Analys från DailyFX
A "Classic" CAD/CHF Set-up with a Modern Trigger
Talking Points:
- Possible False Breakout in CAD/CHF
- Key Resistance Zone for Initiating New Shorts
- A Non-Traditional Entry Signal to Watch for
Markets will periodically cycle through phases of extreme profitability liberally interspersed with times of prevailing inaction. The latter condition appears to be ruling today.
At the time of writing near the London open, only one trade of interest is occurring in the FX cross pairs, and that in itself sends up a warning signal. Although this CADCHF set-up is, in a sense, a “textbook” trade opportunity, it is worth using some caution, as the broader market is still uncertain.
The daily chart of CADCHF below has begun a familiar interaction with a pair of declining lines of resistance and has already broken out above the first of the two. As always, it is far wiser to assume that the initial break is a false one and that the prevailing trend will continue, at least until the line of resistance-turned-support has been retested and prices show further signs of turning around.
Guest Commentary: False Breakout on CAD/CHF Daily Chart
It was relatively easy to derive a zone of resistance for the pair using the four-hour chart below, and as shown, price has already begun to interact with that zone. The desired move is marked on the chart, and assuming the daily downtrend resumes, a retest of the low would give this trade at least 120 pips of potential movement, if not more.
Guest Commentary: CAD/CHF Tagging Key Resistance Zone
The zone in question is 0.7932-0.7971, which represents 39 pips of risk. Although that is not outstanding in terms of overall risk profile, it is acceptable nonetheless, especially when considering the broader market environment.
The trigger is to be taken on the hourly chart below, although this set-up may require an alternative method for recognizing bearish reversal divergence.
Many experienced traders are most likely versed in the traditional method, where price has to make a higher high before turning around. However, divergence can also occur on a closing basis, and as long as the current high closes above the previous one, and the oscillator makes a lower high, that is an acceptable signal, too.
Guest Commentary: A Non-Traditional Short Signal for CAD/CHF
There are select reasons why this method is actually even more valid than the traditional one, the first one being that practically all common oscillators take into account the closing price for their calculation, not the highs or lows. Thus, it is more accurate to compare closing highs to oscillator highs.
In practice, there is only an occasional discrepancy between the two methods, but today’s trade may well develop into one of those exceptions. Notice also that the pin bar on the previous high was exceptionally long-tailed.
Of course, the trigger may also come by way of a pin bar or bearish engulfing pattern on the hourly chart. As usual, two or three tries may be required to gain entry in this trade, but given the general market environment, it would be ill-advised to try more than twice.
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
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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
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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