support may determine direction for the next few days.
Finding support for NZDUSD. Next? Test of upside.
EURUSD also find support late week
US retail sales came in better than expected last night sparking a rally in the dollar. With a week-on-week basis, the dollar is particularly strong against the Euro and Swiss Franc by making new highs.
Some headlines:
The Aussie is caught at a mid-week support-resistance level. It could be an important determinant of this direction next week.
Swiss Franc hourly chart
The dollar is particularly strong against the Euro and the Swiss Franc. On a week-on-week basis, the dollar has made new high versus both currency after a base building.
Direction of the yen is unclear.
MACD High Probability Trades 
