Analys från DailyFX
EUR/AUD Long with 3 Degrees of Confirmation
Talking Points:
- Weekly Uptrend Diamond Consolidation Pattern
- Parallel Channel Formation on EUR/AUD Daily Chart
- The Ideal Time Frame for Buying EUR/AUD
Continuing a theme we saw a lot of last week, EURAUD is showing a classic uptrend on the weekly chart, and is also sporting a somewhat small diamond formation, as shown below.
Guest Commentary: Weekly Uptrend Diamond Consolidation in EUR/AUD
While diamond patterns are interesting studies, this one does not provide much in the way of tradable information. Thus, in order to discern a more manageable pattern, the daily chart below must be examined.
As shown, there is a convenient parallel rising channel clearly visible on this time frame. With price moving swiftly down to test the bottom of the channel, some breakout traders will no doubt be considering short positions, especially since some pattern traders could be eyeing a rough-looking head-and-shoulders pattern as well.
Guest Commentary: Daily Channel Formation in EUR/AUD
It is usually unwise to go against the prevailing trend, however, and as a result, it is more preferable to treat this as a pullback within the overall uptrend and look for long opportunities instead.
Indeed, there are several indications on the four-hour chart below that this recent downward movement may be coming to at least a temporary halt, the most convincing of which is the downward wedge formation. Elliott wave theory provides good reason to be suspicious of this downward move because wave four actually overlaps wave one.
While the bottom of the wedge has been exceeded, this is actually fairly common, as price may potentially be making a final swipe to the down side with momentum. To account for the momentum, support has been estimated a little beyond the projected line on the chart, which leaves the key zone as 1.5124-1.5226.
Guest Commentary: Downward Wedge Pattern in EUR/AUD
At 102 pips, the risk zone for this trade is somewhat larger than usual for EURAUD. In order to reduce risk, however, long positions can instead be initiated on the hourly chart (not shown), where reasonable entries should produce stops in the 30- to 60-pip region.
Entries can be taken on bullish reversal divergence, bullish engulfing patterns, and/or pin bars on the hourly chart. The usual advice, which includes being prepared to make two or three attempts at the entry, applies even more in this case, as the zone of support is on the large side. Nonetheless, it is well within acceptable risk parameters when considering there is approximately 300 pips to reach the recent high, not to mention 600 pips to the highest high.
It may take a little while for this set-up to mature, or it may occur in the next few hours. Regardless, this is a set-up that is well worth considering due to the multiple pattern confirmation.
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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