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NZDUSD Sentiment Shows +3.8

NZDUSD Sentiment Shows +3.8

2015-06-14 21:39:00
Jeremy Wagner, CEWA-M, Head of Education
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Talking Points:

-7 of 12 pairs reflect an extreme SSI reading

-4 of 12 currencies showing a strong ADX trend

-NZDUSD sells off with 79% of traders already positioned long

The DailyFX Plus Breakout2 strategy is one of the more widely followed by traders. This piece aims to identify those markets where breakout conditions are prevalent, and therefore a follow through of the breakout is more likely.

There are pockets of strong directional movements as only 4 of 12 pairs show strong ADX readings on the 4 hour chart. With the FOMC news this week and the Grexit news, be cautious on increasing volatility.

On the sentiment front, 7 of the 12 pairs are showing extreme SSI readings. An extreme SSI reading is when the pair sports a reading of greater than +2 or less than -2. Extreme sentiment against strong trends provides fuel for those trends to continue and favors a breakout strategy.

As a result, we wish to highlight the NZDUSD. With an SSI reading of +3.8, 79% of the traders are already positioned to the long side of the trade. Since the pair is testing 4 year lows, further losses in the exchange rate may cause these traders to close out or flip to the short side.

Against the back drop of Elliott Wave Analysis, it appears we may be continuing lower in a 5th wave. So the wave count suggests there is further room to drop.

NZD/USD key levels to chart

(Click on the chart to zoom in; after zooming in, press the play button towards the right to set the market in motion)

Created using TradingView Charts

DailyFX Plus Breakout2 Conviction Chart for June 14, 2015

ADX

ROC

Volatility Expansion?

Sentiment Signal

Conviction

EURUSD

Trend

Bullish

Yes

Bullish

3

AUDUSD

Range

Bearish

Yes

Bearish

2

GBPUSD

Range

Bullish

No

Neutral

1

NZDUSD

Trend

Bearish

Yes

Bearish

3

USDCHF

Range

Bullish

Yes

Bearish

1

USDCAD

Range

Bullish

No

Bullish

2

USDJPY

Trend

Bullish

Yes

Bearish

2

EURJPY

Range

Bullish

Yes

Bullish

1

GBPJPY

Trend

Bullish

No

Bearish

1

CHFJPY

Range

Bullish

Yes

Bullish

1

AUDJPY

Range

Neutral

Yes

Bearish

2

EURAUD

Range

Bullish

Yes

Bullish

3

Bold and italicized ratings illustrate those pairs whose conviction ratings changed from the previous report.

To receive future articles emailed to you regarding the conviction ratings for the DailyFX Plus Breakout2 signals or trading an automated portfolio, sign up for the distribution list here.

Other charts with ‘3’ conviction ratings include the EURUSD and EURAUD.

Though it appears the EURUSD may have some unfinished business to take care of down towards 1.09-1.10, a dip to those levels will begin to set up long opportunities as the medium term trend appears to the upside.

Likewise, the EURAUD is showing a ‘3’ conviction rating as we appear in the middle of a wave 3 of 3. Wave 3’s tend to be the longest and strongest so there is likely continued movements higher so long as prices hold above the purple wave ‘i’ high of 1.4350.

Last Week’s Conviction Chart EURUSD Sentiment Still Extreme at -2

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

Email me at jwagner@dailyfx.com if you have problems copying/zooming in on the price chart above. Feel free to comment on the chart with your views.

The DailyFX Plus Breakout2 strategy can be automated. If you wish for the trades to trigger automatically into your account, register for a Mirror account which provides you access to dozens of other strategies as well.

Follow me on Twitter at @JWagnerFXTrader.

See Jeremy’s recent articles at his DailyFX Forex Educators Bio Page.

As you can see in the chart above, the ADX and Rate of Change (ROC) are grouped together. Since the ADX doesn’t indicate direction, only strength of move, we want to couple it with a rate of change indicator.

When trading a breakout strategy, ideally we would like to see prices in a trend and moving. This would increase the chance of a breakout that would follow through. If prices are in a range and if the ROC is neutral, that indicates prices are comfortable near the current levels until a catalyst creates discomfort for the price.

Ideally, we would like to see a directional move take place with expanding volatility. Expanding volatility can be measured through analysis of ATR range or perhaps volume expansion.

The fourth item is sentiment as read through SSI. The result of the “Bearish” means the SSI reading is > 1.22 and “Bullish” means SSI is <-1.22. For a current reading of SSI, log into DailyFX Plus and view the Speculative Sentiment Index section (SSI).

When taking this together and a conviction reading is assigned. It is important to understand the conviction reading is the opinion of the author and not a recommendation to trade, use, or not use the DailyFX Plus Breakout2 strategy.

A conviction rating of ‘3’ means the ingredients exist for a breakout market condition that the Breakout2 strategy enjoys. A reading of ‘1’ represents a mixed bag and that the Breakout2 strategy is more at risk of a market condition that doesn’t cater as well to breakouts.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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