Analys från DailyFX
A EUR/JPY Trade You Can’t Set and Forget
Talking Points:
- Weekly Divergence on EUR/JPY Chart
- False Breakout on the Daily Chart
- 2 Ways to Trade EUR/JPY on the Hourly
A simple glance would convince most that EURJPY is in a weekly uptrend, as shown below. However, there are signs of progressive slowing on this chart, as evidenced by the higher highs in price and the lower highs in the corresponding stochastic.
In particular, the persistent nature of this divergence—which has already occurred twice and is primed to happen again—suggests that EURJPY could be ready to begin a consolidation in the next few weeks.
Guest Commentary: EUR/JPY Weekly Uptrend in Jeopardy
It would be ideal if price could bulldoze right through the short-term rising trend line and drop straight to longer-term support, but even a small move could provide interesting opportunities for intraday traders.
The daily chart is also encouraging. There has been a pop up above resistance from the previous high, followed by a quick thrust lower. This is enforced by the bearish engulfing candlestick pattern.
As the false breakout pattern is one of the go-to set-ups for professional traders, this certainly presents an opportunity go to short at least to the short-term rising trend line.
Guest Commentary: False Breakout on EUR/JPY Daily Chart
Nonetheless, given the countertrend nature of this set-up, a shorter time frame is preferred to account for the fact that the move may well be short-lived.
Guest Commentary: Trade Scenarios on EUR/JPY Hourly Chart
There are two possible ways to trade this situation:
- Breakout: The easiest would be the breakout short after the pullback on the hourly chart. Price is currently in a consolidation pullback pattern, as marked with the short support line on the hourly. A break lower would indicate momentum resumption to the downside. To be conservative, a Fibonacci expansion calculation has been made, identifying the support zone as being between 132.45 and 133.20. Due to the choppy nature of breakouts, it would be advisable to use a filter to confirm the downward move before entering, such as a close below Bollinger bands on standard settings on the hourly chart. This set-up would give at least 1:1 risk/reward ratio to the top of the supportive region, and potentially much better if price went to the rising trend line. Traders would be well-advised to trade with caution when prices approach the support zone, and to abort the trade should any adverse price action (such as bullish candlestick patterns) occur.
- Deep Pullback. Those who prefer the notion of better reward for risk can trade the deep pullback, as shown by the alternative arrow on the chart. Resistance from the daily chart, together with some room for error, provides a zone of price potentially turning at 134-59-134.92. This requires a higher level of skill to trade, but it can be traded using the 15-minute chart and classical reversal patterns such as head and shoulders, 1-2-3 tops, lower highs and lower lows, and divergence. The exact entry will depend on each trader’s preferred trading style.
It is worth re-highlighting the fact that this is a countertrend trade, and although the set-up is solid, trade management can prove crucial to whether or not this turns out profitably. This is certainly not one of those “set-and-forget” trades!
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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