Analys från DailyFX
A EUR/AUD Long Thats Just a Signal Away
Talking Points:
- A “Bounce-or-Break” Scenario for EUR/AUD
- Conflicting Elliott Wave Counts on Daily Chart
- The Ideal Time Frame for Taking This Trade
EURAUD is now challenging a rising trend line on the daily chart (see below). Whether it will it bounce or break remains to be seen, but it is always better to trade in the direction of the trend, in spite of the apparent pullback momentum. Thus, by default, trading a potential bounce off of the rising trend line is a better bet.
Guest Commentary: “Bounce-or-Break” Scenario for EUR/AUD
Astute Elliott Wave practitioners will note, however, that this is likely to be only a fourth-wave pullback, and technically, there is one more high to be made on the daily chart. Nonetheless, because the initial pullback in wave 2 was shallow, the wave 4 pullback may well be deep and complex, as per the (not unbreakable) ”rule of alternation.”
Thus, the situation the trader faces is that although price is likely to bounce from the trend line, it may later retrace further before going on to make new highs. Nonetheless, no one has a crystal ball with respect to the markets, and thus, the wisest thing to do is just keep taking defensive trades in order to enter in the direction of the trend.
The four-hour chart below will present an interesting picture for die-hard Elliott Wave counters, as it is showing a rather clear five-wave count. Wave 3, as marked, is longer than wave 1, albeit only slightly. Nonetheless, that is sufficient to justify a five-wave count.
Guest Commentary: 2 Conflicting Elliott Wave Counts to Consider
Personally, I prefer this wave count, although I’m aware that some may choose to calculate an a-b-c wave instead. In line with more advanced theory, however, the five-wave version is preferable as the potential beginning of a zig-zag retracement.
For those interested primarily in the bottom line, what this means is that the desired move marked on the chart may well happen, but it may not move up to test the high of the trend.
What is more likely is a bounce up followed by a push further down. Now, that could be tradable as well, depending on how it develops. For now, though, previous support and resistance offer a ready-made support zone at 1.5019-1.5158.
This trade should be taken on the hourly chart (see below), which is also offering a wedge pattern. What is notable about this wedge is that price is currently creeping on the underside of resistance, suggesting that downside momentum is slowing. Thus, on a bullish reversal divergence, bullish engulfing pattern, or pin bar, there will be a favorable entry opportunity.
Guest Commentary: Wedge Pattern on EUR/AUD Hourly Chart
Markets have been overshooting zones as of late, and it may take two or three tries to get in on this trend, but it’s important to still continue taking trades systematically. The good news is that with many FX crosses beginning to develop pullbacks, the ”winter of low probability” part of the trading cycle may now be drawing to a close, which will usher in some better trade set-ups.
Just as inexperienced traders cause problems for themselves by taking greater risk during the height of smooth trading, like we had in October and November, they also tend to give up during these difficult periods, choosing instead to leave the markets just as the depths of the cycle are being worked out.
In order to profit consistently in the markets, one has to sit through the highs and lows and continue to work with what’s being presented, knowing that over the long term, an effective, proven strategy will prevail.
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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