Analyst Picks

Tyler Yell, CMT , Forex Trading Instructor

Tyler Yell, CMT
My Picks:  Bearish New Zealand Dollar / US Dollar
Expertise:  Technical Analysis, Intermarket Analysis, Institutional Positioning Data
Average Time Frame of Trades:  2-5 Weeks

Point to Establish Short Exposure: Breakdown below 68.15 cents per NZD

Spot: 69.15 cents per NZD

Target:66.40 cents per NZD (200% Fib Extension)

Invalidation Level: 69.50 cents per NZD (Nov. 28 high)

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The NZD/USD jumped over 1% after news surfaced that a new Reserve Bank of New Zealand chief had been named. The surge was attributed to a large number of short positions that were surprised by the appointment of the New Zealand Sovereign Wealth Fund, Adrian Orr and previous deputy governor of the RBNZ to act as chief going forward.

Hedge Funds Cover Near-Record Short on New Chief

Late last week, the CFTC’s Commitment of Traders (CoT) report showed one of the largest short-positions on record for NZD/USD so the pop higher was likely due to profit taking due to a known dovish Central Bank getting a new governor that could shake things up. Since the election where a new Prime Minister, Jacinda Ardern, took over, NZD has been the worst performing developed market currency in 2H 2017.

NZD/USD sunk after late September election

Data source: Bloomberg. Chart created by Tyler Yell, CMT

Technical Outlook Favors Downside Continuation Below 69.50/80

While traders should be aware of a potential short-term squeeze carrying the flightless bird (the namesake Kiwi), a resumption below 68.15 US cents per NZD could be the technical signal that NZD/USD is resuming its downward trend. Short term resistance is expected at 68.50, and the downside target is 66.40, which is a 200% Fibonacci Extension of the initial move lower from July to August.

A break and close above the zone of resistance highlighted on the chart between 69.50/80 would indicate the downside preference was premature and traders should anticipate a broader short-covering rally. Absent a break higher, a continuation of the downtrend is preferred.

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NZD/USD Chart with resistance at 0.6981/50 outlined:

Bearish NZD/USD On Likely Short-Covering Bounce After New RBNZ Chief Names

Chart created by Tyler Yell, CMT

NZ Sentiment Shows Short Positions Rise as Price Jumps

NZD Sentiment Shows Traders Short Positions Growing As Price Rises

Retail trader data shows 58.3% of traders are net-long with the ratio of traders long to short at 1.4 to 1. In fact, traders have remained net-long since Oct 18 when NZDUSD traded near 0.70693; the price has moved 2.2% lower since then. The percentage of traders net-long is now its lowest since Nov 19 when NZDUSD traded near 0.67989. The number of traders net-long is 11.0% lower than yesterday and 12.8% lower from last week, while the number of traders net-short is 45.5% higher than yesterday and 27.7% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current NZDUSD price trend may soon reverse higher despite the fact traders remain net-long.

Written by Tyler Yell, CMT

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Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Setups in GBP/USD, NZD/JPY, and AUDJPY
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.

NZD/JPY120min

NZD/JPY Price Chart - 120min Timeframe

Earlier this week we warned of the potential for an exhaustion high in NZDJPY as price was approaching the confluence resistance at 77.66/77. This region is defined by the 23.6% retracement of the September decline, the 50% retracement of the November range, the November Open and both longer-term downslope, and near-term upslope resistance. The pullback has come back to test channel support and a break below 76.92 is needed to validate the reversal.

Bottom line: Look for a resolution of the 76.92-77.77 range with a downside break still favored.

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GBP/USD: The outlook remains weighted to the topside in sterling after rebounding of confluence support last night at 1.3320. Broader bullish invalidation now raised to 1.3226 with a breach above the yearly high-day close at 1.3495 needed to fuel the next leg higher. I highlighted this setup in today’s Scalp Report.

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AUD/JPY 120min

AUD/JPY Price Chart - 120min Timeframe

A picture perfect reversal off resistance highlighted earlier this week at 86.15 has already taken out initial targets at 85.12. A nearly identified pitchfork may be in play here, but it’s too early to tell. That said, look for resistance back at the monthly open with bearish invalidation now lowered to the upper parallel, currently near 85.80s.

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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David Song , Currency Analyst

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

EUR/USD snaps the December opening range, with the pair at risk of facing a larger decline ahead of the Federal Reserve & European Central Bank’s (ECB) last rate decisions for 2017 as the U.S. Non-Farm Payrolls (NFP) report is anticipated to show the economy adding another 195K jobs in November.

A further improvement in labor market dynamics accompanied by a marked pickup in Average Hourly Earnings is likely to trigger a bullish reaction in the U.S. dollar as it encourages the Federal Open Market Committee (FOMC) to stay on its current course of implementing three rate-hikes per year. In turn, Chair Janet Yellen and Co. may show a greater willingness to further normalize monetary policy in 2018 as the central bank ‘expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.’

Fed Fund Forecast

However, another batch of lackluster U.S. data prints may push the FOMC to deliver a dovish rate-hike in December, and the dollar may exhibit a more bearish behavior over the remainder of the year especially if a growing number of Fed officials trim the longer-run forecast for the benchmark interest rate. 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 Daily Chart

EUR/USD Daily Chart

Broader outlook for EUR/USD has perked up as it breaks out of the downward trending channel from September, but the series of failed attempts to clear the 1.1960 (38.2% retracement) hurdle raises the risk for a near-term pullback as the pair carves a fresh series of lower highs & lows. The Relative Strength Index (RSI) highlights a similar dynamic as it snaps the bullish formation from November, with the next downside region of interest coming in around 1.1670 (50% retracement) followed by the 1.1580 (100% expansion) hurdle, which sits just above the November-low (1.1554).

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the FREE DailyFX Beginners guide!

--- 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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Jeremy Wagner, CEWA-M , Head Forex Trading Instructor

Jeremy Wagner, CEWA-M
My Picks:  Short EURGBP
Expertise:  Elliott Wave, Technical Analysis
Average Time Frame of Trades:  2 Days - 2 Weeks

Last week, we set up an analyst pick trading around Sterling. The GBP/USD leg of the trade was immediately stopped out with a 100-pip loss. The EUR/GBP leg of the trade is well in the money by nearly 120 pips (and EUR/GBP pips are worth more than GBP/USD pips). Today, we want to tighten the risk level on the open EUR/GBP leg.

Short EUR/GBP

Shortly after writing the analyst pick, EUR/GBP finished its triangle pattern and began to correct lower. This would place the market in the (c) wave of an a-b-c bearish zigzag. The (c) wave should subdivide into five waves. It appears the first wave is complete and a second wave is currently underway. Bears will get another opportunity to short with a positive risk to reward ratio on the second wave partial retracement higher.

Why is a positive risk to reward ratio of 1 to 5 important, read about it in our Traits of Successful Traders research.

Tightening Risk for EUR/GBP to Elliott Wave Key Level

If this Elliott Wave labeling is correct, then EUR/GBP should remain below the beginning of the (c) leg’s high at .8982. Therefore, we will tighten the stop loss to the beginning of wave (i) at .8982. If EUR/GBP is successful in moving to new lows below .8755, then we will move the stop loss further down. Our first target remains at .8620 and a secondary target remains at .8406.

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Tightening Risk for EUR/GBP to Elliott Wave Key Level

---Written by Jeremy Wagner, CEWA-M

Jeremy is a Certified Elliott Wave analyst with a Master’s designation. Read more of Jeremy’s Elliott Wave reports via his bio page.

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

Follow on twitter @JWagnerFXTrader .

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Other Elliott Wave forecasts by Jeremy:

EUR/USD Elliott Wave analysis points to higher level.

Silver and Gold Downtrends May Have More Room to Run [Webinar recording]

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James Stanley , Currency Strategist

James Stanley
My Picks:  bearish AUD/NZD
Expertise:  price action - macro
Average Time Frame of Trades:  few days - few weeks

- 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.

To receive James Stanley’s Analysis directly via email, please sign up here.

This is another short-side Aussie setup; and two targets remain from our prior setup investigated earlier in November. This time, however, we’re going to look to avoid the U.S. Dollar altogether and instead use the New Zealand Dollar.

This setup looks to play a reversal off of longer-term resistance in the cross-pair of AUD/NZD. The pair has spent much of the past three years displaying some element of mean reversion; and while the support side has been less horizontal in nature from what most traders would prefer when trading a range, the resistance side of the coin has been fairly consistent around the 1.1300 level. The most recent test around this area took place last month.

AUD/NZD Daily: Resistance Test ~1.1300

AUD/NZD Threatens a Deeper Bearish Move Below 1.1000

Chart prepared by James Stanley

Since then, price action has continued to exhibit tendencies of a turn-lower. On the four-hour chart below, we can see the further development of lower-lows and highs until, eventually, the 1.1000 level was tested. Bears have yet to be able to show a sustained break below 1.1000, and this opens the door for a re-test.

AUD/NZD Threatens a Deeper Bearish Move Below 1.1000

Chart prepared by James Stanley

Stops on the position can be investigated above the November swing-high at 1.1171; with an initial target set to 1.0915 at which point the stop can be adjusted to break-even. After that point, 1.0825 becomes interesting for secondary targets, with 1.0750 set as a third point profit objective.

AUD/NZD Threatens a Deeper Bearish Move Below 1.1000

Chart prepared by James Stanley

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

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Contact and follow James on Twitter: @JStanleyFX

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