Analys från DailyFX
An AUD/JPY Trade with Huge Reward Potential
Talking Points:
- Hundreds of Pips at Stake in AUD/JPY
- A Surprisingly Small Risk Profile
- 2 Potential Triggers for Taking This Trade
As we wait for our previous trade on AUDCHF to set up and trigger, a close relative of the same set-up has appeared on the chart for AUDJPY. As neither trade has triggered yet, it is worth keeping an eye on this one as well, especially if AUDCHF does not reach the entry level we identified.
See also: An AUD/CHF Set-up That Most Traders Dream About
In the case of AUDJPY, the potential reward on the weekly chart speaks for itself. Traders who catch that move early—should it develop—would stand to bank hundreds of pips. That being said, it pays to balance aspirations with careful analysis.
Guest Commentary: AUD/JPY Trade with Huge Reward Potential
The daily chart is showing another classic pattern whereby the rising trend line has just been broken and price is heading up to test it. With this type of motion, this trade is potentially even more attractive than AUDCHF, as it does not have the large momentum move to overcome.
Guest Commentary: Key Trend Line on AUD/JPY Daily Chart
The upward retest move has, so far, been tentative, suggesting that bears have an above-average chance of winning this tussle. Overall, the case for this trade is strong, and all that remains is to identify a calculated entry strategy.
For that, we’ll look to the four-hour chart (see below), which provides plenty of resistance. Three levels that are in confluence with the broken trend line on the daily chart have been chosen, thus providing a resistance zone of 94.10-94.59.
Guest Commentary: Potential AUD/JPY Trade Triggers
It is even more encouraging to note the steady cyclical movement as price winds its way up to meet the identified level. This indicates healthy give and take between buyers and sellers, suggesting that even if the trade does not work out, there will at least be room to reduce risk by scaling out, moving stop losses, and, should price feedback become hostile, to exit for a smaller gain or loss.
One possible trigger for this trade would be the end of a sudden, explosive upward thrust, culminating in a pin bar or bearish engulfing formation on the hourly chart. A second trigger would be a reversal divergence on the hourly chart as price slows down before rolling over.
The risk on this trade is surprisingly minimal, but of course, it is still present. The danger comes if price bulldozes through the identified resistance zone and ignores the trend line altogether. This is possible, but given the evidence, it’s rather unlikely, and that small risk profile and huge potential reward makes this a very interesting trade indeed.
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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