Prospects for the Euro - A Technical Perspective

This piece was originally penned last Friday before the Euro took its nose dive yesterday. The current trend looks bound by the lower- and mid-Bollinger band (aka 20-day MA).

There is no need to flog a dead horse as to why interest in the Euro is so high. But putting the news to one side, is there any indication - based on historic price action - as to what might lie ahead for the currency. This article will focus on EURUSD.

The story so far:

An article published by FXStreet in June 2008 looked at the long-term view of the EURUSD. The author, George Antonakos, using cycle analysis suggested the pairing would top at around 1.6700 in the latter part of 2008 as part of a 16-year cycle peak, before an 8 year decline (give or take a year) in the Euro would begin. In the end, the EURUSD topped at $1.6031 before the downward push began.

The support trendline from the 2002 reaction low was decisively sliced in the latter part of 2008 and was a point of resistance for the rally in late 2009.

The new downtrend which kicked in from the 2008 high has defined support / resistance which will provide long and short side opportunities in the years ahead, but the dominating bias will be bearish; so look for torturous rallies and rapid declines.



If we are staring at an 8 year bear cycle with a projected end point of 2016 (more European bailouts on the way...) what can we expect will be the bottom?

In 1984 the EURUSD bottomed at 0.6490. In 2000 the reaction low was 0.8366. So will the next low be close to parity in 2016?

If the Euro was to devalue below a 1:1 exchange to the dollar it would suggest something far more worrying for the Eurozone and an end to the multi-decade secular bull market for the Euro currency.

The current situation

Bringing the story closer to home. The pattern of trading from April through to today is similar to the action of July 08 through October action of last year, when a scrappy triangle broke to the upside before rolling over and eventually undercutting the low of the earlier triangle.

If this action was to repeat, then a break of $1.1882 in the next 6 - 12 months would be the outcome.



During the descent from $1.5142 to $1.1882 there was a weak rally attempt which eventually finished as a bear flag and an excellent shorting opportunity to those who spotted it.

The Dec 09 - Jan 10 bear flag topped at a former support level from October 2009. In the current scenario there is a support turned resistance at $1.3737 which is worth watching; will this play as resistance for the current bounce?



Whether $1.3737 plays as resistance or not, there is more dominant supply at the declining trend connecting the July 2008 top to the reaction high of November 2009. Based on its current position, resistance sits at $1.4500 but it's falling as each day passes.

If the EURUSD is in the downward phase of a 16-year cycle it's going to be hard for Eurobulls to fight the growing downtrend.

It might in the end be a case of taking the medicine and sitting it out until the market comes back to them. In the meantime, create your own personal Zignals Alerts to keep you informed of bullish or bearish EURUSD price breaks relevant to you.

Why not start your Zignals Trading Strategy Business with us today? Learn How to promote your Zignals Trading Business with Twitter.

Follow us on twitter here How to Get Started with Zignals Build a trading strategy in Zignals and potentially earn money too; download our Build a Trading Strategy PDF and get selling (and trading) today!

Dr. Declan Fallon, Senior Market Technician for Zignals.com, offers a range of stock trading strategies via his Zignals home page. Each Zignals member has an unique home page which they can share with friends and clients to sell their strategies.

Zignals offers a full suite of financial services including price and fundamental stock alerts, stock charts for Indian, Australian, Frankfurt, Euronext, UK, Ireland and Canadian stocks, tabbed stock quote watchlists, multi-currency portfolio manager, active stock screener with fundamental trading strategy support and trading system builder. Forex, precious metal and energy commodities too. Build your own trading system and sell your trading strategy in our MarketPlace to earn real cash. Read what others are saying about Zignals on Investimonials.com. JOIN US TODAY - IT'S FREE!
Read more!

Trading the Key Dollar Pairs; Doing The Ground Work

In a series of articles I will look to build a profitable Forex strategy built around EURUSD, GBPUSD, AUDUSD and NZDUSD using the Zignals Trading Strategy Builder. The goal of these articles is to educate on the use and Strategy Builder Engine and to enable readers develop their own strategies around their favourite currency pairs.

The Zignals Strategy Engine was designed to trade stocks, so strategies built around Forex symbols will buy 'shares' and won't use leverage, so returns are factored on a 1:1 basis. Therefore, a Forex strategy which invests $20,000 into Euro will calculate returns off a $20,000 investment, not a $200 margin investment (100:1) as is typical for Forex trading.

The second point about our Forex strategies is they have to share the same 'Base' currency. But strategies can be replicated to use different 'Base' currencies - in effect you might run two or three strategies together to get signals for Sterling, Canadian or Australian Dollars (unfortunately, no Yen or Swiss Francs yet).

Okay - I'm interested, how do I start?

An earlier article described the process for stocks, but let's look at this from the point of view of Forex. On loading the Strategy Builder you will be greeted with a grid-like workspace.

The left part of the screen offers five steps to help build your strategy.

The last step, "Publish to Zignals" (highlighted in orange), is the one which brings your strategy to life. Only complete the last step when you are happy with the strategy and are ready to receive the trading signals.

1. Setup

The first step contains a couple of key components which need to be completed.

Name: This is the name of your strategy, sky is the limit for naming

Strategy Type: This is the first important choice to be made as once set it cannot be changed after a strategy goes 'live'. Default is "Long" which means we will be buying our currency pairs.

Money Management: The first major choice is to select the Currency. This should be the Currency base for your trading pair(s). Since our strategy is based around Dollar pairs we will set the base to 'USD US Dollar'. Alternatives are Euro, Sterling, Australian Dollar and Canadian Dollar (no Yen or Swiss Franc at the moment).

As the Strategy Engine was designed around stocks it is hard-wired with certain stock-strategy relevant variables. In this case, a Starting Capital of $100,000 (effectively a $1,000 Forex account), a Cost-per-Trade of $10 (would be $0 for a true Forex strategy), a Slippage Percentage of 0.2% - which means entries are 0.2% more expensive and sales receive 0.2% less that the quoted price, and a Delay between trades set to 15 days. The Delay between trades is a feature to protect against whipsaw signals and is particularly useful in trending strategies. But to remove any possible confusion on our signals we will set it to zero.

Stop Condition: This is the first real area we can toy with. Because we haven't considered the technical signal we are going to use we can keep these values unchanged. But as you become more proficient in your strategy building you will optimise the best exit conditions for your strategy.

2. "Stocks"

The second step defines what your strategy will trade. "Stocks" is not limited to stocks, but also includes currency pairs, indices or commodities. However, the 'Base' currency of the list components must match to the Currency selected in Step 1. In our example, our strategy was built using the US Dollar so our "stocks" must feature currency pairs based on the dollar. This strategy will use four currencies in a New "stocklist" called 'Quad Currency'.

Quad Currency: GBPUSD, EURUSD, AUDUSD, NZDUSD

However, you could create new "stocklists" for other key currency pairs., e.g:

Canadian Currency: USDCAD, EURCAD, GBPCAD, AUDCAD

Hey, what about a list of Euro pairs?

So why can't you create a "stocklist" around a selection of Euro pairs like EURGBP, EURCAD, EURAUD? The issue is to do the with last currency of each of these pairs - they are all different. Remember, a "stocklist" must use currencies where the last currency in the pair matches the "Base" currency selected in Step 1.

Is there a workaround?

Yes, strategies can be built around a single currency pair. Once your strategy is created you can save it under another name with a different 'Base' currency and trading currency pair, e.g. A Sterling Base Currency (GBP) trading just the EURGBP pair.

3. Rules

I will discuss this feature more next week. Let's just add a 20-d cross above a 50-d SMA rule - the first one on the list of default trading rules. It will appear on the screen highlighted by a glowing border; both the information boxes at the top and bottom will similarly glow - so what does the glow mean? The glow areas mark the actionable points which need to be configured before the strategy can be considered complete.

To create a complete Strategy it is necessary to connect added rules in Sequence from their start point at the top, to the end point in the Result box.

To do this, mouse over the body of the box attached to the Start Point and left click on it (i.e. this is the box which contains the name of your strategy). When you left click, the background colour of the box in the middle (which is the Rule) will change from Orange to Green. While keeping the left-click engaged on the box, drag it towards the Rule until you see a large plus-sign on a green circle background appear.

Release the mouse to connect the rule. A white connection line will appear from the Start Point to the rule.

Repeat the process for connecting the Rule to the End Point. Remember, left-click-and-drag the rule until it's over the Result box - not the End Point.

When this is done correctly another plus-sign will appear with the word 'Connect' beneath.

When the strategy is successfully connected there will be no more glowing borders and a line of flow will have been created from top to bottom.

In a later article I will look at some complex rule arrangements, but this allows us to move to Step 4: Backtest.

4. Backtest

The Backtest is the meat-and-veg of the Strategy Builder - in effect, how good is your strategy?

The Backtest defaults to the last 2 years-to-date but can lookback for any period to 2000. In a later article we will look at a more rigorous test regime for our Strategy as we test in out-periods (i.e. different time spans than used to build the strategy).

To run a Backtest all that is required is to hit the button and Run. At the end of the Backtest the Result section will populate will results and you will have the option to view a Portfolio listing all of your trades.

If you decide to view a Portfolio you can give it a name.

After saving you might have to wait for 30 seconds-1 minute as the Portfolio populates with your trades and is loaded.

Here you will be able to see all the Transactions for your strategy, individual returns per trade and graphical Performance summaries.

At this point, if we were happy with the strategy we could 'Publish to Zignals' - but for now, close the Portfolio window / switch back to the Strategy Builder, save the strategy, and we will look to improve returns in next week's article.

----

Follow us on twitter here. How to Get Started with Zignals. Build a trading strategy in Zignals and potentially earn money too; download our Build a Trading Strategy PDF and get selling (and trading) today!



Dr. Declan Fallon, Senior Market Technician for Zignals.com, offers a range of stock trading strategies via his Zignals home page. Each Zignals member has an unique home page which they can share with friends and clients to sell their strategies. Zignals offers a full suite of financial services including price and fundamental stock alerts, stock charts for Indian, Australian, Frankfurt, Euronext, UK, Ireland and Canadian stocks, tabbed stock quote watchlists, multi-currency portfolio manager, active stock screener with fundamental trading strategy support and trading system builder. Forex, precious metal and energy commodities too.

Build your own trading system and sell your trading strategy in our MarketPlace to earn real cash. Read what others are saying about Zignals on Investimonials.com. JOIN US TODAY - IT'S FREE!
Read more!

Zignals Stock Charts: Stocktwits Top Tickers

Bulls will be biting their nails with S&P futures weak; but what has grabbed the attention of traders this week?

Apple (AAPL) tops the list. Boston Wealth Management is looking at a long standing battle of the trendlines:


But over the short term it is looking better for the bulls:


Second was the Euro/US Dollar Currency pair (EURUSD). Shorts look to have the edge on the Stocktwits feed but the daily chart appears to show a bull flag with clear support at $1.38xx. I have made a call for a measured move to $1.55xx. Supply in the $1.42xxs has restrained the rally once but can it do so for a second time?


Third on the list is British Pound / Japanese Yen (GBPJPY). Pipmaestro has been peppering with short trades but the daily trend is clearly higher. Supply around £1.62xxs is a chance for shorts to get in top-end; aggressive shorting is likely to occur should £1.55xxs break.


The S&P (SPY) has been a constant on Stocktwits (interesting to see it gather more attention than the QQQQs). I haven't changed my earlier call from June 17th; still think it is heading into the $80s.


Last of the major follows is the US Natural Gas ETF (UNG). There is no firm conviction from Stocktwitters on how the sideways pattern will resolve. If it was to follow oil's lead then higher is favoured but weak seasonal effects may suppress this.



Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts, and stock charts website
Read more!