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EUR/NZD Trade That’s All About Momentum

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Talking Points:

  • Countertrend Momentum to Contend with
  • Key Resistance Zone for Selling EUR/NZD
  • 2 Potential Entry Strategies for This Trade

Kaye Lee is enjoying holiday for the coming week, and new articles may appear infrequently during this time. The normal publication schedule will resume shortly after April 10.

Quite a few of the FX cross pairs are now showing extended pullbacks on their respective four-hour charts. This often poses some issues, and although the principles of charting will still apply, there is evidence of countertrend momentum under these circumstances.

Such countertrend momentum is evident on the below daily chart ofEURNZD. Price has come back to retest the shortest-term declining line of resistance after exhibiting accelerating downward momentum since late-2013. While the recent pin bar suggests that a short-term bottom may be in place, a test of the low would easily present a move containing 200 pips or more to the downside.

Guest Commentary: Fan-Like Downtrend Acceleration in EUR/NZD

EURNZD-Trade-Thats-All-About-Momentum_body_Picture_3.png, EUR/NZD Trade Thats All About Momentum

In addition, it is always wiser to trade in the direction of the trend, and the bearish pin bar from two days ago suggests that bears are still present, although they may have lost some of the prior momentum.

The four-hour chart below clearly shows the momentum-based pullback mentioned at the beginning of this article, with six or more recent candles being consecutively bullish. Whenever this occurs, there are two opposing views to be had:

  1. Bulls are very strong because they have been able to maintain control; or…
  2. A bearish move is overdue because there have been too many bullish candles in succession

Both types of logic are valid, and it is a simply a matter of perspective. While it is undeniable that there is countertrend momentum present in EURNZD, the fact remains that there is a very solid trend present on the daily chart. As a result, it is still wiser to trade with the overall trend, but to also account for the countertrend momentum by allowing for a larger zone of resistance.

Guest Commentary: Key 4-Hour Resistance Zone for EUR/NZD

EURNZD-Trade-Thats-All-About-Momentum_body_Picture_2.png, EUR/NZD Trade Thats All About Momentum

This resistance zone is readily obtainable using previous horizontal consolidation to the left on the chart. It is estimated as 1.6081-1.6180, a risk zone that is 99 pips deep. While sizable, this is still sufficiently small enough to provide reasonable risk profile if EURNZD does head down to retest the low, or continues the prevailing downtrend.

The hourly chart below shows the recent bullish momentum even more clearly, but also provides hope in the form of an Elliott wave count. A standard five-wave advance should bring price squarely into the resistance area indicated. At the time of writing, however, wave 3 was still somewhat unclear.

Guest Commentary: Complementary Elliott Pattern in EUR/NZD

EURNZD-Trade-Thats-All-About-Momentum_body_Picture_1.png, EUR/NZD Trade Thats All About Momentum

Traders who are more pattern-based may decide to wait for this final confirming pattern sequence to complete before engaging with this trade, as the fifth wave usually gives way to a significant top.

For those who are more willing to build the trade on principles of support and resistance, however, short positions can be taken once price reaches the blue zone of resistance and begins to show bearish signals including reversal divergence, pin bars, and/or bearish engulfing patterns. As usual, two or three tries may be required to hop on to the downward move.

One clear area of resistance that may become support is at the top of wave 1, as marked. If and when price comes back down to retest that area, a reaction off that zone may create a continuation of the move up, and thus, trades should be manages according to how price develops while in this area.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com

Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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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

EURUSD Weekly Technical Analysis: New Month, More Weakness

—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.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

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

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

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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