Analyst Picks

Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Trade Setups in EUR/USD and USD/JPY
Expertise:  Technical
Average Time Frame of Trades:  1-3days

New to Forex? Get started with our Beginners Trading Guide!

EURUSD Daily Price Chart

EUR/USD Daily Price Chart

Heading into the start of the week, our latest EUR/USD technical outlook highlighted a key resistance range in price with our ‘Bottom Line’ noting that, “From a trading standpoint, look for possible price exhaustion on a rally into 1.1617/27 – the trade remains constructive while above 1.15.” Price registered a high at 1.1621 before reversing sharply early in the week with the decline taking out all our support targets before briefly breaking below our bullish invalidation level to test the monthly range low. Friday’s reversal is now poised to mark and outside-day reversal off slope support- so was that it?

The reversal does bode well near-term and heading into next week, we’ll want to see price stabilize above the 1.15-handle to suggest the ‘washout’ is over. Topside resistance objectives at the weekly open at 1.1540 and back again by 1.1617/27 – a region defined by the monthly open & opening-range highs, the 50% retracement of the late-September decline and the 100-day moving average. Weakness beyond the monthly low-day close at 1.1490 would leave the pair vulnerable with such a scenario exposing 1.1411 and the yearly low-day close at 1.1345.

Learn the traits of a successful trader in our free eBook!

EUR/USD Trader Sentiment

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  • A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at +1.27 (55.9% of traders are long) – weak bearishreading
  • Traders have remained net-long since October 1st; price has moved 0.8% lower since then
  • Long positions are13.4% lower than yesterday and 2.8% higher from last week
  • Short positions are 8.2% lower than yesterday and 8.5% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet, traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed EUR/USD trading bias from a sentiment standpoint.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

USD/JPY Daily Price Chart

USD/JPY Daily Price Chart

Earlier this week we highlighted a key support barrier in USD/JPY at the lower parallel of a pitchfork formation extending off the yearly lows. The region in focus was 111.60/76 and is defined by the, “September opening-range highs and the 61.8% retracement of the August advance.” The low this week registered at 111.63 with the subsequent rebound taking price back into yearly open resistance at 112.65.

The focus heading into next week is on a break of this range just above slope support with a topside breach targeting 113.08/27- an area of interest for price exhaustion and a good place to reduce / close long-exposure and look for possible short-entries. Intraday trading levels are unchanged from this week’s USD/JPY Technical Outlook. Review this week’s Strategy Webinar for an in-depth breakdown of these setup and more.

Find yourself getting trigger shy or missing opportunities? Learn how to build Confidence in Your Trading

-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex or contact him at mboutros@dailyfx.com

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Justin McQueen , Analyst

Justin McQueen
My Picks:  AUDUSD Short
Expertise:  Fundamental
Average Time Frame of Trades:  Several Weeks

AUDUSD Trading Strategy: Short at 0.7200, target 0.6830 stop 0.7300

  • Trade Risk: Speculators heavily short AUD, Trade War Tensions Easing.

Check out the brand new Q4 FX forecast guides

AUDUSD Fundamental Overview

AUD: The ongoing trade war between the US and China has been a big factor behind the underperformance in the Australian Dollar in 2018 with the currency losing over 10% of its value from the 52-week peak against the greenback. The currency is typically seen as a liquid proxy for Chinese economic sentiment as China makes up 1/3 of Australian trade. As such, the 30% drop in the Shanghai Composite, alongside the Yuan’s push to 7.00 (vs. the USD) and with growth at the weakest level since the financial crisis, this goes hand in hand with the weaker AUD theme. Trade tensions between the US and China have shown no signs of abating amid the record wide trade deficit that the US has with China, consequently, pressure on the Aussie could persist throughout the remainder of the year.

AUDUSD Short: The Trade War Barometer

USD: The Federal Reserve continues to tighten monetary policy while the rest of the world remains accommodative. In the latest FOMC meeting minutes, officials signalled that rates move into the restrictive zone (above the 3% neutral rate). Consequently, with the RBA continuing to stick with its neutral zone and with expectations for a hike not beginning to be priced in until the latter half of 2019, rate differentials may continue to favour the USD vs the AUD.

Trade Risk: Speculators remain heavily short the Australian Dollar with bearish bets valued at $5.9bln, which is the second largest shorted currency against the greenback after the Japanese Yen. As such, there is a risk that provided there is a bounce back, short covering could see a more pronounced relief rally. Elsewhere, President Trump and Xi are expected to meet at the G20 summit in November, a positive rhetoric from both parties could see AUD supported with negative sentiment over trade wars potentially easing. Another factor to take into consideration is that Australia’s terms of trade are beginning to rise with the price of its largest exporting commodity, iron ore, increasing to the highest level since Q1 18, eyes will also be on copper prices.

AUDUSD Price Chart: Daily Time Frame (Nov 2017– Oct 2018)

AUDUSD Short: The Trade War Barometer

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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Martin Essex, MSTA , Analyst and Editor

Martin Essex, MSTA
My Picks:  Further Losses Possible For GBPCHF
Expertise:  Market Analysis
Average Time Frame of Trades:  Next Few Days

GBPCHF price and technical analysis:

  • GBPCHF has dropped through trendline support in place for almost a month.
  • Now further losses are possible.

GBPCHF in danger of weakening

The GBPCHF cross rate has dropped below support from a rising trendline that has been in place since September 21, suggesting that a further decline is now possible.

The break occurred at the start of this week and the price has steadied since. To confirm that the rally is now over, the exchange rate will need to break convincingly below the 1.30 “round number” level where it is sitting currently but that could happen in the next few days.

GBPCHF Price Chart, Daily Timeframe (July 2 – October 18, 2018)

Latest GBPCHF price chart.

Chart by IG

If it does, the first target will be Monday’s low at 1.2946, followed by the 1.2936 level where the 20-day moving average currently sits. Longer-term, the obvious target is the low just above 1.25 touched on September 21 but both the 50-day and 100-day moving averages would need to be taken out first.

To the upside, there is resistance at 1.3144 where the old support trendline now sits, and before that at 1.3116, the high reached on October 12.

From a fundamental perspective, there is a chance that after the failure of the Brexit negotiations between the UK and the EU this week, GBP will come under downward pressure. On the other side of the cross, CHF would likely benefit if “risk-off” sentiment persists in the markets.

Resources to help you trade the forex markets

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you:

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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Paul Robinson , Market Analyst

Paul Robinson
My Picks:  USD/ZAR Short, Pending
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

Looking for forecasts, trade ideas, and educational content? Check out the DailyFX Trading Guides page.

USD/ZAR is currently testing support via a trend-line from March, along with support running back to June and the neckline of a head-and-shoulders pattern. It’s a firm area with all three varying support types in close proximity, so for the moment it is to be respected as solid support.

But should we see a solid breakdown (close below 13.95) then look for another leg lower to develop towards the July low around the 13.10-mark. Stops placed above all levels (old support, new resistance - ~14.25) should remain out of harm’s way if USD/ZAR is to sink in-line with expectations.

This will provide close to a 1:3 risk/reward ratio on swing trades. Those looking to play the set-up with shorter-term objectives can use the broader break as the signal to trade along the path of least resistance (i.e. – sell failing rallies and consolidation patterns).

These 4 tenets can help bolster your Confidence as a Trader.

USD/ZAR Daily Chart (Support needs to break first)

USD/ZAR daily chart, support needs to break first

***Updates will be provided on these ideas and others in the trading/technical outlook webinars held on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday’s for the Becoming a Better Trader webinar series.

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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David Song , Currency Analyst

David Song
My Picks:  Bearish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

The recent rebound in EUR/USD appears to have stalled ahead of the European Union (EU) Summit in Brussels as officials turn their attention to Brexit, but the meeting may do little to shake up European currencies as chief negotiator Michel Barnier argues that ‘we need more time to reach a comprehensive agreement.’

Meanwhile, the Federal Open Market Committee (FOMC) Minutes may boost the appeal of the U.S. dollar as the central bank appears to be on a preset course to normalize monetary policy, and Chairman Jerome Powell & Co. may continue to strike a hawking tone at next meeting in November especially as ‘the Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

Image of Fed Fund Futures

In turn, Fed Fund Futures may continue to reflect expectations for a December rate-hike as the U.S. economy sits at full-employment while the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, climbs above the 2% target, and the hawkish forward-guidance for monetary policy may continue to foster a long-term bearish outlook for EUR/USD especially as the European Central Bank (ECB) remains in no rush to move away from its easing-cycle.

However, the near-term outlook for euro-dollar remains supportive as the decline from earlier this month fails to spur a test of the yearly-low (1.1301), with the exchange rate at risk for a larger correction if President Mario Draghi & Co. unveil a more detailed exit-strategy at the next meeting on October 25. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Image of eurusd daily chart

EUR/USD may face range-bound conditions over the remainder of the week as the recent rebound stalls ahead of the monthly-high (1.1625), with a move below 1.1510 (38.2% expansion) raising the risk for a move back towards the October-low (1.1432). Need a break/close above the Fibonacci overlap around 1.1640 (23.6% expansion) to 1.1680 (50% retracement) to spur a run at the near-term resistance zone around 1.1810 (61.8% retracement) hurdle, which largely lines up with the September-high (1.1815).

For more in-depth analysis, check out the Q4 Forecast for the Euro

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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James Stanley , Currency Strategist

James Stanley
My Picks:  EUR/JPY, GBP/JPY
Expertise:  price action - macro
Average Time Frame of Trades:  few days - few weeks

Forex Talking Points:

- DailyFX Quarterly Forecasts have been updated for Q3, and are available directly from the following link: DailyFX Trading Guides, Q4 Forecasts.

- For trading ideas, please check out our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

- If you’d like more color around any of the setups below, we discuss these in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those session from the below link:

Tuesday: Tuesday, 1PM ET

Thursday: Thursday 1PM ET

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

EUR/JPY, Close Remainder, Reverse Stance

Earlier this month, I looked at a two-sided setup in EUR/JPY. The bullish trend from Q3 was on pause as a bull flag formation had built; but within that bull flag formation was a bearish setup as a shorter-term descending triangle formation had built.

Upon the next weekly open, prices quickly broke-down and ran to the first target of 130.00, and bears continued to push last week with a fresh monthly low established around 129.20. But – little ground was made below that level, and three different attempts to breakdown were thwarted as bulls continued to show support. That’s lasted into a fresh week and now prices are trading above the bearish channel that makes up that bull flag formation, and this opens the door for bullish potential in the pair.

Stops can be set below last week’s low around 129.10 to take on a little more than 90 pips of risk, and initial targets can go to 131.25 for a slightly better than one-to-one risk-reward ratio to the initial target. Stops can go to break-even at that first target, with secondary targets directed to 132.00, and tertiary targets at 133.00.

For those that would like to move forward with a bit more confirmation of bullish themes returning, price action breaking of the prior support zone around 130.58-130.77 could make that theme look more attractive.

EUR/JPY Four-Hour Price Chart

eurjpy eur/jpy four hour price chart

Chart prepared by James Stanley

GBP/JPY Resistance Potential 148.55-149.05; Bullish Beyond 149.50

Last week’s risk aversion pushed GBP/JPY down to a fresh monthly low, but bears were unable to make much ground below 146.50. But, this does give a technical lower-low that came-in after a lower-high. This may be the early stages of the impasse that’s built in the pair over the past month beginning to give way.

This opens the door for another iteration of lower-high resistance, and just above current price, there is an interesting zone of resistance potential. This runs from 148.55-148.69, each of which are 23.6% Fibonacci retracements from long-term major moves, and this can be connected with last Friday’s swing-high around 149.00 as traders look for lower-high resistance. Stops can be set above the October swing-high at 149.51, and if this does not hold the highs, bullish strategies can start to be favored as prices re-engage with the 150.00 psychological level.

GBP/JPY Four-Hour Price Chart

gbpjpy gbp/jpy four hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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Tyler Yell, CMT , Forex Trading Instructor

Tyler Yell, CMT
My Picks:  Bullish USD/CHF on Break > 0.9985
Expertise:  Intermarket Analysis, Derivatives, Technical Analysis
Average Time Frame of Trades:  1-3 Months

The BIG Idea on a Bullish USD/CHF Outlook:

USDCHF is trading in the lower quartile of the 2018 range (1.0884-0.9333) as of mid-October, but Traders may want to anticipate a USD rally to close out the year against the haven Franc. This trade faces a lot of hurdles that should not be totally discounted, but if the market rally is not done-for, and the potential bullish wave count (per Elliott Wave) plays out, then traders may benefit from an unwind of the haven buying that has CHF strengthen over 4% since September 21.

  • Point to Establish Long Exposure: Break & close above August corrective high: 0.9985
  • Spot: 0.9880 CHF per USD
  • Target 1: 1.0621 CHF per USD (Minor Fibo expansion target,) > 1:1 Risk: Reward Ratio
  • Target 2: 1.1300 CHF per USD (Major Fibo confluence target,)1:7 Risk: Reward Ratio
  • Invalidation Level: 0.9800 CHF per USD (50% retracement of H2 2018 range,) 185 pip stop

Are Q4 Currency Forecasts are fresh, grab them for FREE here

Bullish USDCHF Trade Structure

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The BIG Picture on Bullish USD/CHF (Weekly Chart:)

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Few traders look to USD/CHF anymore as a source of volatility. However, the recent move since mid-September from 0.9542 to the early October high of 0.99563, a move greater than 4% should grab trader’s attention. This is especially true when traders of the Elliott Wave persuasion look at the potential that a triangle pattern may be running its course that could give way to an upward thrust.

What is a Triangle Pattern In Elliott Wave Theory and How do you Trade it?

A break above 0.9985, the August opening range high, would tilt the odds in favor of the trade’s risk: reward ratio that this trade is predicated.

The risk of this trade is fairly narrow given the large profit targets of 3.4X and 7.1X the 185 pip risk, but that is common when trading triangle patterns.

A peek at the intraday USD/CHF chart:

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Like any trade, this trade coming to fruition of reaching either profit target is not guaranteed. From a technical perspective, traders should look to a break above 0.9985, the initiation price, as indicative that a bullish momentum rally is underway, which could help traders in this trade immensely.

The invalidation of the trade at 0.9800 sits at the 50% retracement of the H2 2018 range, and a break below this level would indicate any bet of bullish momentum toward either of the price targets is premature.

Intermarket Analysis for Insight: Dow Jones Price may favor continuation

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

“For a lay person, the ‘sell everything’ type of stories have no value and are pure entertainment and should be taken as such,” – Michael Batnick, Irrelevant Investor blog and Director of research at Ritholtz Wealth Management

Markets have lived up to their reputation in October by providing a good deal of volatility. As of writing, the last five days have seen the Dow Jones price fallen by ~4% (keep an eye on Dow Jones live here.) However, as the quote above lays out, the initial impulse of thinking “this is the top,” is often not best acted upon, and if this is not the top, then recent havens that have been bought like Gold or the Swiss Franc could be overvalued while riskier assets offer upside at a discount.

Of course, there is no crystal ball at my desk, but one insight I’ve learned over time and continue to learn is that major market reversals in major markets like Dow Jones today is exceedingly rare. Therefore, not only is sell-everything bad advice, but “this is THE top” is too rare to be given high credence.

The chart above shows a weekly chart of the Dow Jones price today going back to the market low in 2009 with Elliott Wave analysis labels applied. Putting the insight into Elliott Wave has caused me to favor trend continuations over trend reversals, which this trade would likely need to work out favorably. If the market HAS topped, this trade would not be expected to work out as the Swiss Franc would likely strengthen, and the stop at 0.9800 would likely get hit.

However, if the trend is continuing, meaning we have not hit the top or the fifth wave of five (as in a fractal or multiple time frames of the market timing together then this trade may work out nicely (though no guarantees!)

Lastly, you’ll notice on the chart that Ichimoku Cloud is applied, and the bottom of the weekly cloud (the chart above is a weekly chart) aligns with the end of the prior wave 4, which looks to be a triangle. If the price breaks below the cloud, and we see a weekly close below the cloud on the Dow Jones price chart, then there is a fair amount of evidence building that we’re moving into a strong risk-off period that would likely see the Swiss Franc appreciate, and this trade not working out.

Lastly, for those that think “this October is different,” be careful. Per LPL Financial, the SPX500 has swung 1%+ more often in October than any month of the year in data from 1950-2017.

What is IG Client Sentiment Saying about USD/CHF?

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Source: IG Client Sentiment

IG Retail trader data shows 36.7% of traders are net-long with the ratio of traders short to long at 1.72 to 1.

In fact, traders have remained net-short since Oct 04 when USDCHF traded near 0.99074; the price has moved 0.3% lower since then.

The number of traders net-long is 3.7% higher than yesterday and 13.6% lower from last week, while the number of traders net-short is 7.3% lower than yesterday and 9.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCHF prices may continue to rise (emphasis mine.)

Forex Trading Resources to Support Your Strategy Development

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re watching.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Talk markets on twitter @ForexYell

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Nick Cawley , Analyst

Nick Cawley
My Picks:  GBPNZD - Pending Long
Expertise:  Fundamental and technical analysis
Average Time Frame of Trades:  Two days - one month

GBPNZD – Pending Long

  • Looking for a sub-GBPNZD 2.000 set-up.
  • New Zealand CPI and UK data and Brexit news may open the way.

The DailyFX Q4GBP Forecast is available to download.

A long Sterling position may seem a risky proposition ahead of EU/UK Brexit talks but it may also offer the short-term sell-off we are looking for to enter a position against a currently weak New Zealand dollar. Before we enter the position, we look for the pair to trade to have broken the short-term downtrend and to trade around 1.9870 compared to the current level of 2.0110. Below is a list of releases and events that may push GBPNZD down to our in-price.

Notable GBPNZD Events this Week (w/c October 15, 2018)

New Zealand CPI – Monday October 15.

UK Wages and Employment – Tuesday October 16.

UK CPI – Wednesday October 17.

EU Summit (Brexit) Wednesday/Thursday October 17/18.

UK Retail Sales – Thursday October 18.

The daily price chart shows the 10-day low at 1.9870, the breakout candle that took the pair to its recent high of 2.0480. It is also the same level as the 200-day moving average on the four-hour chart, which has acted as trend support since August 29. The pair tried to break this support on September 21-23 and October 2 but failed. On the short-term chart the pair are also nearing oversold territory.

GBPNZD Daily Price Chart (March – October 15, 2018)

GBPNZD: Pending Long on a Sell-Off

GBPNZD Four-Hour Price Chart (August 14- October 15, 2018)

GBPNZD: Pending Long on a Sell-Off

DailyFX analyst Paul Robinson’s video on how to become a better, more consistent trader is a must listen for market participants seeking an edge. As Paul notes early in his piece, Markets are too dynamic, full of too much uncertainty, to try and navigate them without a framework in place. Trading plans are imperative for creating consistent results'.Becoming a Better Trader – How to Create a Trading Plan.

Traders may also be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Setups in EUR/USD and GBP/USD
Expertise:  Technical
Average Time Frame of Trades:  1-3 Days

New to Forex? Get started with our Beginners Trading Guide!

GBP/USD 120min Price Chart

GBP/USD Price Chart - 120min - 10/12/2018

Earlier this week we highlighted the potential for a breakout in GBP/USD as prices continued to trade within the confines of a clear weekly / monthly opening-range. Our bottom line noted that we were, “looking for a breakout of the 1.29-1.3165 zone to validate our medium-term outlook. From a trading standpoint, I’ll favor fading weakness in Sterling while above 1.30 targeting a breach above daily slope resistance.”

A breach higher on 10/9 took out three of our topside targets before turning just ahead of our final resistance objective at 1.3290-1.3317 – this region is defined by the June open, the December swing low and the 38.2% retracement of the yearly range. A breach of this region is critical to fuel the next leg higher in price with the rebound at risk near-term while below. Friday’s sell-off is poised to mark an outside-day reversal off the 100% extension of the monthly advance at 1.3239 and threatens a larger pullback in Cable.

Even the most seasoned traders need a reminder every now and then-Avoid these Mistakes in your trading

Sterling is testing initial support now at 1.3155 with near-term bullish invalidation at 1.3129- a break there would suggest a larger pullback is underway with such a scenario targeting a drop towards more meaningful support at 1.3031/50 – an area of interest for possible exhaustion / long-entries IF reached. Bottom-line: risk for a bigger pullback near-term but we’ll continue to favor fading weakness in British Pound with topside breach targets unchanged at 1.3363 and yearly slope resistance, currently around ~1.3420s. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

Learn the traits of a successful trader in our Free eBook!

GBP/USD Trader Sentiment

GBP/USD Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +1.34 (57.3% of traders are long) – weak bearishreading
  • Traders have remained net-long since September 20th; price has moved 0.7% higher since then
  • The percentage of traders net-long is now its lowest since September 28th
  • Long positions are 10.8% lower than yesterday and 9.9% lower from last week
  • Short positions are 0.2% lower than yesterday and 4.0% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week and the recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

EURUSD Daily Price Chart

EUR/USD Price Chart - Daily - 10/12/2018

Heading into the start of October trade, I highlighted a major price support zone in my EURUSD Weekly Technical Perspective – “Bottom line: Looking for signs of downside exhaustion while above 1.1498 for now. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops with the near-term focus on a possible long-entries.” Price briefly extended into a low 1.1432 before posting a daily doji off confluence slope support. The subsequent rally failed this week at the 61.8% parallel of the June/August pitchfork with Euro paring a portion of the advance on Friday.

The outlook is similar to that of Sterling in that we’re looking for this pullback to offer more favorable long-entries early next week and IF Euro is heading higher, losses should be limited to the monthly low-day close at 1.1490- (note this level converges on slope support mid-week and will serve as our bullish invalidation mark). Key confluence resistance stands at the 1.1617/25 where the monthly open converges on the 50% retracement of the late-September decline and the 100-day moving average. I’ll publish an updated EUR/USD scalp report once we get some further clarity on near-term price action - for now, look for price exhaustion on a drive back towards 1.1500.

Find yourself getting trigger shy or missing opportunities? Learn how to build Confidence in Your Trading

-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex or contact him at mboutros@dailyfx.com

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David Song , Currency Analyst

David Song
My Picks:  Bullish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

EUR/USD continues pare the decline from the September-high (1.1815) as updates to the U.S. Consumer Price Index (CPI) highlight a diminishing threat for above-target inflation, and the exchange rate may stage a larger rebound over the coming days as it extends the bullish sequence from the monthly-low (1.1432).

Keep in mind, one dismal data print will do little to derail the Federal Reserve from its hiking-cycle as Chairman Jerome Powell & Co. largely achieve their dual mandate for full-employment and price stability, but signs of easing job/wage growth paired with the ongoing shift in trade policy may play a greater role in driving U.S. dollar price action as it curbs the central bank's ability to ramp up the normalization process.

In turn, Fed officials may continue to project longer-run interest rate of 2.75% to 3.00% at the next quarterly meeting in December, and it seems as though the Federal Open Market Committee (FOMC) will resist calls to quickly unload the bloated balance sheet especially as the International Monetary Fund (IMF) cuts its world growth forecast for the first time since 2016.

Image of fed fund futures

With that said, lackluster data prints coming out of the U.S. economy may continue fuel the recent rebound in EUR/USD even though Fed Fund Futures still reflect expectations for another 25bp rate-hike in 2018, and the recent series of higher highs & lows brings the topside targets back on the radar as the Relative Strength Index (RSI) highlights a similar dynamic and reverses course ahead of oversold territory. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Image of eurusd ratdaily chart

Recent developments suggests EUR/USD will continue to track the broad range from August through September amid the failed attempt to test the 1.1390 (61.8% retracement) to 1.1400 (50% expansion) region, with the exchange rate quickly coming up against the Fibonacci overlap around 1.1640 (23.6% expansion) to 1.1680 (50% retracement). A break/close above the stated region raises the risk for another run at the 1.1810 (61.8% retracement) hurdle, which largely lines up with the September-high (1.1815).

For more in-depth analysis, check out the Q4 Forecast for the Euro

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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