Analys från DailyFX
A NZD/JPY Breakout with "Phenomenal" Profit Potential
Talking Points:
- Real or False Breakout in NZD/JPY?
- Bounce off Rising Support Level
- The ”Magnetic” Support Zone for Initiating New Longs
The weekly chart of NZDJPY is now at an extremely interesting juncture. Last week, price broke out of a triangle consolidation pattern with a strong bias to the upside, as seen below.
Guest Commentary: NZD/JPY Breakout in the Making
This week, prices have come back to retest the broken line of resistance as potential support. Given that it is already Friday, the result of this test should come either today or early next week.
If the break is real, then the projections for profit would be phenomenal. If it is false, then there is a generous amount of space to the rising line of support for intraday traders to profit from. Either way, this broken trend line is a promising hair-trigger set-up for volatility to come.
The daily chart below shows a rising line of support from a triangle of its own. As price heads down to test the support level of this triangle, traders will have an opportunity to ride the move upwards on the bounce, hopefully into a prolonged weekly trend.
Guest Commentary: NZD/JPY Bounce off Rising Support
Of course, if a false breakout scenario develops, then the result should come just as swiftly, and future trades would be premised on a short bias.
However, because of the breakout, the weekly bias is long, no matter how precarious said breakout may be looking. After all, it is when most traders feel the greatest fear that the most profit is to be made. Thus, the trade is best designed using the daily rising support as an entry tool into the market.
Eagle-eyed readers would have realized that there are several ways to draw the rising line of support on the daily chart. Some would be more aggressive with steeper slopes, and some would be more conservative, using gentler ones.
Normally, this would not be a problem, but due to the potentially large variance in this case, the key zone of support is derived from a previous congestion area of price on the four-hourly chart. Thus, the support zone is 81.48-82.13.
Guest Commentary: Key Support Zone for NZD/JPY
Although the four-hour chart has already given a long pin bar recently, there is a fairly reasonable chance of it coming down to this area, as congestion zones of this sort tend to be almost magnetic in nature. In fact, some believe that the previous equilibrium point between the bulls and bears must be retested to verify a higher-time-frame breakout.
Of course, the trade may just shoot up suddenly, in which case there will not be a problem, and we can move on to the next trade. However, if it turns out to be the low as price rises to confirm the weekly breakout, then this would be a very rewarding trade, indeed.
The trade should be taken on the hourly chart (not shown) on a pin bar, bullish engulfing pattern, or bullish reversal divergence. As this is a trade in the direction of the trend, there is no need to keep risk less than usual, as long as traders have prepared their accounts to take two or three tries at getting into a profitable move.
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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