Analys från DailyFX
A GBP/AUD Long That May Trigger Again
Talking Points:
- Daily Trend Line Break in GBP/AUD
- Price Reacting Off Short-Term Support
- Looking for a Second-Chance Entry Signal
After some prolonged choppiness this week, it was certainly a welcomed sight to see the GBPCAD trade we profiled here yesterday move violently in our favor. However, traders will note that the bulk of the move was actually supported by the Canadian dollar (CAD), and not the British pound (GBP), which has instead continued somewhat sideways.
Thus, today’s GBPAUD trade, which also favors the long side, is intended to catch a move up in the pound while also benefiting from a potential weakening in the Australian dollar (AUD).
Traders often wait impatiently for price to come towards a trend line, but when it is actually tested, they fear the entry, wondering whether the trend line will hold. In line with the dictum that it is better to trade “with the trend,” the assumption that it will hold at some point is usually better than the alternative.
In the case of GBPAUD, it is best to treat the break of the trend line on the below daily chart as a false signal, or at least one that will generate a retest of the broken trend line.
Guest Commentary: Daily Trend Line Break for GBP/AUD
The four-hour chart below shows that price is already at support that has been generated from past horizontal price action. The desired move to the upside has in excess of 400 pips to reach the previous high. Meanwhile, the support zone is 1.8260-1.8373, or 113 pips deep. This clearly represents a favorable risk profile, making this long set-up in GBPAUD one worthy of consideration.
Guest Commentary: Key Support Zone for Buying GBP/AUD
The hourly chart, however, reveals some complications with regard to this trade’s entry.
As shown below, bullish reversal divergence is already visible on the hourly chart, and price is beginning to turn up. Although the more intrepid traders may be tempted to hop on, this market environment is still far from safe, and as a result, the preferred entry trigger would be for price to make a lower low and flash another divergence signal. It is also possible to enter on a pin bar or bullish engulfing pattern once that lower low is made.
Guest Commentary: Awaiting Another GBP/AUD Entry Signal
If price runs up without providing one more swipe for entry, then it is likely better to miss this trade than to try and hop onto it too early (or perhaps too late). If it does come back down, then two or three tries at the entry would be appropriate given the attractive nature of this set-up.
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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