Analys från DailyFX
An Elliott-Inspired Long Trade in USD/DKK
Talking Points:
- Chance to Buy the Dollar on Weakness
- Classic Elliott Wave Patterns at Work
- Step-by-Step Parameters for Taking This Trade
Since Christmas, we have seen US dollar (USD) strength against a number of European currencies, including the euro (EUR), Swiss franc (CHF), Danish krone (DKK), Czech koruna (CZK), Hungarian forint (HUF), and Polish złoty (PLN). We’ve noticed the start of a pullback in the US dollar against some of these FX counterparts, so we’re keen to buy this weakness against these European currencies.
For this particular trade, we’ve selected the Danish krone because it’s a more commonly-traded currency than many of the others.
There are three points to make going in: 1) “krone,” which means “crown,” is the singular form, while “kroner” is the plural; 2) to sell the Danish krone means to buy USDDKK; and 3) Denmark’s contributions to the world extend far beyond Legos and the writings of Hans Christian Andersen.
The 30-minute chart of USDDKK below shows our impulsive Elliott Wave count from the late-December low of 5.3687. The pair rose sharply in blue wave i, which was followed by a flat corrective pullback (blue wave ii). The third blue wave rose almost perfectly to the typical 161.8% extension, at 5.4957.
We’ve also shown that this wave can be sub-divided into five smaller, yellow waves. Since this high, price has been pulling back, so far to the 5.47 level. We expect that this is part of the first of a three-leg corrective fourth wave.
It’s not unusual for fourth waves to find support near the prior degree’s fourth-wave low, which, in this case, is labelled as 5.4534. This level is also slightly below a common fourth wave Fibonacci pullback of 38.2%.
Guest Commentary: Elliott Wave Forecast for USD/DKK
As a result, we’d look to buy USDDKK just above these levels, at 5.4610. This incorporates the typically small spread of about six pips.
Fourth waves usually don’t move into the area of their associated second wave, so we’d expect price to stay above 5.43. Therefore, we’re placing our stop at 5.4350, which produces a 260-pip stop. Those who are more conservative may prefer to place their stop another 50 or so pips lower in case the fourth wave briefly pierces the area of the second wave before making a new high.
To make the trade “worthwhile” from a risk/reward perspective, we’d need to achieve a target at least 50% larger than the size of our stop (i.e. at least 390 pips). Therefore, our single take-profit position will be 5.50000, which is 390 pips from the entry, all while risking 260 pips (i.e. risk $1 to make $1.50). This target is barely 40 DKK pips higher than the third-wave high at 5.4957, so it’s a conservative target.
Long Set-up for USD/DKK
Trade: Buy USDDKK at 5.4610
Stop Loss: Place stop at 5.4350
Take Profit: Take profit at 5.5000
Trade Management: If price reaches the 5.5000 target before the stop at 5.4350, abandon the trade
By Todd Gordon, founder, TradingAnalysis.com
Receive three free months of premium trade signals and analysis by visiting TradingAnalysis.com.
Disclaimer: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors.
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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