We warned yesterday about the confluence of events and technicals underway in EUR/JPY and said a big move was likely today. The direction wasn’t entirely clear because there was a possibility of a false breakout but we said the bias was to the upside.

We wish we would have ignored the possibility of a false breakout and went long because there was a huge move to the upside today in EUR/JPY. The combination of an inverse head-and-shoulders pattern and the end of the month/quarter/Japanase fiscal year generated a big move in the pair.

Here is the chart. Note how today’s move was the biggest in more than a month.

The good news is, as our strategy pointed out yesterday, that this is just the beginning of a bigger move. The head-and-shoulders pattern is now confirmed. The measured target is 130.77.

We think there might be some pain, in terms of a pullback, but we also can’t rule out a continued rally. We are going long here and are going to look for ways to add to our position. We will be adding all the way down to 125, if necessary.

The euro appeared to break higher against the yen early in Tuesday trading but it was forced back by worries about sovereign debt in Greece and Ireland. The mid-day rally above resistance followed by a reversal set-up a bearish daily signal that could potentially be a false breakout. It could also be a real break out. Either way, expect a big move in EUR/JPY in the coming day(s).

Notice how the pair rises above resistance on the last candlestick but then closes lower in a gravestone doji that could evolve into an evening star. As we have mentioned here many times in the past, we love to look for doji stars at points like this because volatility usually follows.

What makes us extra excited about the coming day or days of trading is that Wednesday is the final trading day of the month, quarter and Japanese fiscal year. Thursday will be the first day of a new month, new quarter and new Japanese fiscal year.

When the technicals and the calendar both point to high volatility we get excited and ready to trade.

So which way is the market going to go? We don’t have a position at the moment but we believe there is a big move coming and once we get some confirmation about the direction, we will be riding it for many pips.

A rally to the upside would create a classic inverted head-and-shoulders pattern — a text book formation. The target would be 130, or the 200-day moving average. We would look for a rally above 126 as confirmation of the up move.

A rejection of the resistance line and confirmation of the false breakout would come witha fall below 124. Our initial target on this move is 122 and potentially 120.

Our bias is to the upside be we are going to wait for the technicals to align.

The two day rallies in EUR/USD and GBP/USD have pushed both back above the bottoms of their recent ranges. Both pairs appeared to break down last week but the rebounds have surely made the technical shorts nervous with their renewed strength.

In EUR/USD, Monday’s close of 1.3483 is below the low close of 1.3507 from the previous range. The failure to close in the previous range comes after an intraday high of 1.3527. The rise above 1.3500 was very light trading early in the session and was likely a leveraged effort to squeeze out the shorts.

Technically, however, it’s a failure so it’s bearish. Overall, it’s a mixed picture and a dicey trade but the bias still has to be for USD strength. Things might get very interesting on another break above 1.3500.

Cable looks more bullish on the daily chart that EUR/USD. We closed at a fresh low on Thursday but were unable to break below the 1.4787 low from the final day of February. We tured lower on Friday but ultimately closed with a minor gain. The bullish setup was completed with the rally above Thursday’s high on Monday. Up next is the psychological barrier at 1.5000. We will need to see a close above here before the coast is cleared for a push toward 1.5378.

USD/CAD has formed a short-term head and shoulders reversal pattern that targets a re-test of last week’s low of 1.0060.

The set-up for the Canadian dollar is looking good on Friday’s session. European leaders appear to have cleared up some of the uncertainty regarding Greece and that could lead to a ‘risk-on’ session.

With a stop at 1.0250 and a take profit at 1.0080, this trade has a potential loss of 38 pips and a potential gain of 130 pips so it stacks up right for us. Selling USD/CAD has been a good trade for us all the way down and this is a new, and attractive tactical entry.

The U.S. dollar took flight in today’s session and the euro fell below key support. This is a trade we are not going to fight. The U.S. dollar now looks bullish by just about any metric we can muster.

In the long run, we can think of a lot of reasons not to be long USD but right now, there is no other trade. When the forex market sends a signal like it did today, and the technical align, you have to go with it.

The breakdown in the euro today looks very similar to the other recent consolidations and drops. It would be no surprise to see a fall to 1.32 and likely 1.28.

King dollar is back.

We have been pounding away at USD/CAD on this blog for months. We have been almost relentlessly bearish on USD/CAD and the push nearly to parity last week validated our long-held stand.

After the recent three-day relief rally in USD/CAD , the market is set-up for a breakdown.

There are several things working towards a lower CAD:

- U.S. stocks rallied to a fresh 17-month high on Tuesday and the risk appetite trade is looking as strong as it has this year.

- Oil is at $81 and withing range of the cycle high of $83.16. A break higher would undoubtably add to the CAD’s momentum

- Similarly, copper appears ready for a bullish run. It formed a bullish hammer pattern on the daily charts on Tuesday and has been making higher lows.

- On Wednesday, Bank of Canada Governor Mark Carney is speaking in Ottawa. After the twin failures to stay a above 1.02 this week, USD/CAD is set-up for a bearish breakdown lower if Carney signals that the BOC is ready to start hiking rates.

- Further, the technical picture remains moderately oversold but as the Bollinger Bands show, the conditions have been relieved somewhat. We can’t rule out a rebound to 1.0350 or even 1.0400 but we feel like the risk of missing a move to well below parity makes it worth taking. We will be adding to shorts all the way up to 1.04 but would have to start covering above that.

- One thing that gives us pause is the massive short positioning in the CFTC data in USD/CAD. We fear a short-cover rally but we also feared the same thing in EUR/USD and thus far, it has failed to materialize.

Looking through the charts today, NZD/USD jumped out at us. We noticed on Friday that the pair had formed a bearish englufing candle formation on the daily chart. That set off a drop on Monday but the losses were supported when NZD/USD fell to the 200-day moving average at 0.7002. That triggered a turnaround and now we have a bullish hammer formation.

Notice the support from the red 200-day moving average line as well as the big red candle a day earlier. The 100-day moving average (in blue) is also shown.

Overall, NZD/USD looks to be setting up for a big move. The market is locked between the 100-day and 200-day and when it breaks out it will likely test the trendlines shown on the chart.

Technically ,we like the downside in the medium term because the trend is clearly down. In the short term, however, the hammer pattern is bullish and we expect to see NZD/USD rally to 0.7100 initially. We would be a seller of strength, but not until 0.7150 with a stop at 0.7177.

Whippy markets can be both profitable and fileld with pitfalls as we have seen over the past week. Extreme volatility in GBP has been a difficult trade that fortunately we were able to profit from before giving a small portion of our gains back.  Still, the highly volatile action in GB and EUR has left us looking for something with a bit more directional bias.

For a low volatility trade, little beats AUD/CAD. These two almost always move in tandem against other currencies but also trade against each other. Lately, AUD is looking tired against the Canadian dollar.

Stochastics are sendign mixed signals but the AUD has now fallen below the 200-day, 100-day and 50-day moving averages as well as tracing out a convincing downtrend since peaking at 99 cents.

This gives us an opportunity to set up a short AUD/CAD trade with a stop at 0.9450 and a target of 0.9000.

Fundamentally, the market is just starting to price in Bank of Canada rate hikes, while having already fully priced in a further 100 basis point hike to 5.00% from the RBA. We feel that if the risk trade falls apart the 100 basis points that have have been priced in from the RBA are vulnerable. Meanwhile, the measley 25 basis points priced in for the BOC won’t have as big of an effect. On the other side, if we continue to see strong global growth, the BOC will inevitable close the 375 basis point spread between central banks.

We’re giving ourselves a pat on the back for getting out of yesterday’s pullback in GBP/USD and staying out of the way of today’s fall (see below). We targetted 1.5230 as a re-entry point and we hit it and found support there. We will go long at these levels (1.5243) with a stop at 1.5200 and a target of 1.5450.

Euro bulls got pounded today after some headlines suggesting Greece and Germany are at odds on some sort of financial backstop/bailout plan. A report suggested Greece could be headed to the IMF and the euro promptly fell 125 pips.

Technically, yesterday’s prices action put a bearish inverted pattern on the daily chart after a failed upside breakout. It’s a signal we wish we would have heeded.

The technical picture is now bearish although it’s clear that the euro is trading on politics more than technicals. We remain bullish on the euro, having went long at 1.36. We are now right our entry point.

We still very much believe in a euro rebound to at least 1.40. We are, however, going to put a stop at 1.3532. If we get stopped out, we may look to re-enter on a quick spike below 1.35.

t’s the time to stay nimble and maintain nerves of steel. We still have a great deal of conviction on the long side of this trade but if 1.3438 gives way, we may be forced to re-evaluate.