GBPJPYWATCH OUT! Trend reversal ahead! The GBPJPY pair may have ended its 5 wave bullish rally to end at a high probability reversal zone highlighted in red. Short setups for reversal are preferred here, and possible long set ups above the previous extreme should also be noted.
From the daily chart above, we can quite clearly see the corrective wave sequence initiating as the most recent recorded swing low was below the previous trending low. Furthermore, prices have overlapped previous price zones, and are displaying ranging patterns. Look for short entries using shorter time frame momentum or stochastic divergence.
EURUSDThis is for the lazy trader; the Euro has been undergoing a long term correction since mid-2008, and has not identified a clear direction in which it wants to go. Hence, range trading strategies such as Bollinger bands and RSI oversold/overbought levels will be the most effective trading strategy for this pair.
USDJPYThe fun may all be over for Yen bulls as prices now hover around a key support turned resistance level as shown by the yellow horizontal line, in confluence with the 38.2% Fibonnaci level. Price action weakness along with a stochastic crossover should sound trumpets for Yen bulls as bears begin to come out of their caves to look for blood.
Focus of the week: AUDNZD
Looking at the week ahead, we have chosen AUDNZD as a potential play for this week due to a number of high probability set ups that have come across our desk. As always, when we start a new analysis on any pair, we begin with a macro view of the currency pair through the weekly timeframe.
Figure 1.0 shows the weekly chart of the AUDNZD pair, and we can clearly see that this pair has been undergoing a bearish trend over the past year; however prices have recently bounced back up from previous support zones indicated by the blue box. Furthermore, using Elliot wave counts, we can identify a probable wave 5 conclusion.
The next figure will show the Fibonnaci retracement levels and extension levels to find high probability price target zones for a possible wave 5 reversal.
To identify high probability price targets, we draw Fibonnaci extensions of wave 1 from wave 2, wave 1-3 from wave 4, and also an external Fibonacci of wave 4. Hence, we now have a narrow price range highlighted in red which will likely form a major support or resistance level. Thus, look for long trading opportunities if prices breach the red highlighted rectangle. If price trends and momentum continue to be bearish, then look for short opportunities below the last extreme low.
Zooming in to the daily time frame; there is a probable head and shoulders pattern which is due to complete when prices push past the 1.0950 level as indicated by the red arrow. This is also in confluence with our Fibonnaci price range highlighted in red. Thus, our early signal will be at the 1.0900 level, where we will begin to look for entry positions using a shorter time frame (preferably H1) momentum reversal for entry. Alternatively, later entries can also be set 100-150 pips above the 1.0950 price level.
In the week ahead, market sensitive news which may impact on this currency pair include:
Sunday 9:45pm GMT – NZD Retail sales q/q
Tuesday 12:30am GMT – AUD Monetary policy meeting minutes
Thursday 1:45am GMT – China HSBC Flash manufacturing PMI
Friday – G20 Meetings
Stay hungry, and keep the pips rolling in.
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This article was written by: Ming Wu
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