Analys från DailyFX
GBP/JPY Technical Analysis: News Can Help, News Can Hurt
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Talking Points:
- GBP/JPY Technical Strategy: Flat, previous short stopped out. Another short setup identified.
- With ‘Brexit’ dominating the headlines, GBP/JPY will likely remain volatile. If trading GBP/JPY, please make sure to address risk management. It’s a volatile market.
- Both GBP and JPY were popular topics for our DailyFX Top Trades of 2016. Click here to access our Trading Guides, which include our quarterly forecasts as well.
In our last article, we looked at taking a short position in GBP/JPY using the psychological level at 160 as a basis for resistance. That play didn’t work, and a stop was soundly eaten. But that doesn’t mean that the short-side theme in the pair is yet dead. The initial drives that brought the pair significantly lower since that mid-November top may still exist, and with the Bank of England scheduled to speak in front of British Parliament on the hot-topic of ‘Brexit’ tomorrow, we may see that motivation for a continued down-trend come back into markets.
I want to be clear here: I’m not predicting what’s going to happen at this testimony tomorrow. This is a technical article and this is a technical setup. As a technical trader, news can help us or it can hurt us. But just as we saw with the open of the New Year, market sentiment will often denominate the manner in which that news is digested. In bullish markets, bad news gets de-emphasized and good news becomes the primary driver. In bearish markets, good news goes by the way-side as bad news becomes the object of focus.
On a technical basis, the setup for continued short positions has begun to show: This morning brought in a lower-high just below the psychological level at 162.50, and a recent break to a new short-term low may be opening the door for a short-side swing position in the direction of the previous trend ahead of a major news announcement.
This gives the hint of a potential return of the down-trend with the opportunity for an asymmetric risk-reward ratio (risking less than you’re looking to make if the setup works out) ahead of a major news announcement.
Traders can look at stops above this psychological level of resistance at 162.50, with targets set to previous support at 160.38. Should tomorrow’s news provoke a new down-trend or further down-side moves, traders can incorporate additional profit targets in the effort of scaling out of the position to get the average exit a bit higher. Traders could plot targets at previous support values of 159.05, 157.38 and again at 156.35.
Created with Marketscope/Trading Station II; prepared by James Stanley
— Written by James Stanley, Analyst for DailyFX.com
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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
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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
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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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