Analys från DailyFX
A GBP/CHF Trend Trade with 3 Clear Risk Factors
Talking Points:
- Notable Factors Threatening This Trade
- Classic ”Buy the Dip” Characteristics
- Further Validation for GBP/CHF Longs
The trade set-up we took yesterday in GBPNZD worked beautifully on the second try, and now, as some of the FX crosses rewind to give more trend trades, a better and more rewarding market environment could be dawning.
Nonetheless, today’s GBPCHF trade, which looks a lot like the last two solid trend trades we took, has a hidden danger on the weekly chart.
Guest Commentary: A Prominent GBP/CHF Risk Factor
The GBPCHF weekly chart has been twisting and turning in time to the (8,3,3) stochastic for practically all of 2013. In fact, the last five major turns in price were almost perfectly aligned with stochastic crosses.
Now, there will be those who scoff and point out that the stochastic (and any other oscillator, for that matter) can remain overbought or oversold for a long time, as it did at the end of 2012 and early 2013. This is true, but oscillators function best in consolidating environments, not trending ones, and the weekly chart of GBPCHF is most certainly consolidating.
Thus, it is with some suspicion that the mantra of buying dips in an uptrend is applied. Nonetheless, it is still the best response to this situation, as the reward for risk always favors staying with the trend.
Even if this turns out to be a smaller trade, there should be ample room for profit.
On the daily chart below, price has pulled back neatly to rising support within a wedge pattern. Admittedly, however, the level of support may vary, depending on who draws which trend line.
Guest Commentary: “Buy the Dip” Scenario for GBP/CHF
Thus, some deeper analysis on a lower time frame is called for, and for that, we turn to the four-hour chart below. To get a better level of support, the zone has been estimated not just from the rising trend line, but also a confluence of multiple levels of support and resistance from previous swings. The final support zone is 1.4740-1.4775.
Guest Commentary: The Key GBP/CHF Support Zone
Price has already touched this zone, but that was mainly on a reflexive shock in the British pound on the heels of slightly-worse-than-expected UK PMI services data.
The more interesting news for today will be the ADP non-farm employment change announcement, and while some may choose to avoid this set-up due to the looming data, if this trade does materialize before then, it would still be a legitimate set-up.
The trigger is to be found on the hourly chart (see below), with the usual pin bars, bullish engulfing patterns, or bullish reversal divergence all coming as potential catalysts. All three are possible at this point, too.
Guest Commentary: Further Validation for GBP/CHF Longs
Having jitters about this trade would be understandable with price barrelling towards support with considerable momentum. However, a potential three-push pattern is developing on the hourly chart, as indicated. The projected termination point of this pattern falls conveniently within the support zone, and that provides an added element of validation about this trade.
Given the presence of the ADP non-farm announcement, it is possible for the zone of support to be temporarily breached as the market reacts to news, but as long as there is no hourly candlestick closing below the indicated support zone, the set-up would still be considered valid.
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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