Analyst Picks

Jeremy Wagner, CEWA-M , Head Forex Trading Instructor

Jeremy Wagner, CEWA-M
My Picks:  Short Bias EUR/USD
Expertise:  Elliott Wave Theory, Technical Analysis
Average Time Frame of Trades:  Multiple Weeks

EUR/USD price has rallied as the German coalition breakthrough relieves some political worries. However, EUR/USD has reached 1.22, which is a level of long-term significance we identified through the Elliott Wave principle back in September 2017. Our Elliott Wave analysis suggests a large trend lower begins from nearby levels.

On Thursday, we highlighted how the Elliott Wave analysis on EUR/USD showed the three year bullish pattern nearing an end. In fact, this pop higher to 1.22 is not a surprise as we identified its potential back in September:

From a shorter term perspective, if the wave labeling is correct, then we anticipate a shallow correction back to the 1.16 handle followed by another retest of the 1.20 high to finish off the fifth and final wave of the sequence. I wouldn’t be surprised to see this fifth wave work higher to 1.22 as a couple wave measurements appear in that vicinity.

EUR/USD Elliott Wave analytical article – September 4, 2017

EUR/USD did eventually bottom on November 7 at 1.1554 creating the fourth wave of the impulse wave pattern. This fifth wave higher is shaping as an ending diagonal pattern.

How Elliott Wave Theory identified 1.22 as important

We will review the significance and wave relationships appearing near 1.22.

  • 50% Fibonacci retracement of May 2014 to March 2015 downtrend is at 1.2232
  • Wave ‘C’ of the three year expanded flat patternis 1.618 times wave ‘A’ at 1.2207
  • Circle wave ‘v’ of the impulse wave that began January 2017 is .382 times waves ‘i’ through ‘iii’ at 1.2215

EUR/USD Elliott Wave Count

EUR/USD Elliott Wave analysis suggesting a reversal beginning soon.

Therefore, we are expecting a reaction lower from nearby levels to take place. If our Elliott Wave analysis were correct, then the ending diagonal pattern would need to terminate below 1.2288. As a result, this sets up a short trade opportunity.

The EUR/USD Elliott Wave trade set up

Shortly after trading resumes on Jan 14, if EUR/USD has not gapped up and through 1.2288, then we will establish a short position.

Entry: Short at market below 1.2288 – if EURUSD has gapped above 1.2288 then no trade

Stop Loss: 1.2288

First Target: 1.1554 (Risk to reward nearly 1 to 6)

Secondary Target: 1.12 (Risk to reward nearly 1 to 10)

Third Target: Open with a manually trailed stop loss

This will be the first time we have flipped our bias on EUR/USD since May 2017 when the pair was trading near 1.1252. On May 22, we flipped to a bullish bias as several key levels were broken and we have remained bullish until today.

If EUR/USD breaks above 1.2288, then we will consider other alternative patterns that include a double zigzag pattern within wave (i) or (iii) of the ending diagonal. Essentially, a break above 1.2288 stretches out the diagonal pattern and delays its termination. However, the resolution of the ending diagonal pattern remains the same in that a bearish turn is looming nearby.

Elliott Wave Theory FAQ

“I hear that a lot of traders struggle with profitability, why?”

Regardless of the style of analysis, many traders do lose money because they do not take the time to study the market and the effect of leverage. At DailyFX, we have studied millions of live trades and boiled our study down into a Traits of Successful Traders guide. You will find how leverage and human nature affects our trading so you can implement tactics like ones described in the trading idea above.

Where can I learn more about Elliott Wave ending diagonal patterns and how to trade them?

Ending diagonals are one of my favorite patterns. They are five wave patterns that many times a tight stop loss is placed and ending diagonals can precede big moves. You can learn more about it and other Elliott Wave patterns in our beginner and advanced Elliott Wave guides. In addition, I have a one-hour webinar recording devoted to Elliott Wave diagonal patterns.

New to FX trading? We created this guide just for you.

---Written by Jeremy Wagner, CEWA-M

Jeremy Wagner is a Certified Elliott Wave Analyst with a Master’s designation. Jeremy provides Elliott Wave analysis on key markets as well as Elliott Wave educational resources. Read more of Jeremy’s Elliott Wave reports via his bio page.

USD/JPY and as well as EUR/JPY, GBP/JPY, and AUD/JPY were markets discussed in Jeremy’s January 3 webinar forecasting 2018 trends. Watch a recording by registering here.

Discuss this market with Jeremy in Monday’s US Opening Bell webinar.

Follow on twitter @JWagnerFXTrader .

Join Jeremy’s distribution list.

Recent Elliott Wave articles by Jeremy:

Will USD/JPY Break its Trading Range?

2018 Forecast for EUR/AUD, GBP/AUD and AUD/JPY

Can Swiss Franc Outperform its Peers in 2018?

Bulls Excited About GBP/JPY Longer Term Elliott Wave Pattern

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Tyler Yell, CMT , Forex Trading Instructor

Tyler Yell, CMT
My Picks:  Tactically Bearish EUR/JPY
Expertise:  Technical Analysis and Intermarket Analysis
Average Time Frame of Trades:  3-5 weeks

Point to Establish Short Exposure: Breakdown & Close below 132.05 (Dec. 15 low)

Spot: 133.17

Initial Target/Point to bring stop to break even:131.15 (November low)

Swing Target (If not holding trade :) 128 (Aug. low & 38.2% retracement of April-Jan. range)

Invalidation Level: 134.5 (Jan.10 high)

If you are looking for other strong trading ideas, you may enjoy our FREE Trading Guides

Bond market volatility and record-long EUR exposure from non-commercial institutions (i.e. hedge funds) in the futures market as of January 02, 2018 may be opening up a tactical short-term downside-focused EUR/JPY trade.

After a surprise notification from the Bank of Japan that they were reducing ultra-long holdings caused a quick liquidation in EUR/JPY that saw the third straight daily decline and a drop of 1%.

Hedge Funds May Unwind Record EUR-long Futures Positions as JPY Strengthens

A recent analyst pick by Jeremy Wagner, CEWA-M on short USD/JPY ahead of a 1%+ drop and the falling velocity of EUR/USD brings this trade into view. EUR/USD could see a move to or through 1.16 after flirting but not making much progress on sustaining a break above 1.21.

It’s likely too soon to call a top in EUR this early in the year, though EUR did bottom at nearly the same time last year, but a break down and close below the pivot of 1.1850, where price would align with the uptrend from April would open up a breakdown toward the 100% bearish extension from September to the recent high down at 1.1550.

Technical Outlook Favors Downside Continuation Below 132 (Ichimoku Cloud base)

USD/JPY trading down to 111 or 109.90 would likely see a similar strong move lower in EUR/JPY with JPY strength and an unwind of EUR longs. As a tactical position, I would not be comfortable holding exposure above 135.27/51 (Jan. 3 high.)

A clean downside target on EUR/JPY would look to prior support at 131.75/50, which acted as clean support before the break toward 137 that stopped at 136.65 before slipping from two-year highs. If the rally is rolling over more considerably, traders should watch for a move down below the November low of 131.15 and to the August low of 128.

While these levels may seem aggressive, traders should note the record long CFTC Euro FX Speculative positioning that could unwind and act as a catalyst for EUR weakness emerging, even if tactically short lived and aligning with a short pop in the Japanese Yen.

The trade would be invalidated on a break and close above the January 10 high of 134.50.

Access our popular free trading guides to enhance your trading strategy here.

EUR/JPY chart with trendline and Ichimoku support near 132

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Chart created by Tyler Yell, CMT

EURJPY Sentiment Shows Short Positions Rise as Price Jumps

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We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURJPY 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 EURJPY price trend may soon reverse lower despite the fact traders remain net-short.

---

Written by Tyler Yell, CMT

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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

The broader outlook for EUR/USD remains constructive following the appreciation in 2017, with the euro-dollar exchange rate at risk of extending the advance from late last year as it snaps the recent string of lower highs & lows.

Keep in mind, the failed attempt to break the September-high (1.2092) warrants attention as it starts to look like a double-top, but the euro-dollar exchange rate may continue to exhibit a bullish behavior in 2018 as the European Central Bank (ECB) starts to wind down its quantitative easing (QE) program. With the asset purchases set to expire in September, President Mario Draghi and Co. are likely to prepare European households and businesses for a less accommodative stance, and the account of the December monetary policy meeting may heighten the appeal of the Euro should the central bank reveal a more detailed exit strategy.

At the same time, there appears to be a growing rift within the Federal Reserve as Atlanta Fed President Raphael Bostic, a 2018 voting-member on the Federal Open Market Committee (FOMC), strikes a cautious tone and favors a ‘slow removal of policy accommodation,’ while San Francisco Fed President Eric Rosengren argues that the central bank ‘should be focused on an inflation range’ as price growth continues to run below the 2% target. In turn, the FOMC may merely try to buy time at its next interest rate decision on January 31, with the U.S. dollar at risk of facing a more bearish fate over the coming days should a growing number of Fed officials warn ‘inflation might stay below the objective for longer than they currently expected.’ Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Weekly Chart

EUR/USD Daily Chart

Near-term outlook for EUR/USD remains mired by the failed attempt to clear the September-high (1.2092), but the rebound from the November-low (1.1554) may ultimately develop into a larger rally as both price and the Relative Strength Index (RSI) preserve the bullish formations carried over from the previous year. With that said, topside targets will come back on the radar once the euro-dollar exchange rate is able to close back above the 1.1960 (38.2% retracement) region, with the first hurdle coming in around 1.2130 (50% retracement) followed by the 1.2230 (50% retracement) region.Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides!

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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Michael Boutros , Currency Strategist

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

Here's an update on a few of the setups we’ve been tracking this week. Find a detailed, in-depth review of these setups and more in this week’s Strategy Webinar.

GBP/JPY120min

GBP/JPY Price Chart - Daily Timeframe

GBP/JPY broke below the monthly opening-range lows / 2017 high-day close at 151.83 today after failing to close above the 2017 highs at 153.41. The decline takes prices below multi-month pitchfork support and keeps the focus lower in the pair. Bottom line: Possible near-term support at the trendline extending off the August lows but ultimately targeting 149.53/75 on this break.

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

GBP/USD: The near-term outlook hinges on a break of the monthly opening-range with a correction lower favored. That said, look for weekly open resistance at 1.3575 with a break below 1.3456 needed to clear the way for a larger decline. I highlighted this setup in today’s Scalp Report.

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

AUD/USD Daily

AUD/USD Price Chart - Daily Timeframe

Aussie rebounded off near-term support at 7800/13 before testing weekly open resistance today at 7863 and the threat remains for a deeper pullback in the pair while below 7887/98. From a trading standpoint I’ll continue to favor selling strength targeting a deeper pullback targeting the 100-day moving average at ~7770s and the trendline confluence around 7750. Levels / outlook remain unchanged from this week’s AUD/USD Scalp Report.

Join Michael on Fridays for his bi-weekly Webinar on the Foundations of Technical Analysis- Register for Free Here!

---Written by Michael Boutros, Currency Strategist with DailyFX

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

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Paul Robinson , Market Analyst

Paul Robinson
My Picks:  Bearish EUR/JPY & GBP/AUD
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

EUR/JPY range breakout fails, implicates move to bottom of range or worse

At the end of December, EUR/JPY broke out of the range it had been confined to for three long months. We initially ran with the breakout. But in recent days, the failure to hold above the range suggests more selling is on the way, and if so, likely to the bottom of the range and possibly worse. From a trading standpoint, initiating a swing-trade at the moment doesn’t offer tremendous appeal in terms of risk/reward unless we see a push back up towards the upper-end of the range at 13450 and see a rejection.

For those trading on shorter-term time-frames (using 1-hr/4-hr charts), though, the path of least resistance is lower as long as the 13450 threshold isn’t reclaimed. Short-term set-ups on intra-day time-frames (i.e. bear flags, failed rallies w/bearish pin-bars, etc.) with good risk/reward (1:2 or better) could hold good juice until the low-end of the range around 13150. There are some trend-lines extending higher around the current level, but the failed breakout takes precedence in terms of importance.

Start expanding your knowledge today with Market Forecasts and Educational Guides

EUR/JPY: Daily

EUR/JPY daily price chart

Tactical approach:

  • Short-term shorts below 13450, targeting ~13150
  • Swing-trade on retest of top of range, stop above retest-day high upon a reversal
  • Daily close below bottom of range opens up path for much bigger move lower (will revisit if breakdown develops)

GBP/AUD descending wedge developing in direction of trend

GBP/AUD is in the process of carving out a descending wedge in the direction of the trend off the December high. The pattern triggers with a 4-hr closing bar below the bottom of the pattern; targeting a pair of swing-lows created back in November at 17040, then down just under 16900. Taking profits ahead of these levels is prudent in the event buyers step in ahead of support. Stops should at the least be placed sufficiently back inside the wedge. Some traders may choose to take a long on a top-side breakout, but the direction of trend and bearish implications of a descending wedge elevate risk of a rally failing.

Struggling with confidence right now? You’re not alone. Check out the Building Confidence in Trading guide for 4 ideas on how to get back on track.

GBP/AUD: 4-hr

GBP/AUD 4-hr price chart

Tactical approach:

  • Trigger is a closing 4-hr bar below pattern
  • Stop placed inside pattern, ~17270 (red dotted line)
  • Profit objectives set 30 points above support at 17070 and 16925 (blue dotted lines)

---Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at @PaulRobinsonFX

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