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Agility is Critical Even for Long-Term Traders

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Talking Points

-AUDUSD fundamental case for a counter trend trade

-Framing a trade using Fundamentals and entering using Technicals

-Be quick in identifying market sentiment

In April, the Australian Dollar found itself in a perfect storm of negativity. On the home front, a sharp downward revision in Chinese economic growth expectations spilled over into fears of lost export demand and weighed on RBA policy bets. On the global side of the equation, the Federal Reserve began to introduce the concept of “tapering” its QE asset purchases, driving liquidation across the risky asset spectrum. By mid-May, the Aussie lost its grip on parity with the US Dollar. By August, it was trading below the USD 0.90 mark at levels unseen in three years.

Around this time, I began to think the move was over-stretched and vulnerable to a correction. After a heavy surge, the weekly build in speculative net-short AUD positions began to slow. A string of better-than-expected Chinese economic news releases arrested the slide in growth expectations. Fed officials were doing their utmost to talk down the volatility they themselves unleashed. Simply put, the Aussie looked to be running out of fresh bad news, and it seemed only a matter of time before profit-taking would begin to sweep the trade.

A bullish Piercing Line candlestick pattern on the weekly chart offered the technical trigger to put this fundamental view in motion and I entered long at 0.9189. After bumping along the bottom for a few weeks, the Aussie launched an impressive rally, reversing half of its losses by mid-October. Throughout this time, I maintained that the overall AUD/USD trend was bearish and the long trade purely tactical, aiming to take advantage of a bounce before reverting to the short side. When the time came to switch sides arrived however, the plan unraveled.

Agility_is_Critical_Even_for_Long-Term_Traders_body_Picture_1.png, Agility is Critical Even for Long-Term Traders

I booked profits on the trade at 0.9463 as the pair began to turn and a week later noted the bearish reversal chart setup that would ultimately mark down trend resumption. However, I was simply not mentally prepared to jump in short. The long position from August took weeks of research and fine-tuning. This shaped a stark world view that became difficult to swiftly abandon because of the sheer time spent formulating it. I remained on the sidelines and watched as the Aussie resumed dropping, returning to Augusts’ lows by year-end.

The lesson to be had here is straight-forward: agility is critical even for long-term traders.

Written by Ilya Spivak, Currency Strategist for DailyFX.com

Follow and contact Ilya via Twitter: http://twitter.com/IlyaSpivak

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EURUSD Weekly Technical Analysis: New Month, More Weakness

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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

EURUSD Weekly Technical Analysis: New Month, More Weakness

—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.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

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

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

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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