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One of the amazing things about the Ichimoku Cloud is the actual Cloud or ‘Kumo’ which is something unique wherein nothing like it was created before and nothing sense has come after. The Ichimoku Cloud or Kumo is designed to represent support or resistance but in a different form the western world has seen – to view support and resistance as evolving or dynamic and not static like pivot lines, Fibonacci lines, support lines or trend lines.

To the creator (Goichi Hosada), support and resistance was evolving and really based upon previous price action. Particularly, the highs and lows of previous price action was of great concern to Hosada (along with the opens and closes) which showed levels of rejection where the market would not accept price. The previous highs and lows would also give traders the range where the market was accepting price.

So the real question is ‘how’ does the Ichimoku Cloud or Kumo represent support and resistance? The answer lies in the construction of the Cloud or Kumo.

Kumo Composition

There are two main lines of the Kumo which are referred to as Senkou Span A and Senkou Span B.  For the purposes of efficiency, we will refer to them as Span A and Span B.  The space or value in between these two lines is what forms the Kumo.

Span A is formed by taking the Tenkan Line and adding it to the Kijun Line (white and red lines respectively from chart above), then dividing that value by 2 and plotting it 26 periods ahead.  The formula is;

(Tenkan Line + Kijun Line) / 2 placed 26 periods ahead

Span B is formed by taking the highest high (over the last 52 periods), adding to it the lowest low (over the last 52 periods), dividing that by 2 and plotting that 26 time periods ahead.  The formula is;

(Highest High + Lowest Low for the last 52 periods) / 2 and plotted 26 time periods ahead.

Now, before we fully get into the construction of the Kumo, we have to talk about what the Tenkan and Kijun lines are which help to form the ever changing Senkou Span A.

The Tenkan Line or Tenkan Sen (Sen means line in Japanese) is known as the conversion line or turning line is similar to a 9SMA but actually is quite different.  Remember a SMA (simple moving average) will smooth out all the data and make it equal but the Tenkan Line will take the highest high and lowest low over the last 9 periods.  The explanation for this is Hosada felt price action and its extremes were more important than smoothing any data because price action represented where buyers/sellers entered and directed the market, thus being more important than averaging or smoothing the data out.  As you can see by the chart below, the Tenkan Line is quite different than a 9SMA.  Because the TL (Tenkan Line) uses price instead of an averaging or the closing prices, it mirrors price better and is more representative of it.  You can see this when the TL flattens in small portions to move with price and its moments of ranging.

The Kijun Line (or Kijun Sen) is known as the datum line, standard line or trend line designed to indicate the overall trend for the instrument or pair.  The formula behind it is the same as the Tenkan line using price action and the highest high + lowest low with the only change being in the periods as it does it over the last 26 periods.

Why 26 periods?  The answer to that is a matter of history.  When the Ichimoku was first created, the Japanese markets were open 6 days a week on Saturdays.  If the markets are open 6 days a week, this generally results in 26 trading days for the month - hence 26 periods for the Kijun.  In essence, what it was meant to be was a measure of the highest high + lowest low for the last month of price action.  If the Kijun has been climbing - it means price has been gaining ground for the last month.  If it is flat, then it will be the midpoint of the range of price for the last month of price action (or representative of the price equilibrium).

Now that we have uncovered the composition of the Tenkan and the Kijun lines, lets talk about how they form the Senkou Span A.

Going back to its construction:

Span A is formed by taking the Tenkan Line and adding it to the Kijun Line (white and red lines respectively from chart above), then dividing that value by 2 and plotting it 26 periods ahead.  The formula is;

(Tenkan Line + Kijun Line) / 2 placed 26 periods ahead

So the Tenkan line (which is the momentum line) and the Kijun line (which is the trend line) that are based upon price action are moving. Their valued added together, divided by 2 and sent 26periods ahead is what forms the Senkou Span A or Span A. So the first portion of the Ichimoku Cloud or Kumo is based upon evolving price action lines which are half momentum, half trend monitoring. When you put these two together, you get the Span A which is always changing based upon the acceleration or deceleration of price based upon how they effect the Tenkan/Kijun lines (and in turn, the Senkou Span A).

The second line is the Senkou Span B which is a little different. Its based solely upon price action, particularly the last 52 candles of whatever time period you are on. If you are working with a daily chart, we are talking about the last 52 days, for a 1hr chart, the last 52 hours of price action. After taking the high and low for the last 52 candle range, it takes their values, divides them in half, and shoots them 26 time periods ahead.

The shading in between is called the Cloud or Kumo.

Why 26 periods?

The answer to that is a question of history. Originally, when the Ichimoku Cloud was built, Hosada was mostly using it off of daily charts. The Japanese were trading 6 days a week so 26 days would represent a full month of trading. Hence 26 time periods to see where future support and resistance would be one month out.

This is where we can use the Ichimoku Cloud for reversals.

If the Ichimoku Cloud or Kumo represents support and resistance, then the thicker the Cloud, the thicker the S/R it offers. If price is below the Kumo, it will act as resistance, if price is above the Kumo, it will act as support. The Cloud can take many forms and shapes (virtually infinite) which is what makes it tricky but thick Kumo’s often will reject price and the longer the time frame (4hr, Daily, Weekly), the more powerful the Kumo will act as support or resistance.

Take a look at some examples below.

USDJPY 4hr Charts

Notice how the pair rejects off the really thick Cloud but when it reverses is where the Cloud was the weakest or most thin.

USDCAD 4HR Charts

Taking a look at another example, the USDCAD after its initial fall, rejected off a really thick Kumo twice telling us a reversal was less likely. However the Kumo starts to thin out giving us a window to break through the Kumo and likely reversal point.

So the key tactic in both is to look for thinner Cloud formations which offer a window or glimpse into an upcoming reversal. Remember the Kumo is sent 26time periods ahead so you have plenty of warning when the window is opening. If you are in the current trend, the window in the Kumo could be a warning to take some profits or if you are looking for a reversal, then the Cloud offers you a good location and method to time a reversal which is one of the hardest things to do in trading.

Another clue hidden in the Cloud can be the flipping of the Senkou Span A and B which can indicate a reversal but do not always. The other main point is price does not always reject off a thick Kumo so its important to watch price action as well but the Ichimoku Cloud is excellent at spotting and timing reversals.

To learn more about the Ichimoku Cloud, or proprietary quantitative based strategies on the Ichimoku Cloud, check out the Advanced Ichimoku Course.

Using the Ichimoku Cloud to discover Reversals

One of the amazing things about the Ichimoku Cloud is the actual Cloud or ‘Kumo’ which is something unique wherein nothing like it was created before and nothing sense has come after. The Ichimoku Cloud or Kumo is designed to represent support or resistance but in a different form the western world has seen – to view support and resistance as evolving or dynamic and not static like pivot lines, Fibonacci lines, support lines or trend lines.

To the creator (Goichi Hosada), support and resistance was evolving and really based upon previous price action. Particularly, the highs and lows of previous price action was of great concern to Hosada (along with the opens and closes) which showed levels of rejection where the market would not accept price. The previous highs and lows would also give traders the range where the market was accepting price.

So the real question is ‘how’ does the Ichimoku Cloud or Kumo represent support and resistance? The answer lies in the construction of the Cloud or Kumo.

Kumo Composition

There are two main lines of the Kumo which are referred to as Senkou Span A and Senkou Span B.  For the purposes of efficiency, we will refer to them as Span A and Span B.  The space or value in between these two lines is what forms the Kumo.

Span A is formed by taking the Tenkan Line and adding it to the Kijun Line (white and red lines respectively from chart above), then dividing that value by 2 and plotting it 26 periods ahead.  The formula is;

(Tenkan Line + Kijun Line) / 2 placed 26 periods ahead

Span B is formed by taking the highest high (over the last 52 periods), adding to it the lowest low (over the last 52 periods), dividing that by 2 and plotting that 26 time periods ahead.  The formula is;

(Highest High + Lowest Low for the last 52 periods) / 2 and plotted 26 time periods ahead.

Now, before we fully get into the construction of the Kumo, we have to talk about what the Tenkan and Kijun lines are which help to form the ever changing Senkou Span A.

The Tenkan Line or Tenkan Sen (Sen means line in Japanese) is known as the conversion line or turning line is similar to a 9SMA but actually is quite different.  Remember a SMA (simple moving average) will smooth out all the data and make it equal but the Tenkan Line will take the highest high and lowest low over the last 9 periods.  The explanation for this is Hosada felt price action and its extremes were more important than smoothing any data because price action represented where buyers/sellers entered and directed the market, thus being more important than averaging or smoothing the data out.  As you can see by the chart below, the Tenkan Line is quite different than a 9SMA.  Because the TL (Tenkan Line) uses price instead of an averaging or the closing prices, it mirrors price better and is more representative of it.  You can see this when the TL flattens in small portions to move with price and its moments of ranging.

The Kijun Line (or Kijun Sen) is known as the datum line, standard line or trend line designed to indicate the overall trend for the instrument or pair.  The formula behind it is the same as the Tenkan line using price action and the highest high + lowest low with the only change being in the periods as it does it over the last 26 periods.

Why 26 periods?
The answer to that is a matter of history.  When the Ichimoku was first created, the Japanese markets were open 6 days a week on Saturdays.  If the markets are open 6 days a week, this generally results in 26 trading days for the month - hence 26 periods for the Kijun.  In essence, what it was meant to be was a measure of the highest high + lowest low for the last month of price action.  If the Kijun has been climbing - it means price has been gaining ground for the last month.  If it is flat, then it will be the midpoint of the range of price for the last month of price action (or representative of the price equilibrium).

Now that we have uncovered the composition of the Tenkan and the Kijun lines, lets talk about how they form the Senkou Span A.

Going back to its construction:

Span A is formed by taking the Tenkan Line and adding it to the Kijun Line (white and red lines respectively from chart above), then dividing that value by 2 and plotting it 26 periods ahead.  The formula is;

(Tenkan Line + Kijun Line) / 2 placed 26 periods ahead

So the Tenkan line (which is the momentum line) and the Kijun line (which is the trend line) that are based upon price action are moving. Their valued added together, divided by 2 and sent 26periods ahead is what forms the Senkou Span A or Span A. So the first portion of the Ichimoku Cloud or Kumo is based upon evolving price action lines which are half momentum, half trend monitoring. When you put these two together, you get the Span A which is always changing based upon the acceleration or deceleration of price based upon how they effect the Tenkan/Kijun lines (and in turn, the Senkou Span A).

The second line is the Senkou Span B which is a little different. Its based solely upon price action, particularly the last 52 candles of whatever time period you are on. If you are working with a daily chart, we are talking about the last 52 days, for a 1hr chart, the last 52 hours of price action. After taking the high and low for the last 52 candle range, it takes their values, divides them in half, and shoots them 26 time periods ahead.

The shading in between is called the Cloud or Kumo.

If the Ichimoku Cloud or Kumo represents support and resistance, then the thicker the Cloud, the thicker the S/R it offers. If price is below the Kumo, it will act as resistance, if price is above the Kumo, it will act as support. The Cloud can take many forms and shapes (virtually infinite) which is what makes it tricky but thick Kumo’s often will reject price and the longer the time frame (4hr, Daily, Weekly), the more powerful the Kumo will act as support or resistance.

Take a look at some examples below.

USDJPY 4hr Charts
Notice how the pair rejects off the really thick Cloud but when it reverses is where the Cloud was the weakest or most thin.

USDCAD 4HR Charts
Taking a look at another example, the USDCAD after its initial fall, rejected off a really thick Kumo twice telling us a reversal was less likely. However the Kumo starts to thin out giving us a window to break through the Kumo and likely reversal point.

So the key tactic in both is to look for thinner Cloud formations which offer a window or glimpse into an upcoming reversal. Remember the Kumo is sent 26time periods ahead so you have plenty of warning when the window is opening. If you are in the current trend, the window in the Kumo could be a warning to take some profits or if you are looking for a reversal, then the Cloud offers you a good location and method to time a reversal which is one of the hardest things to do in trading.

Another clue hidden in the Cloud can be the flipping of the Senkou Span A and B which can indicate a reversal but do not always. The other main point is price does not always reject off a thick Kumo so its important to watch price action as well but the Ichimoku Cloud is excellent at spotting and timing reversals.

To learn more about the Ichimoku Cloud, or proprietary quantitative based strategies on the Ichimoku Cloud, check out the Advanced Ichimoku Course.

EURUSD - Clear Resistance / Weak Support
Posting its most aggressive 1 week decline in over a month, the pair has found mild support in the end of the week to bounce a tad.  The bounce is not strong and is consistent with a combination of profit taking and corrective behavior.  The pressure is still on and we expect any gains to be tempered by the 20ema which is now pointing decently south.  The problem for the EURUSD is more about a lack of support combined with clear lines of resistance.  This along with the Kumo now way below at 1.3770 suggests the first major attempts to support this pair will not come for another 275pips below or more.  Treat rallies as selling opportunities until we reach the kumo top down below.  Only then would decent buys be considered but the pair may be in for some mild correction in the first half of this week.

GBPUSD - Messy like a 6yr-old’s room after too much chocolate intake
We almost considered not writing about the GU this week as the pair continues to play inside the Kumo which is getting thinner like the character in the Stephen King novel day by day.  The lines are all flat and there is no momentum on either side of the market.  Last weeks gains were moreso due to EURGBP buying instead of straight GBPUSD selling.  The pair does appear to be caught in a bear flag pattern and all three of the lines (20ema, Tenkan, Kijun) are all above so the picture suggests the next likely break to the downside.  We suggest light positions until more clarity arrives as some cautious shorts could be attempted at the weekly Tenkan or Kijun.

AUDUSD - Confirming the Failure
After failing to make it to the previous highs, the pair has followed it up with some strong selling to find a small base of support at the Tenkan.  We feel this will be a lesser test and the more important one the 20ema which has held the last bounce.  If it holds again, since it is climbing it will further build up the wedge pattern and suggest a possible continuation.  A failure at the 20ema allows the pair to test the Kijun line which it has not done since April of last year.  Its too late to sell and the only real technical buys offer themselves at the 20ema but caution is advised.  Any large sell-offs will likely get picked up by the Kumo around the 8000 range and allow the pair to make another run at the 09′ highs.

USDCAD - Making a Claim
The USDCAD is really trying to do something it has not done in a long time - break and close above the 20ema.  The pair has had its closest close to the blue line since July of 09′ and its posturing up like its tired of the suppression.  The good thing about breaking the 20ema here is the Kijun is so close it will not really need additional effort to take out both of them so its likely to be a 2for1 situation.  Should this scenario unfold, the pair might get aggressively bullish as it would ignite technical buying.  So far, in the last 6mos, the pair has only touched the 20ema once which led to a serious rejection of 800+pips in less than 3weeks.  We feel this week or next is probably one of the best chances for bulls to get some fresh air to the upside.  Aggressive sells could be placed on a 20ema touch but its not our cup of tea.  Any major rejections offer another chance to buy around the low 1.02’s for another 400pip climb with little risk to the downside.

NZDUSD - at a Critical Line in the Sand
Closing right on top of the 20ema and now the Kijun, we feel this is likely the best place for bulls to come back in as both lines have held since late March last year and this is the most contact they’ve had with these lines in a long time.  Last weeks selling was strong and none of the lines offer any major testimony as to the bullish prospects.  The Kumo is sitting below another 750pips from the current level so we feel a weekly close below the Kijun will likely send this pair to .6560 and .6300 with 7000 holding up the last defenses for the bulls in the medium term.  If someone wanted to buy, this is the only place left for a while as any prints below here suggest a fall is probably on its way till at least the end of Feb.

Chris Capre is the current Fund Manager for White Knight Investments (http://whiteknightfxi.com/). He specializes in using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He has built Ichimoku Systems for Institutions and has an Advanced Ichimoku Course for further training.  For more information about his services or his company, visit http://2ndskiesforex.com

Traditionally, the Ichimoku Cloud is known for its ability to pick up trends and keep traders in them until they are over. It should be noted that any system or method which is good at finding trends is also good at finding reversals because if you are finding the times/locations when trends are ending, then you are finding consequently a reversal.

There are several components inside the Ichimoku Cloud which give it a unique capacity to find trends, establish if we are in a trend, which direction and when it is over. One of them is the Kumo or Cloud which is one of the most unique technical indicators out there.

Kumo Composition

There are two main lines of the Kumo which are referred to as Senkou Span A and Senkou Span B.  For the purposes of efficiency, we will refer to them as Span A and Span B.  The space or value in between these two lines is what forms the Kumo.

Span A is formed by taking the Tenkan Line and adding it to the Kijun Line (white and red lines respectively from chart above), then dividing that value by 2 and plotting it 26 periods ahead.  The formula is;

(Tenkan Line + Kijun Line) / 2 placed 26 periods ahead

Span B is formed by taking the highest high (over the last 52 periods), adding to it the lowest low (over the last 52 periods), dividing that by 2 and plotting that 26 time periods ahead.  The formula is;

(Highest High + Lowest Low for the last 52 periods) / 2 and plotted 26 time periods ahead.

What is it used for?

The most important way to look at the Kumo is as support and resistance - meaning if it is thick, then the support/resistance (depending upon where price is in relationship to the cloud) is strong.  If price is above the Kumo, we are in a general uptrend or would want to look for more buying opportunities.  If price is below the cloud, it is below resistance (the Kumo) and we want to be searching for more shorts than longs.  The longer price stays below/above the cloud, the stronger the trend we are in and the more support/resistance the Kumo will offer.

These are generic ways to look at it but effective. What is important to note is in trends, price will stay on one side of the Kumo. The farther price is from it, the stronger the trend and more volatile it is. Thus, the Kumo can be a very effective tool for option traders as well as trend/momentum traders.

How can we use it for Reversals?

Because the Kumo will often hold price on one side of it, when price breaks it, such a move can often signal a reversal. There are various factors which will increase the likelihood of a reversal such as:

• Thickness of the kumo when broken
• How long price has been on one side of it
• How far price has moved before touching/piercing the kumo
• What time frame you are working on Etc.

These are all critical when assessing whether a Kumo break is signifying a reversal or not.

A few examples

Take a look a the AUDUSD below. It was below the Kumo for a long period of time and had a massive fall. Then after a couple of attempts on the daily chart, broke above the Kumo. Now remember the Kumo represents support and resistance so the pair breaking above it, then coming back to the Kumo to treat it as support was a great role-reversal play. After retouching the Kumo, it went on a 3000 pip run!

Another example is on the AUDJPY on the daily chart which was on a smooth consistent uptrend. Look what happened when it broke the kumo. It took a few days, but then after attempting to break back above, treated the Kumo as resistance, and the pair then fell over 1300 pips in a few months.

Final Notes

The Kumo Break method is one of the key systems used by Ichimoku traders for spotting key reversals, qualifying them and giving traders a unique opportunity to either take profits or reverse positions. Its great for timing trends, reversals and trading key reversals when they are in play. Because of its unique ability to measure support and resistance, the Ichimoku Cloud and its Kumo construction offer the trader some unique trade opportunities.

It should be noted there are other key elements needed to trade the Kumo Breaks with precision. We have analyzed Kumo breaks on Forex, Futures, Commodities and Indices over the last 10 years and with our proprietary indicators and analytical programs, are able to give precise measurements for how far and long a Kumo break should travel which gives you a precision edge when trading them.

To learn more about our proprietary Ichimoku systems, visit our Advanced Ichimoku Course where you will get access to 10 years of proprietary quantitative data on how to trade Ichimoku Clouds.

This is by far the most popular of the trading methods in the Ichimoku Cloud’s arsenal.
It is simple, elegant and great at picking up trends and trend reversals. If you like trading trends or momentum trading, the Tenkan/Kijun cross is a great method to use.

What are they?

The Tenkan Line or Tenkan Sen (Sen means line in Japanese) is known as the conversion line or turning line is similar to a 9SMA but actually is quite different.  Remember a SMA (simple moving average) will smooth out all the data and make it equal but the Tenkan Line will take the highest high and lowest low over the last 9 periods.  The explanation for this is Hosada felt price action and its extremes were more important than smoothing any data because price action represented where buyers/sellers entered and directed the market, thus being more important than averaging or smoothing the data out.  As you can see by the chart below, the Tenkan Line is quite different than a 9SMA.  Because the TL (Tenkan Line) uses price instead of an averaging or the closing prices, it mirrors price better and is more representative of it.  You can see this when the TL flattens in small portions to move with price and its moments of ranging.

Akin to all moving averages, the angle of the Tenkan line is very important as the sharper the angle, the stronger the trend while the flatter the Tenkan, the flatter or lesser the momentum of the move is.  However, it is important to not use the Tenkan line as a gauge of the trend but more so the momentum of the move.  However, it can act as the first line of defense in a trend and a breaking of it in the opposite direction of the move can often be a sign of the defenses weakening.

The Kijun Line (or Kijun Sen) is known as the datum line, standard line or trend line designed to indicate the overall trend for the instrument or pair.  The formula behind it is the same as the Tenkan line using price action and the highest high + lowest low with the only change being in the periods as it does it over the last 26 periods.

Why 26 periods?  The answer to that is a matter of history.  When the Ichimoku was first created, the Japanese markets were open 6 days a week on Saturdays.  If the markets are open 6 days a week, this generally results in 26 trading days for the month - hence 26 periods for the Kijun.  In essence, what it was meant to be was a measure of the highest high + lowest low for the last month of price action.  If the Kijun has been climbing - it means price has been gaining ground for the last month.  If it is flat, then it will be the midpoint of the range of price for the last month of price action (or representative of the price equilibrium).

Also like the Tenkan Line, the angle of the Kijun is reflective of the overall trend in place.  Price breaking the Kijun after being in an up/down trend often has serious consequences for that trend and can many times lead to a reversal of sorts.  Ultimately because it uses a longer period to measure price action, its a more stable method for determining the direction of the trend than the Tenkan Line.  Because of price to respect this line during a strong trend, it can potentially be used as a stop loss for traders already in the correct direction of the trend.  Hence, when price breaks or closes below it by a significant amount, the trend is often over.

Applications for the Tenkan and Kijun

The most common usage of the Tenkan and Kijun are the ‘cross’ or what we call the TKx (Tenkan-Kijun Cross).  Similar to how a MACD uses a cross of its two lines, the Ichimoku Cloud does the same.  It is interesting to note that the Ichimoku uses the same periods as the MACD, however it was created over a decade earlier.

One of the main signals for Ichimoku traders, the TKx can often indicate when a trend is about to begin by forming a cross (upward cross = possible upward trend while downward cross = possible down trend).  A generic upward cross can be used as a bullish signal (or exit for people already short) and a generic downward cross can be used as a generic bearish signal (and vice versa for current bulls).  However, notice we used the term ‘generic’ meaning there is more to the cross.

Hosada was able to give a further definition to the cross based upon its position to the Kumo or cloud.  If the cross was below the Kumo, then it was considered a ‘weak’ signal since the cross was below the Kumo or below resistance.  A medium signal was when a cross happened inside the Kumo as it was occurring within the field of support/resistance.  A strong signal was when the bullish cross happened above the Kumo as it was happening after clearing resistance.  The opposite is true for bearish signals whereby a weak signal is a cross above the Kumo, while a medium signal is inside the Kumo and a strong signal below the Kumo.  One important reminder to all this is to make sure you reference the Chikou Span to see how current price is in relationship to previous price action.

Exhibit A

Take a look at how the USD/INX gave 3 strong downward crosses with each move selling off nicely and never penetrating the Kumo highlighting the downtrend.

In another example, the AUDUSD gives a nice upward cross in an already established uptrend. First it entered the Kumo but had a very shallow penetration leading to a strong upmove over 1300pips from the Tenkan/Kijun cross.

Closing
There are many important factors to consider when trading the Tenkan/Kijun cross such as time frame, kumo shape/configuration, previous moves-series of crosses, angle/shape of the cross, etc.

We have proprietary quantitative data on all pairs for the last 10 years to give you an edge when trading the Tenkan/Kijun cross. To get access to this data, or learn how to trade the Ichimoku on an advanced level, check out the Advanced Ichimoku Course

EURUSD - Support Falling
As we wrote last week in our Ichimoku Report:
the pair will either maintain its corrective mode or start a strong sell-off towards the kumo top which has already fallen to 1.3760/80 level and will remain there till the end of Feb.

and

the line of least resistance will remain to the downside until 1.3760/80 level or until after feb. 26th when the Kumo starts to climb and build a good base of support for months to come.

This is essentially exactly what has happened to the pair with it attempting a comeback only to get slammed by the weekly Kijun.  The formation of this weekly candle and the strong rejection suggest the line of least resistance is clearly to the downside and any upside moves will have to contend with the Kijun and 20ema.

However, the Kumo paints the other side of the picture as its falling further and cannot offer any relief aid to the pair at least until the end of Feb. where it starts to pick up again.  It should be noted the Kumo does not come in as potential support until 1.3800 so this should bode well for the USD in the next month or so.  A break beyond 1.4185 suggest 1.4000 and 1.3800 will likely come under attack.

GBPUSD - Caught in a No-Fly Zone
An absolute mess of a pair trolling around the price levels like it has had one too many pints at the pub, the pair is caught in a completely inconsistent range and pattern which has formed a triangle within a triangle.  These patterns are absolute drubbish from a position perspective and we suggest only taking intraday positions as any position held over a day or so is likely to reverse.

The pair is caught in the bermuda triangle Kumo which is tailing off, getting smaller, and turning into a cone of sorts which then flips in mid-March.  Overall, this type of Kumo formation suggests extreme caution and not to take heavy positions as the complex Kumo pattern combined with the flat lines all suggest the pair is not going anywhere soon.  The only reason why its been climbing a tad as of late is the EURGBP sales which have been benefiting the GBP in the last two weeks.  Support or Resistance is neither here nor there and only the wide range top of 1.6850 and the far away bottom at 1.5700 have any major attraction to institutionals.

AUDUSD - Just Shy of the Double Top
Coming close but not taking home the cigar, the pair came about 100pips shy from the 09′ highs just piercing the 9300 barrier only to end the week in a sell-0ff.  The pair last bounced off the 20ema which launched the pair 600 pips and now that the pair has failed at the top, should it post another weekly decline, we expect a 2nd test of the 20ema which we feel will be the most important one.  The Tenkan is currently falling suggesting momentum is waning for this current upmove and since longs cannot add positions until a 09′ high break or another touch on the 20ema, we feel the pair will likely drift sideways or fall heavily to the 20ema but we do not expect massive buying to come in at this level so the short term outlook is at best neutral but more likely to the downside since bulls likely have lost a little confidence with the 2nd failed attempt to make a new high and are likely trimming some positions.

Overall, the larger uptrend structure is still in tact and the 20ema and Kijun offer nice levels to consider buying this pair if you are not already long.  If you want to go short, it would be best to wait for a dip to the 20ema where positions will reset a bit, then sell between 9300-9400 for another move back down.  Overall, shorts have a short term slight edge in this tug of war.

USDCAD - The Truth Coming Soon
Its first attempt to break the 09′ lows at 1.0200 failed with the pair just coming within reach of it only to bounce.  It then formed a higher low last week about 45pips from the 09′ low and has since bounced a tad.  Last weeks candle has wicks on both sides of the market and the CAD Interest Rate Decision with the revisions to the GDP should be the main trigger which either causes a nice bounce in the pair or sends the pair reeling past the 09′ lows.  Its kind of do-or-die for the bulls to mount any offense here and with the 20ema and Kijun falling, any rallies should get stymied.  Bears have two options while bulls have one with potential risky buys off the 1.0200 level an option for the horns to have their play while the bears can wait for a weekly close below 1.0200 or another attempt towards the 20ema selling just shy of the line and targeting the 1.0200 level.  Either way, the truth should be coming soon.

NZDUSD - 20EMA test Likely
After two straight impulsive bullish weeks for the pair to end 09 and start 2010, the pair has stuttered a bit well shy of the 09′ highs.  It should be noted the sell-off was mild at best and barely sparked heavy interest.  With the momentum and Tenkan declining, along with the recent successful test of the 20ema, we feel a 2nd one is in order as the pair is probably suffering from the solid USD gains against the other pairs.  The picture on the Kiwi is too similar to the Aussie as no real buyers will come in until the 20ema while sellers want a higher price.  Because the pair was that much farther away from the 09′ highs, we feel this is why last weeks price action was super mild as it could not garner any interest from both sides of the aisle.  Mild buys at the 20ema are the only real play for the moment and until we see how the pair reacts to it, we will not have much of a direction on display so tread lightly.

Chris Capre is the current Fund Manager for White Knight Investments (http://whiteknightfxi.com/). He specializes in using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He has built Ichimoku Systems for Institutions and has an Advanced Ichimoku Course for further training.  For more information about his services or his company, visit http://2ndskiesforex.com

EURUSD
Attempting a little bit of a comeback after the three week sell-off, the pair is moving in a rather non-committal corrective structure.  With a few tests above (20ema, Kijun, Tenkan lines) and one test below (Kumo Top) which is falling, if the pair cannot break through the rejections lines/levels above, the pair will either maintain its corrective mode or start a strong sell-off towards the kumo top which has already fallen to 1.3760/80 level and will remain there till the end of Feb.

What is interesting to note about this level and scenario is the 50% fib. retracement of the 1.2500-1.5100 move is also at this kumo/price level.  Unless the structure gets more impulsive to the upside and closes above these lines happen in the next week or two, the line of least resistance will remain to the downside until 1.3760/80 level or until after feb. 26th when the Kumo starts to climb and build a good base of support for months to come.

GBPUSD
A picture getting messier by the week, there is nothing attractive about this cloud chart on every level.  The trend line (Kijun) is flat, the momentum line (Tenkan) and the Kumo (blue space on chart) twists, turns and gets thinner for the next two months suggesting the pair will most likely remain range-bound for the next few months so building positions on either side of the market would not be suggested.

Based upon the current structures, small position buys could be placed around 1.5700 and short term aggressive cells can be posted at the Tenkan/Kijun lines which are parked at 1.6375.

AUDUSD
Finding nice support off of the 20ema and easily clearing the Tenkan line with an impulsive climb, the pair could be resuming its longer term uptrend but has the 09′ highs up at .9405 waiting for it and likely some sell orders parked there.  Although the Tenkan is relatively flat, the 20ema and Kijun are climbing so dips to the 20ema are good buy levels or any weekly closes above the 09’s highs as long as the impulsive price structure remains intact.

Any major dips are well supported by the thickly rising kumo so we prefer buying until kumo penetration has occurred.

USDCAD
Coming within 50pips of the 09’s lows, the pair has found a short term support and has bounced about 100pips.  However, other than the high risk buys off the lows, the only smart move would be to wait for approaches to the 20ema which is continually falling and yet to be breached since April of 09′

Ultimately, the thick kumo is falling along with the diving Kijun line all suggest bears are really the only solid plays out there.

NZDUSD
Following suit of its big brother the AUDUSD, the Kiwi acted as the canary in the coal mine selling off against the USD and could do so again but only to the downside.  Because it has moved impulsively but lesser than the Aussie, if there is weakness in the commodity pairs, it will likely be spotted in the NZDUSD.  This is also supported by the fact it has further to go to reach its 09’s highs so it could pull on the AUDUSD rising while it fights to break through the ceiling.

Ultimately, we feel the thick rising kumo structure will build and hold as a base on 80% of all major dips to support another run to the upside and continuing the longer term uptrend structure which is in place.

Chris Capre is the current Fund Manager for White Knight Investments (http://whiteknightfxi.com/). He specializes in using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He has built Ichimoku Systems for Institutions and has an Advanced Ichimoku Course for further training.  For more information about his services or his company, visit http://2ndskiesforex.com

Bienvenido de 2010

Hard to believe we are not just in a new year, but a new decade.

EURUSD
Completing its first 3 week decline since Jan. of 09′, the pair found brief support at the price base just a hair above the weekly kumo flat top. The structure is definitely more bearish for the pair and the line of least resistance is to the downside starting on Monday. The kumo top starts to decline from the opening bell of the year so support is falling and the kumo base does not come back until 1.3805 which happens to be the 50% fib of the 09′ low to high. This could be a good place for bulls to try and re-establish longs. If this fails, there is a relatively small kumo below and the 61.8% at 1.3485. Breaks beyond this are not good for the EURUS which does not have another price base until about 1.3000 and 1.2500 which was the relative low for 09′. If you are thinking of getting long, a healthy amount of caution is advised an confirmation for the bulls will not come till a break and close above the 20ema.

GBPUSD
Stuck inside the weekly kumo, the pair is about to exit it since it goes twister style by early feb. Until that happens, we feel the structure is not pretty and the wide range between 1.7000 and 1.5700 should dominate. However, keep in mind the pair declined for 6 straight weeks and only recovered last week with a little bounce. With all the lines going flat, momentum is in neither direction so heavy positions are risky at this point. The picture gets more complex until mid April where price will find a mild support from the kumo or the flat bottom will be resistance. Overall, the picture is messy.

AUDUSD
Finding solid support off the 20ema, the pair now has to contend with the Tenkan which is flat and should offer some upside resistance at .9069. Day traders can take an aggressive short here targeting the 20ema at .8827. After this, we have the yearly highs for those feeling bearish on the aussie just above around .9400. Only the 20ema is climbing so we could see a range build between 8800 and 9400 for a little bit. However, we feel any major dips to the Kijun or Kumo top become good buying opportunities for another long term move up to 9400 and possibly parity. The kumo keeps rising and does so at a strong pace so support will continually want lift this pair for at least the first half of 2010.

USDCAD
Hemmed in by the 20ema on the weekly charts, the only sensible thing to do is sell just below it targeting 1.0400 or buy around 1.0200 but price is forming a short term wedge which is not a favorable price action formation to be trading, especially since we are over 80% into it so risk is increasing while reward is decreasing as the formation continues on.

NZDUSD
First to break down and the first to go more corrective than impulsive in the breakdown against the USD, the pair had a very structured decline which was relatively corrective in nature with a little more gusto in the downside than the upside - the pair has not found support off the 20ema and bounced about 190pips since then and is making a case to push through the Tenkan. The corrective wedge structure has a top about another 100pips above and a break of this level aims for a push back to .7630 (09′ high) and would suggest we have a short term base in at .7000 for bulls to take longs if price gets there again. Any dips have to first take out the 20ema and then the flat Kijun which would take a good deal of elbow grease, however breaks below these levels should find support around .6500 where price should climb higher for the first half of 2010. Line of least resistance in the short term is mixed but medium term is to the upside.

Chris Capre is the current Fund Manager for White Knight Investments (http://whiteknightfxi.com/). He specializes in using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He has built Ichimoku Systems for Institutions and is at the forefront of Ichimoku models and analysis.  For more information about his services or his company, visit http://2ndskiesforex.com