Analys från DailyFX
An AUD/CAD Set-up That’s Not for the Weak of Heart
Talking Points:
- ”Bounce-or-Break” Scenario in AUD/CAD
- Runaway Trend on the 4-Hour Chart
- A Better Potential AUD/CAD Entry Point
More than one technical trader’s attention will have been caught by the Australian dollar (AUD) this week. On AUDUSD and many other crosses, AUD is veering into clear levels of support. However, the trade is looking dangerous.
Although it’s valid on many levels, the sheer steadiness of the Aussie as it approaches support is unnerving. The currency has been single-minded for some time now, as reflected by our previous GBPAUD trade, which did not work despite a good level of resistance.
See previous: 2 GBP Trades That Validate Each Other
Currently, AUDCAD serves as an example of how this tricky situation could be dealt with.
The weekly chart is in a classic “bounce-or-break” situation. As always, no one really knows which direction will hold, but the bounce up that is shown on the chart has the better potential reward.
Guest Commentary: “Bounce-or-Break” Scenario for AUD/CAD
On the daily chart below, the rising trend line is also buffered with various levels of resistance turned support between 0.9749 and 0.9478.
Guest Commentary: Daily Price Action in AUD/CAD
So far, so good…but here’s where it becomes tricky.
On the four-hour chart below, the latest move has been steady, and incredibly so. The absence of practically any significant squiggle to the upside suggests that the bulls are just not present yet, and that is plenty of cause for alarm. In practical terms, there could well be buyers just waiting for the support zone to be breached before charging the price upwards.
Guest Commentary: Big Cause for Concern in AUD/CAD
Indeed, at the time of writing, the four-hour chart was forming a bullish pin bar. However, if the analysis about the larger picture is wrong, price may not even give a hop or skip that would allow traders to move stop losses to breakeven and protect profits.
In fact, it could potentially just bulldoze forward as though nothing happened.
Of course, some traders could choose to take the risk, and that would be a valid choice. However, the lack of bull/bear interaction on the four-hour chart would suggest that a safer entry might be well advised.
The hourly chart suggests a better potential entry. There is a descending wedge pattern around the price motion that is terminating very soon. Estimates would mark the support zone as 0.9690-0.9715. This 25-pip zone will allow a precision entry on the 15-minute chart on the usual pin bar, bullish engulfing pattern, or bullish reversal divergence.
Guest Commentary: A Potential AUD/CAD Entry Point
This would be a viable solution because it forces the support zone into a very small area using a valid chart pattern projection. This means that the entry will be focussed on a very small pattern on the 15-minute chart, and even a small bounce in price will enable the trader to protect the trade aggressively.
The downside of this approach is that it is assuming price will end either by completing this wedge pattern or by making a climax move to the downside into the support zone.
It does not matter if the wedge pattern is breached in the process; the support zone will still be valid because this scenario was accounted for. If price turns around prior to this support level, then aggressive traders who chose to risk standing in front of the steady downward price movement on the four-hour chart would profit.
That is certainly an acceptable way to trade for those with more aggressive risk appetites, but more conservative traders would be better off staying away from this set-up and moving on to the next one.
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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