Analys från DailyFX
Selective Countertrend Set-up in EUR/AUD
Talking Points:
- Longer-Term Uptrend in EUR/AUD
- Elliott Patterns That Support the Short Side
- Step-by-Step Parameters for Taking This Trade
While EURAUD has risen strongly for almost 18 months, this set-up involves a potential countertrend trade with a favorable risk profile. It doesn’t require trying to “pick a top” in search of a huge home run, but it’s worth considering nonetheless.
The daily chart below shows that EURAUD made a low near 1.16 in August 2012 and was supported by an uptrend line. The pair then rose by 34% to reach the late-December-2013 high at 1.5596.
We’re not suggesting that the uptrend has ended, however, or that 1.5596 is a significant top. Instead, with no evidence to the contrary, we’re presuming that the uptrend is likely still in progress, but because price is currently a long way above the trend line (after a sharp rise from early November), there is an opportunity for EURAUD to correct back to the trend line.
Guest Commentary: 17-Month Uptrend in EUR/AUD
The daily analysis alone, however, isn’t enough to formulate a trade plan, so we’ll also use Elliott wave analysis from the 1.5596 high to see if there might be a wave count confirming the case for a move lower, even if only a short-term corrective one.
The below six-hour chart beginning at the 1.5596 high sees a sharp impulsive move down to 1.5115. We don’t know if this is the start of a new impulsive move lower or the start of a correction, so we’ll call it “(i)” or “(a).” Price then moves in a three-wave (yellow a-b-c) expanded flat to 1.5507, which we’ll call “(ii)” or “(b).”
The conservative count considers this a corrective wave (blue (a)-(b)-(c)). During the expanded flat, EURAUD made a low of 1.5029.
Guest Commentary: Elliott Wave Price Action in EUR/AUD
Since the recent high at 1.5507, price has moved lower to 1.5336 in what seems to be five small waves. From there, it appears to be correcting higher, which provides an opportunity to set up and enter a short trade.
From an Elliott wave perspective, the move lower to 1.5336 is a first (yellow) wave from 1.5507. A second-wave pullback seems to be in progress, which typically retraces 50%-61.8% of the first wave.
Short Trade Idea for EUR/AUD
To trade EURAUD on the short side right now, we’ll nominate a limit entry at 1.5435. Our stop will be placed above the recent high at 1.5515 (which also allows for the spread). With an 80-pip stop, we’re looking for one or more targets at least 120 pips away (at least 50% larger than the size of the stop).
As we’re calling this a corrective move, the move from 1.5507 should at least move below the recent low of 1.5029. Therefore, we’re going to nominate two targets, the first being 1.5195 (240 pips away), and the second at 1.5035 (just above the recent 1.5029 low), which is 400 pips below the entry.
How to Effectively Manage Risk
The risk profile for both of these positions is unusually high (3:1 and 5:1, respectively). This is deliberate because as a countertrend trade, it carries higher risk than trading with the trend.
This also allows us to place a smaller position size than normal (say, 30%-50% of a typical trade). By risking less, if the trade goes against us, our account is reduced by a fraction of our typical trade risk. However, if the trade succeeds, our account is increased by a “typical” trade profit. Regardless, more conservative traders may choose to pass on this set-up.
Step-by-Step Trade Parameters
- Position Size: Risk between 30% and 50% of a “normal” position
- Trade: Sell EURAUD at 1.5435
- Stop Loss: Place stop at 1.5515
- Trade Targets: Two separate target levels, the first being 1.5195 and the second 1.5035
- Trade Management: If price reaches 1.5195, lower the stop from 1.5515 to 1.5435
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.
Analys från DailyFX
EURUSD Weekly Technical Analysis: New Month, More Weakness
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
—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.
Analys från DailyFX
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
Analys från DailyFX
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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