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Price Action and Ichimoku Outlook 2014 EURUSD
To end 2013 and start off 2014, we wanted to do something different, and instead of doing a typical weekly chart analysis, we are going to give an in-depth price action and separate ichimoku trading analysis. We feel the combination of their perspectives will give you a unique outlook for the upcoming year.
We will do one pair per day every day this week, starting with our price action models on the EURUSD.
Price Action Outlook for 2014
For the last 8 years, the Euro has been stuck in a large triangle pattern, touching the top and bottom of the pattern 3x each. You will notice at A, that the pair formed a weekly pin bar rejection off this upside trendline. As a whole, the pair entered the pattern in an uptrend, so the natural logical conclusion would be an upside break.
It should be noted the price action spreads (blue colored rectangles) have been about 1000 pips each, while the bottom side (green rectangles) have been weaker (200 pips & 700 pips). This would suggest over time, we are seeing weakening buying interest, while the sellers are happy to come in at more expensive/lower prices.
Now using price action angles to determine the underlying order flow and buying support, you will see 5 trend lines. Up-moves 1-3 are relatively consistent in terms of their angle, being sharp & suggesting strong buying interest. But the latter up-moves 4-5 becoming more obtuse, suggesting a weakening buying interest.
I feel this upper triangle trendline will be the key. If the bulls can close above this level, then it looks like 1.4900 will be touched, likely within the year. That would be about a 1200 pip move, which would be the yearly range in 2013. Options traders who are bullish could look for a one-touch option within 2014.
On the bear side, there is more room to navigate in. If this upper trendline holds, then 1.2100 looks like its on deck. Bearish option traders could take a one-touch 1.2100 option before 2014 closes. Daily or 4hr chart traders looking for a setup this week could look for a corrective intra-day push up to the trendline, selling just below 1.3890 targeting 1.3751 and 1.3630 for a great
One last note – courtesy of some great BoAML Analysis, the EURUSD has a tendency to sell off in the month of January over 65% of the time (chart below).
This would favor selling to start the year as the average monthly loss is 1.27% on the month.
Ichimoku Cloud Analysis
In relationship to the triangle mentioned above, using ichimoku wave analysis, we are in a contracting P-wave. The move from A-B-C-D is a classic E calculation [E = B + (B-A)]. That would put an upside target of this E calculation (using ichimoku price theory) to 1.4293 which is ~45 pips above the Oct. 2011 high (not touched since). The E-F moves did not violate the low of C, hence the N wave and E calculation is still in play. Once this low is violated, it would likely signal a move back town towards A.
Using basic Ichimoku analysis (the 5 lines), the Tenkan and Kijun are above the kumo, so the bull side is favored, however momentum is a little weakened with the Tenkan being flat. The kijun did hold the last pullback, so the trend is still supported. If price action starts to spend more time between the two lines, then the upside will likely be limited and the 1.3275-1.3345 would be under attack.
The chikou span is above the price line (bullish), but its still below its 2013 high in April (still potential upside capped). The kumo is continually thinning, suggesting a range bound environment is the more probable scenario for 2014.
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