Last week, we noted EURUSD price action had presented an inverted hammer candlestick, signaling a possible bearish reversal. That view has now been confirmed - the pair tumbled the following day. Our entry below 1.5800 yielded over 500 pips in profit.
Candlestick forum.
EUR/USD
Ready to resume ascent?
Last week, we noted EURUSD price action had presented an inverted hammer candlestick, signaling a possible bearish reversal. That view has now been confirmed - the pair tumbled the following day. Our entry below 1.5800 yielded over 500 pips in profit, though our profit target of 1.5320 was narrowly missed by 20 pips (EURUSD reached a low of 1.5340 last week).
Having completed the expected retracement, we now find the EURUSD at trend line support, with a Hammer reversal pattern waiting to be confirmed by a bullish candle. If that materializes, we will look for the bullish trend to resume. Those traders that have not taken profit on our suggested short position should do so here. With the long term bias still favoring the upside, we will re-enter long at trend line support with a tight stop in place should the pair break down further. Our initial profit target will eye the top of the most recent bullish run to 1.5740. However, we will keep a close eye on the pair’s momentum and adjust the profit target contingent with the price action.
EUR/USD Trading Strategy
1. If the Hammer formation is confirmed with a bullish candle, long EURUSD near 1.5380 (trend line support).
2. Set stop near 1.5270, just below the wick low of the 03/06-03/09 consolidation.
3. Set the initial profit target just below 1.5740, giving a favorable risk-reward ratio (risking 110 pips to gain 360).
GBP/USD
Retracement offers advantageous entry for long trade
Last week, we saw the GBPUSD testing the upward sloping trend-line at 2.0040, with a multiple resistance-turned-support level firmly in place below. At that time, we chose to remain flat as the pair settles towards support with a medium-term bullish view from there. This proved wise – cable broke through the trend line to settle at the next support level above 1.9740. Waiting for confirmation is critical to sound technical analysis, and our patience last week has offered us a favorable entry point.
With the long term trend still biased to the upside, we will look to enter long above support at 1.9740 targeting trend line support turned resistance at 2.0208. An extended Abandoned Baby formation as well as a bullish engulfing pattern lends credence to our expectations of a reversal for another run to the upside.
GBP/USD Strategy
1. Long GBPUSD above 1.9740.
2. Set profit target just below 2.0208.
3. Set stop-loss just below the price congestion at 1.9620. This will give excellent risk-reward parameters (risking 120 pips to gain 468).
USD/JPY
Decline stabilized, eyeing up move
Last week the USDJPY was in a free-fall, having broken below medium term support above 103.00 and the long-term support at 101.69. We chose to remain neutral, waiting for the pair to offer a good entry point. As with the sterling, this proved wise. The pair found a bottom above 97.40 and has stabilized.
The pair now shows a bullish Three White Soldiers reversal pattern. Yesterday’s bullish candle also closed above the high for last week, lending further weight to an argument advocating the upside.
USD/JPY Strategy
1. Long USDJPY above 99.90
2. Set stop near 97.50, above the pair’s recent bottom.
3. Set profit target below 105.50, the bottom of the range broken in late February to initiate the most recent bearish decline.
USD/CAD
A rare range trade amid market volatility
We opted to wait for confirmation on USDCAD last week, seeing a flag continuation pattern in the weekly bars and looking for downside break. Once again, waiting to have our view validated proved critical, as the USDCAD broke up rather than down.
Now looking at a daily chart, we notice a range that has contained price action since mid-November. A false break occurred in January, but the pair reverted back into the range and has in recent days established an Evening Start bearish reversal formation at top-side resistance.
USD/CAD Strategy
1. Short USDCAD below 1.0250.
2. Set stop loss near 1.0390, above the false break high.
3. Set profit target above 0.9870 at the most recent wick low and above the range bottom.
AUD/USD
The stars align for a top-side move
Last week, we opted to remain on the sidelines waiting for the pair to fail to close below the trend line at 0.9230 and show a bullish candle to signal a long entry. Once again, our cautious approach proved prudent - support gave way, seeing the AUDUSD fall support at a longer-term trend line established in August of last year.
With a yield gap of 5.00%, our long term bias for AUDUSD remains bullish. This view is validated by a Morning Star formation at trend line support, a strong reversal signal.
AUD/USD Strategy
1. Long AUDUSD above 0.9030 near trend line support.
2. Set stop above 0.8875, below the trend line and just above a price congestion area seen Oct-Dec ’07.
3. Set profit target just below 0.9360, the site of wick highs following the previous support break.
NZD/USD
Bearish reversal imminent?
Last week, we advocated a long position at 0.7934 with a target just below 0.8200. The trade’s success depended on each trader’s preferred target. In our case, we set the target at 0.8175 where it was narrowly missed (the high was 0.8172) before the Kiwi dollar collapsed through trend line support. We were stopped out with a loss of 80 pips, which was more than made up for by our successful EURUSD trade. The lesson to be learned here is to avoid round numbers and multiples of five when setting stop and limit levels, as those tend coincide with psychological support/resistance points.
We also noted last week that the monthly NZDUSD chart suggests a long-term resistance level in place since 2003 coinciding with the 0.8200 level. Given last week’s support breach, this may in fact prove to be the site of a major trend reversal. The pair seems to have found support at 0.7872, coinciding with the first test trend line support test at the beginning of this month. A Morning Star reversal pattern has been shown, but it has failed to break back over the trend line, suggesting this may simply be a consolidation move prior to a downside drop. Our bias has shifted from bullish to a cautiously bearish one. We will wait for confirmation before taking a trade on NZDUSD.
NZD/USD Strategy
We remain flat as we wait for confirmation of a directional bias.
To reach Ilya with comments regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
