Analys från DailyFX
2 Distinct Chart Scenarios, But Just One NZD/CHF Trade
Talking Points:
- Weekly Breakout in Progress for NZD/CHF
- A ”Bounce” Trade Scenario on the Daily Chart
- One Strategy to Capitalize on Both Scenarios
Although many currencies are either range-bound or offering only countertrend opportunities, NZDCHF is trading amid some potentially interesting conditions.
Regular readers are likely used to our traditional assumption that initial breakouts are likely to prove false, and as such, many may be surprised by this particular set-up. In this case, the weekly candlestick has breached the declining line of resistance, and while we would normally look for an opportunity to short on a lower time frame, such an opportunity has already passed.
What remains is the potential that this week may end with a strong close above resistance, thus continuing the upward price action. As a result, the trade is bullish and consistent with the direction of the breakout.
Guest Commentary: Weekly Breakout in Progress for NZD/CHF
However, just because the strategy differs somewhat from the norm, it does not mean that traders should stray from the philosophy of minimizing risk.
The daily chart below shows why multiple-time-frame analysis can be crucial. Where the weekly chart above does not show confirmation, the daily chart looks much more convincing. Of course, price can still break right back into the consolidation zone, but this should provide at least a reasonable bounce that traders on the hourly chart can take advantage of. If it develops into a trend continuation on the weekly chart, then there is potential for movement in the hundreds of pips.
Guest Commentary: Successful Breakout on NZD/CHF Daily Chart
The daily chart also shows why the language of “breakout” versus “bounce” trades can be somewhat misleading, since this trade is both a breakout on the weekly chart and a potential bounce on the daily chart.
The important point to note on the four-hour chart below is that the line of resistance-turned-support where price is currently interacting was drawn on the weekly chart. This means that there may well be some ”give” to it, as even a small weekly fluctuation will result in prices breaking back below this line and then running off.
Guest Commentary: A Tenuous Support Level in NZD/CHF
This is one of those situations that can potentially frustrate traders who try to trade the breakout, and then the false break back in, and then the second breakout. Of course, it could also just mean that prices are tumbling, but experience suggests it is better to have a “buffer,” and that’s why the support zone has been built off the below hourly chart instead.
Here, the support zone becomes more easily identifiable in relation to horizontal levels. The final support level emerges as 0.7484-0.7499, which represents a zone of risk less than 20 pips deep. That should provide excellent overall risk profile considering the weekly chart scenario that could produce a move containing hundreds of pips to the upside.
Guest Commentary: Key Zone for Initiating NZD/CHF Longs
This trade is best taken on the 15-minute chart (not shown) once the key support zone is reached. Triggers on that time frame would include bullish reversal divergence, pin bars, and/or bullish engulfing patterns. As always, traders should be aware that two or three tries may be required to gain a successful entry should this move develop, and risk controls must be planned accordingly.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com
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
—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.
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
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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