Analys från DailyFX
Countertrend GBP/JPY Set-up That’s Too Tempting to Ignore
Talking Points:
- Raging Uptrend on GBP/JPY Weekly Chart
- A Countertrend Opportunity Too Good to Ignore
- How to Choose an Entry Signal Wisely
GBPJPY is sporting an uptrend according to all measures on the weekly chart, as shown below. It has recently found some resistance at the 1.236 external Fibonacci retracement of the previous downtrend (not shown). After the pin bar from last week, price is now headed up to challenge the highs. Whether this will prove successful, however, remains to be seen.
Guest Commentary: Raging Uptrend on GBP/JPY Weekly Chart
The daily chart, however, sports a different formation (see below). A rising trend line has recently been broken and is now being retested. Should the underside of that trend line hold as resistance, there could be 800 pips of downside potential, or perhaps even more. Although this set-up is countertrend in nature, it’s extremely tempting and shouldn’t be ignored.
Guest Commentary: Potential Countertrend Move in GBP/JPY
The four-hour chart below is a little vexing, however, as it exhibits a potential zone of resistance that is a quite sizable 167 pips deep. In many scenarios, this might be considered too large to trade, as there may be too many false signals before the actual move occurs. However, given that this is the most infamously volatile of all currency pairs, it makes it somewhat more acceptable, especially when the risk profile is viewed in the context of the potential 800 pips of running room if the trade works.
Guest Commentary: Big Resistance Zone for Initiating GBP/JPY Shorts
In all, the final resistance zone for initiating GBPJPY short positions appears to be 173.22-174.89.
As usual, though, this trade is to be taken on the hourly chart (not shown) in order to increase precision. The “normal” triggers that would justify an entry are bearish reversal divergence, pin bars, and/or bearish engulfing patterns. However, given how large the zone of resistance is, one may expect some false entries, and some traders may attempt to circumvent this by taking a more conservative trigger. This would include, perhaps, a very quick moving average crossover, like the 2 and 3 simple moving average (SMA) crossover, for example.
There are pros and cons to adopting such an approach. The obvious weakness is that it tends to trigger a late entry, usually at a less-favorable price. It also means that price has to travel further in order to provide a satisfactory reward-for-risk ratio. On the other hand, though, it is far less likely to provide a false signal.
The usual entry triggers are just as valid, but traders who use them will have to accept that instead of working on the first, second, or even third attempts, price may go on the fourth or even fifth signal.
It is strongly advised that only two or three attempts be made to get on the trend, because if this trade does not work out, this can be a very slippery slope for traders, particularly because it is still counter to the weekly trend.
Both types of entries (aggressive and conservative) are acceptable, but traders should choose their entry in accordance with their own unique trading plan and psychology.
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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