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Price & Time: Extreme Negative Sentiment in the Pound Favors a Reversal

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This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

To receive other reports from this author via e-mail, sign up to Kristian’s e-mail distribution list via this link.

Foreign Exchange Price Time at a Glance:

FXCM DOLLAR INDEX:

PT_GBP_senti_body_Picture_4.png, Price amp; Time: Extreme Negative Sentiment in the Pound Favors a Reversal

Charts Created using Marketscope – Prepared by Kristian Kerr

  • FXCM DOLLAR broke above the 61.8% retracement of the 2009 to 2011 decline near 10,890 last week to trade to its highest level in over 3 years
  • Our trend bias remains higher in the index, but the 127% extension of the early June decline at 10,990 needs to be overcome soon to maintain the immediate upside tack
  • The index looks vulnerable to a turn of some sort as a medium-term cycle turn window is in effect through the end of the week
  • The principle of polarity suggests that 10,890 is now key support
  • Only weakness below this level on a closing basis alters the immediate positive structure and turns us negative on the dollar.

Strategy: We are looking for a decline to develop in this turn window. May look to sell if 10,890 is given.

NZD/USD:

PT_GBP_senti_body_Picture_3.png, Price amp; Time: Extreme Negative Sentiment in the Pound Favors a Reversal

Charts Created using Marketscope – Prepared by Kristian Kerr

  • NZD/USD has rallied sharply over the past few days from just below Fibonacci symmetry near .7700
  • Out trend bias is still lower, but a close above the 2nd square root progression of the year-to-date low at .7860 will shift higher
  • Near-term focused time cycle studies suggest Friday/Monday is a minor turn window for the exchange rate
  • The first square root progression of the year’s low at .7770 is immediate support
  • However, only aggressive weakness back below .7680 suggests a broader downside resumption

Strategy: We like getting long if the Bird can gain traction over .7860.

USD/CAD:

PT_GBP_senti_body_Picture_2.png, Price amp; Time: Extreme Negative Sentiment in the Pound Favors a Reversal

Charts Created using Marketscope – Prepared by Kristian Kerr

  • USD/CAD finally managed to break above a key Fibonacci confluence near 1.0540, but the 6th square root progression of the May low at 1.0610 has so far proven formidable resistance
  • While above 1.0440 our trend bias remains higher in Funds
  • Traction over 1.0610 is now required to trigger the next important push higher in the rate
  • Time cycle analysis suggests the next couple of days are a turn window of medium-term importance
  • Weakness below a Fibonacci confluence in the 1.0440 area would turn us negative on Funds

Strategy: We like holding reduced long positions in USD/CAD while over 1.0440.

Focus Chart of the Day: GBP/USD

PT_GBP_senti_body_Picture_1.png, Price amp; Time: Extreme Negative Sentiment in the Pound Favors a Reversal

The next few days are a clear cycle turn window for Cable. Sentiment leading into this turn window as characterized by the Daily Sentiment Index (DSI) is at extreme levels of bearishness (below 10% bulls). In the past such extremes in the DSI have often coincided with important counter-trend reactions in the exchange rate. Another metric we follow closely around turn windows is the medium-term Rate-of-Change. This week GBP/USD’s medium-term ROC touched its lowest level in over a year and a half. As the chart above shows, historically such levels in ROC have led to ‘tradeable’ corrections in the Pound. With cycles, sentiment and momentum all aligning here the case looks strong in our view for some sort of reversal in the days ahead.

Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

Looking for a way to pinpoint sentiment extremes in the Pound in real time? Try the Speculative Sentiment Index.

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX

Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.

Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email bysigning up here.

You can follow Paul on Twitter at@PaulRobinonFX.

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Analys från DailyFX

Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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