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A Chance to Enter a Raging GBP/AUD Uptrend

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Talking Points:

  • The Relentless 2-Month Uptrend
  • 3 Cautionary Factors That Favor the Downside
  • How to Scalp on Lower Time Frames

Many of the important FX crosses haven’t been showing reasonable entry points of late, particularly because some have been very strongly trending. However, GBPAUD is pulling back just slightly after a strong two-month trending period, and despite how late in the move it is, there may be a chance to enter on the lower time frames.

Even a brief study of the daily chart below would tell traders that the trend is up, and the best risk/reward set-ups are typically found in long trades.

Guest Commentary: Strong Uptrend on GBP/AUD Daily Chart

A_Chance_to_Enter_a_Raging_GBPAUD_Uptrend_body_Picture_3.png, A Chance to Enter a Raging GBP/AUD Uptrend

There are, however, several arguments for the short side as well:

  1. This entry is late in the trend. Nonetheless, trends can go on longer than seems rational, and thus, it is generally wiser not to try to outfox price action
  2. Even if this is an uptrend, price may pull back beyond the rising line of support, especially since bearish divergence is likely to be seen in many oscillators
  3. The current daily candle is threatening to create any number of bearish formations, most notably an evening star-type scenario

As a result, the trade should be taken initially as a scalp on the lower time frames using relatively tight entries and defensive trade management. However, there’s always the possibility of this developing into a longer-term swing trade in due time.

The four-hour chart below does not add much to the study of the trending landscape except for the Fibonacci expansion applied to the last downswing. Price will meet the rising line of support near the 61.8% Fibonacci expansion level, which is to say that this last downswing may be smaller than the previous one.

Guest Commentary: Key Fibonacci Support Level for GBP/AUD

A_Chance_to_Enter_a_Raging_GBPAUD_Uptrend_body_Picture_2.png, A Chance to Enter a Raging GBP/AUD Uptrend

If the trend line breaks, then the 100% Fibonacci expansion level will come into play, but in that scenario, an analysis of the breakout would be necessary.

The hourly chart below actually gives some cause for concern, as the pullback is displaying five-wave Elliott-type characteristics. For Elliott Wave enthusiasts, wave 4 has been chosen because it respects the ”rule of alternation,” which implies that since wave 2 in this case was deep, wave 4 is often shallow. It is not an Elliott “law,” but it is often true. Nonetheless, this suggests that if the current move is a wave 5, price may turn before even reaching the trend line.

Guest Commentary: Potential 5-Wave Pattern in GBP/AUD

A_Chance_to_Enter_a_Raging_GBPAUD_Uptrend_body_Picture_1.png, A Chance to Enter a Raging GBP/AUD Uptrend

The support zone has been determined using previous resistance to estimate the higher portion of the zone, and when combined with the Fibonacci expansion level, the zone of interest is 1.8468-1.8514.

This trade should be initially taken as a scalp trade on the 15-minute chart (not shown), entering on either bullish reversal divergence, bullish engulfing patterns, or ideally, pin bars.

As always, traders should be prepared to take two or three attempts at entering this trade, and it should be managed using multiple positions so that part can be scalped out quickly at the first sign of trouble. In that scenario, the remainder could be left to develop into a potential swing trade.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com

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

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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

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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