Analys från DailyFX
A High-Probability Short Play in AUD/CHF
Talking Points:
- A Classic Case of ”Sell the Rally”
- Key Resistance Zone for AUD/CHF
- Why the Odds Are on Your Side
After a tedious week, markets are beginning to align once again, as this year’s final month begins. Currently, the weekly chart of AUDCHF shows a downswing in progress, and there may be a chance to capitalize on this move lower.
Trend trading, in principle, is all about buying dips in an uptrend and selling rallies in a downtrend, and as a result, this particular trade is relatively straightforward to set up.
Guest Commentary: Trading the Downswing in AUD/CHF
On the daily chart below, price is already approaching a potential level of resistance due to the declining parallel channel.
Guest Commentary: Nearby Resistance Level in AUD/CHF
As always, though, it is necessary to magnify the study to a lower time frame in order to gain a better perspective on the specific levels of resistance that might hold in this case. To do so, we use the four-hour chart below.
Guest Commentary: Target Zone for AUD/CHF Shorts
The four-hour chart’s resistance zone is a little more sparse than usual, with only two previous levels of resistance. However, the fact that the 38.2% Fibonacci retracement (extrapolated from a reasonable high to the current low) is also sandwiched by these levels makes it strong enough to use in taking a short position. That makes the final zone of resistance 0.8321-0.8377.
This trade should be taken on the hourly chart (not shown), using such triggers as a reversal divergence, pin bar, and/or bearish engulfing pattern. In fact, price has already touched the zone of resistance and is giving a potential engulfing pattern on the hourly chart.
Those nimble enough will be able to hop on, provided price has not travelled too far at the time of reading. If not, however, trades like these often give two or three snapbacks to the resistance zone before ultimately moving on, so there may be other chances in the hours to come.
As always, be prepared to take two or three tries at the trade. However, unlike some recent trades, this is a solid trend trade, so risk can be adjusted accordingly. Now, that is no excuse to go wild, but this is certainly a higher-probability scenario than the countertrend trades we assessed before it.
See also: A Daring GBP/JPY Trade That’s Well Worth the Risk
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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