Analys från DailyFX
Low-Risk GBP/JPY Set-up That Defies Momentum
Talking Points:
- Bearish Momentum Prevailing in GBP/JPY
- Nearby Support on Multiple Time Frames
- 2 Ways to Participate in This Trade
As currencies finally appear to be gathering momentum to start the year, it is somewhat ironic that today’s GBPJPY trade actually goes against that momentum.
Several crosses are setting up, and although the four-hour charts are likely to offer better set-ups, the focus of today’s article will be how to enter such moves using the hourly chart.
On the below weekly chart of GBPJPY, we see that the pair has failed to touch the top of the channel, which usually means that there is some kind of divergence movement occurring, potentially indicating the slowing of the general trend.
However, it is also worth noting that three bearish countertrend candles in a row is unusual, especially given how strong the trend has been, and thus, price may be overdue for a reversion to the mean.
Guest Commentary: Bearish Signals on GBP/JPY Weekly Chart
The daily chart pattern below is extremely similar to that seen on the weekly, but with one difference: it is nearing a point of completion. Readers will readily see the upcoming line of support and the potential for that to be traded. Due to the slowing strength of trend on the weekly chart, this trade may not break the previous high, but there is still room for more than 400 pips to the upside, which makes this a very interesting trade scenario.
Guest Commentary: GBP/JPY Closing in on Daily Support
Given that support is more likely to be a range than a line, however, we look to the four-hour chart to gain a better idea of where this trade may develop.
The four-hour time frame offers a declining parallel channel of price action with price currently testing the bottom. This, in conjunction with several other factors such as previous horizontal support/resistance and the rising trend line, provide a zone of support at 167.67-168.89.
Guest Commentary: Key GBP/JPY Support Zone
This zone of support is notable for being only slightly more than 100 pips deep while the potential reward on this set-up is several hundred pips. Trades taken within this support zone using hourly triggers would likely have risk of less than 100 pips, and thus, excellent risk/reward profile would be established.
When drilling down further to the hourly chart, however, some traders may be spooked by the extreme momentum exhibited on the chart, and indeed, they should be rightly wary.
Guest Commentary: Rare V-Bottom Forming in GBP/JPY
Momentum moves rarely end in a V-type bottom, which we see shaping up in this case. As a result, there are two ways to participate in this trade:
- Scalp any bullish pin bars (such as the one forming) or bullish engulfing bars. (Reversal divergence is also acceptable, but the first two are more likely.) These moves may not last long, so at least two positions should be taken in order to mitigate risk. This strategy itself does carry some risk, but if price turns up, it will richly reward these traders. In most cases, it will turn into a slightly profitable scalp trade.
- Wait for more evidence of buyers entering the market. Currently, there are many bear flags with practically no sign of increasing volume, and thus, more conservative traders may choose to wait for a steeper reversal pattern before engaging with this price activity.
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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