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Cross Currency Pair Analysis – Correlation Breakouts Part 2

Cross Currency Pair Analysis – Correlation Breakouts Part 2

Cross Currency Pair Analysis

This is a continuation of the currency correlation breakout post.  Today gave another live example of the way we sometimes look for these breakout trades.  EUR/USD and USD/CHF had both broken from their respective ranges; the dollar was showing its strength across the board.  The GBP/USD currency pair had however not followed the other pairs and was lagging the price action.  The 1.6000 round number had been tested overnight and a horizontal level was of interest for a potential breakout to the downside.  Of course – we don’t expect the market to break below the 1.6000 level and drop thousands of pips without returning… but these big round number can sometimes see major order flow and provide added volatility for an intra-day trade.

forex analysisThe first Forex chart we will look at is the aforementioned GBP/USD.  

  • Cable can be seen consolidating above the round number.
  • The level has held so far during the London open.
  • Price structure support is in place – there is a level to trade from if a breakout takes place.
  • We may even be able to preempt the breakout….see below.

cable 2011-11-07_0741

forex analysisThe next chart shows how the EUR/USD pair has broken below the recent range lows. 

  • We can see the dollar appears to be strong when referencing this chart alone.
  • momentum is still to the downside; it appears to be a sustained move with strong follow through.
  • Looking at Fibre in isolation doesn’t build a strong enough justification to short cable – on to the next chart… 

fibre 2011-11-07_0742

forex analysisSo now we have the USD/CHF currency pair. 

  • See how the dollar is proving to be strong against the CHF. 
  • Swissie is moving swiftly to the upside with momentum.  This is critical.
  • At this stage we have two major currencies under pressure from the dollar and making intra-day highs/lows. 

Do you think there is a reasonable chance that cable will break through 1.6000?  See the cable chart below…

swissie 2011-11-07_0744

forex analysisAnd here we have the final chart.

  • The Forex market had given us an insight into the broad based dollar strength during the London session.
  • GBP/USD has now followed the other pairs and dollar strength has prevailed. 
  • The breakout could have been preempted on this occasion.  There is added risk of the level holding though.
  • This does not always happen and EUR/GBP and GBP/CHF could have been reflecting the disparity in strength.

forex correlation

 

 

 

 

 

 

 

 

 

 

 

 

 

forex analysisAs always, do not trade live with any idea gained from this site. If you are interested in seeing whether this can be of use to your Forex trading then open a Forex demo account and paper trade only.

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