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A Classic Short Set-up in CAD/CHF

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Talking Points:

  • Clear Rally in Overall CAD/CHF Downtrend
  • One ”Worrisome” Aspect to Consider
  • 2 Patterns in Play on 4-Hour Chart

With Christmas right around the corner, the markets continue to tick along, presenting potential trading opportunities in the process. Today, the most interesting one is playing out in CADCHF, which shows a textbook downtrend on the weekly chart below.

Guest Commentary: Clear Downtrend in CAD/CHF

A_Classic_Short_Set-up_in_CADCHF_body_GuestCommentary_KayeLee_December23A_1.png, A Classic Short Set-up in CAD/CHF

Bearing in mind the mantra of selling rallies in a downtrend, an examination of the CADCHF daily chart shows the desired pullback.

Guest Commentary: CAD/CHF Rally in Overall Downtrend

A_Classic_Short_Set-up_in_CADCHF_body_GuestCommentary_KayeLee_December23A_2.png, A Classic Short Set-up in CAD/CHF

The somewhat worrisome aspect about this chart is the fact that there is no clear level of resistance on which to sell. Nonetheless, this is a very valid trade given how clearly the bears were controlling the previous move down. It now stands to reason that there should be another move to the downside.

Thus, drilling down on the smaller time frames helps to better define this trade, and the four-hour chart below shows some interesting price formations.

Guest Commentary: Two Rising Wedges, One CAD/CHF Chart

A_Classic_Short_Set-up_in_CADCHF_body_GuestCommentary_KayeLee_December23A_3.png, A Classic Short Set-up in CAD/CHF

There are two rising wedges on the four-hour chart of CADCHF, the confluence of which provide the key resistance zone, estimated as 0.8457-0.8504.

The smaller, secondary wedge is particularly interesting, for it is developing into what might be a five-wave Elliott pattern. Those who are acquainted with the textbook Elliott Wave patterns might think this is in violation of the rule which states that the low of wave 4 cannot overlap wave 2. However, that rule applies strictly only to trending waves, and in the case of a wedge, wave 4 can indeed enter the territory of wave 2.

For those who are not interested in debating wave counts and projecting theories, however, the essential move which will trigger this trade is the one indicated on the chart as the rise from the end of the anticipated wave 4 into wave 5, taking price into the resistance zone.

From there, the trigger will occur on the hourly chart (not shown) by way of a pin bar, bearish engulfing pattern, or bearish reversal divergence.

Especially during the low-liquidity Christmas season, be prepared to take two or three tries at this trade. Risk should be kept moderate, as the trading environment is still proving reluctant to offer smooth entries. As a result, traders’ focus should be on making the trades that do trigger really count, as did our recent GBPJPY trade.

See related: Good Chance to Buy GBPJPY on a Pullback

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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