Analys från DailyFX
A "Bread-and-Butter" Trade in AUD/NZD
Talking Points:
- A Near-Classic Case of Selling the Downtrend
- ”Hidden” Resistance Zone in AUD/NZD
- The Ideal Time Frame for Taking This Trade
The markets have been relatively benign of late, and our recent trades have produced rather consistent profits. (View complete trade results on StraightTalkTrading.com.) Usually, overly positive or negative periods are signs of an upcoming shift in the market environment, and although this recent run has been mostly positive with only the occasional glitch, it shows a market behaving in a sustainable manner. As always, however, things can turn on a dime, but the prevailing outlook at this time is generally optimistic.
Today, AUDNZD provides a “bread-and-butter” type of trade with just a slight twist that must be accounted for.
The daily chart below is beginning an upward pullback, which is a good place to enter the strong downtrend. However, the key risk factor is that support, as represented by the bottom of the channel, has just been tested. This could potentially create a bounce that lasts longer than a day or two.
Guest Commentary: Strong Daily Downtrend in AUD/NZD
Nonetheless, it is still wiser to side with the shorts instead of the longs in this case, and as a result, a lower-time-frame entry would be needed to give greater precision and the ability to manage risk more efficiently.
The challenge with this particular trade would be in noting the special candlestick formation on the four-hour chart (see below) that is to be used as a resistance level.
Guest Commentary: “Hidden” Resistance Level for AUD/NZD
Many traders may not even notice the bullish belt hold candlestick pattern present in the previous congestion zone. This pattern consists of a downward move, which began with the bearish black candlestick, followed by a gap down, which was quickly reversed on the next (bullish) candle.
This is the equivalent of an ”oops” pattern, which suggests that price mistakenly gapped past support and then corrected itself. This scenario reveals a hidden zone of support (now turned resistance) at the bottom of a bearish candlestick.
This also corresponds with several candlestick highs just to the left of the signal. The upper resistance is similarly derived from a combination of the top of the black candle from the bullish belt hold, coinciding with several candle wicks. Thus, the resistance zone is 1.1018-1.1040.
Given how small this zone is relative to price action, the preferred time frame for this trade is the 15-minute chart (not shown), although the hourly chart would be permissible as well. On both time frames, the signals to look for would be bearish reversal divergence, pin bars, and bearish engulfing patterns.
The disadvantage of using the hourly chart is that it may provide an entry signal too late, forcing traders to use larger stop losses. Thus, the trade should be taken on whichever time frame provides the first clear entry.
It is worth giving this set-up two or three tries, but given how strong the downtrend is on the daily chart, it is likely that one or two would suffice.
Also, it would be useful to have at least two positions per trade so that part of the trade can be scaled out should trouble arise. In a trend trade such as this, it is less of an issue, but given the risk of a longer-term pullback, it is always advantageous to have that option.
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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