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Today, I’m back to the euro. Why? Precisely for the same reason I’ve been talking about all week. I like to work with things that are going up - if only for a short period of time. In my analysis last night, I noticed a swing point at approx. the Tokyo open - which happens more often than not. I figured that was good for a short counter-trend trade. I didn’t like what I saw on the hourly chart (read, MACD down), but my price projection saw 1920, or thereabouts.

As it turns out, once we got through the bewitching hour of midnight ET, I realized that today was going to be an M1/M3 day, where the expected high was M3. That gave me an insight into where price was going. And, sure enough, that’s where it hit the brakes. Who could have guessed? Meanwhile, from a longer-term perspective, the trend on the daily is still up, given the common sense demand (support) trendline is still being respected.

The tide turned on the Swissy at 7 pm ET Sunday, March 5/06, wherein we witnessed a spinning top on the hourly chart and a hammer - both fairly pronounced. Since then, it’s been up-up-and-away. When things get on a roll with a currency pair, it’s then that you want to use an oscillator like Slow Stochastics to pick your entry points - i.e., buy the dips in an uptrend, when STO goes oversold.

One of the reasons I picked the USD/CHF today over the EUR/USD and GBP/USD is that I personally find it easier to work with an uptrend (the latter two going down). I just find it easier to think that way. And, why not. The ‘three muskateers’ move in tandem - but differently, depending on how they’re paired with the USD. This business doesn’t have to be all that difficult. So, why not just go with the flow, and find situations that are easy to relate to.

According to trendline analysis, the trend on the daily chart for both the euro and the pound is up. That’s good for position traders. From a day trading perspective, the one constant remains trading the news. Two of our members have documented systems to trade the news - MMTS and KTTN. More often than not, they have proven effective in catching the aftermath of news coming out at 8:30 am ET. This is something you may wish to specialize in.

The other thing you may wish to focus on are the opening and closing times for the various markets - watching for swing trades. Today’s price action for the two pairs was rather anemic at the London open - the euro just meandering sideways, and the pound getting some oomph well after the London open. It really does pay to study both currencies, as you will catch movement on one that you won’t on the other, albeit they usually move in tandem. But, the subtle differences in their behavior are worth being aware of.

The trend on the daily chart for the euro is still UP, as a common sense demand (read, support) trendline is being respected at that level. Yesterday, in the am review, I indicated that price on the 15 minute was bucking the trend I was reading into MACD on the hourly, and that we should expect divergence. Well, that happened, as what you see on the hourly rules.

Price then went into a period of sideways action (read, consolidation or equilibrium - i.e., traders trading wood). By watching the euro and pound side by each, a downtrend continuation pattern was expected to unfold - and it did quite nicely for the pound. The euro, on the other hand, decided to test its expected high for today (M3), before following the pound in like kind. That’s the advantage of watching the ‘three musketeers’ in unison. By observing price action on the 5 minute for the euro, it was pretty easy to see what was going on, by observing the behavior of the 10 and 80 EMAs.

The current rise in the euro started at the Tokyo open Feb. 26/06 in the form of a hammer reversal formation on the hourly chart. I like to do my price projections after a major shift in price direction. A price projection after that swoon in price saw price rising to ~1920.

Coming into today’s session, knowing that and seeing the attitude of MACD on the hourly chart (read, up), it was logical to assume that price would go on a tear, and race through all its pivot points to achieve the end of that price projection. It got as high as 1894.

In the news, the ECB’s main refinancing rate could rise to as high as 3.25% by the end of this year, with a likely hike in the key interest rate by 25 basis points to 2.5% this Thursday. It is expected to be raised by an additional quarter percentage point in each of the following quarters of 2006, for a total of 100 basis points this year.

Using either the KTTN or MMTS systems to trade the aftermath of news yesterday would have been the prudent thing to do, as the 8:30 am ET swing point coughed up a nice run into today. Even if you missed that trade, we had a nice channel breakout today, as the Asian session finale and the opening of the London/Tokyo sessions collided. This was evidenced, not only by the breakout on the 15 minute chart, but also by observing the relationship of stochastics on the hourly chart to the behavior of the 10 and 80 EMAs on the 5 minute chart (read, the ‘Jeff Hughes trade’). Yesterday’s ‘news trade’ was further facilitated by a classic inverted head and shoulders pattern, which also foretold the rise in price into today’s session. Any way you slice and dice it, the trend at all chart levels for the euro is UP!

The trend is still up on the daily chart for the euro, further bolstered by the commercials’ COT sentiment (read, bullish) on the pound. The ~1880 level seems to find support at all chart levels. Certain key times of the day (read, London close, Tokyo open, etc.) continue to offer good swing trades, from a day trading perspective. Of course, position traders will pay more attention to the COT data, which comes out at 3:30 pm ET every Friday at the site I reference in my course. Coming into today’s session, price ‘knocked for the third time’ just shy of the ~1930 level - at M3 (the expected high for the day), read, M1/M3 day. A trendline break, just after the London open, supported by good angle and separation on MACD, facilitated a continuation of the swoon in price, which saw a reversal in the form of a hammer at the S2 pivot support level - just below the expected low (M1).

With the daily, hourly, and 15 minute charts for the pound all showing downward price action, according to the 89 and 144 EMAs, it was logical to expect further erosion in price coming into today’s session. That we got after the London open, facilitated by negative divergence on MACD. Further, today was declared an M1/M3 day, by virtue of the close at midnight ET being lower than the open 24 hours earlier. It’s interesting to note that the ‘Jeff Hughes trade’ was also helpful in nailing the collapse in price that occurred shortly after 4 am ET. The 10 EMA punched down through the 80 EMA (read, 40 smoothed) on the 5 minute at 4:15 am ET, whilst STO (Stochastic) on the hourly went from being slightly overbought to trending down

We appear to be going through another period of price consolidation (or equilibrium) on the daily chart for the euro –while MACD has fully neutralized on the hourly. This normally means traders are just taking a breather, before action heats up again.

In the meantime, yesterday I got into Jeff Hughes’ approach to day trading, and showed you how to apply his technique. I no sooner finished the am review when out popped another one of his gems – at 8:10 am ET. STO was over- subscribed on the hourly, and the 10 EMA punched down through the 40 EMA on the 5 minute. Ka-ching - a nice ~60-pip freefall!

Traders are now just chopping wood, getting ready for the next move up, I would surmise. Now, I know the 8:10 trade flies in the face of everything I have ever said about being out of the market during news hour (read, 8:30 am ET), but it is my humble opinion that, if a good set-up occurs before that bewitching time, then so be it, with the proviso, of course, that we are not expecting any life-threatening news.

Today, we are going to focus on the ‘Jeff Hughes Trade.’ Pretty simple stuff, and yet so powerful in its simplicity. This is the ~ system that is used by Jeff, who is a full-time forex trader (and stay-at-home dad).

• Symptoms: daily chart – price above 89 and 144 EMAs (read, longer-term trend is UP);
• hourly chart – price in an uptrend, MACD neutralized, STO oversold at 23:00; 15 min.
• chart – price in a downtrend, MACD divergence immediately before 23:00;
• 5 min. chart – price in an uptrend, 10 EMA punches up through 40 EMA at 23:00.

Translation: BINGO! Easy and simple (KISS)!