Talking Points:
- USDOLLAR holding long-term trend-line
- Downward channel offers low risk long entries
- Looking for 10540/50 on a breakout
USDOLLAR once again back at its long-term trend-line – to hold, or not to hold? As I always say, “Trend-lines are to be trusted until broken.” So it is, I will trust it for now. What I especially like about this set-up is the descending channel going back to earlier this month.
The channel has been very orderly and is well-defined. There lies a combination of a bullish backstop (trend-line) and a potential trigger (above descending channel line). Sure, one could enter right here and use a breach of the Thursday low, 10417, as a stop, however; I am going to wait for a confirmation of the trend-line through a break of the top-side channel line.
I have found good success with what I call, “Reject and confirm” set-ups. That is to say, price is rejected from one level of support or resistance and then breaks support or resistance in the opposite direction. In this case, hold the daily trend-line, breakout above the descending channel best seen on the 4-hr chart.
USDOLLAR – Daily
Be patient on the channel, though. One thing I have learned over the years with channels is this – in the long run anticipating a break is a losing endeavor. Yes, playing the channel lines of support and resistance is a profitable strategy, but only as long as that is your goal when you set out to make these trades. However, when you anticipate the break of a channel for a bigger move outside of it, the channel can suck you in and carry further and further down or up the channel.
USDOLLAR – 4hr
Given this trade consist of several currency pairs, I will reduce normal exposure to each currency to a level which in totality of all open positions equals full exposure. For those who can trade USDOLLAR, then buying the USDOLLAR is the simplest route.
In this situation, perhaps having a majority position in the Index leaving room for plays in individual pairs will offer the maximum possible reward from this trade.
In summary, for now, long-term support is underpinning a bullish bias and a downward sloping channel presents a clear cut entry point from which the test of support could be confirmed.
On a channel breakout I am looking for 10540/50 as a target. This takes us back towards the top-side trend-line of a large descending triangle formation. A break above that trend-line and a much bigger move could be in store, however; at this time I am just looking at the near-term set-up.
It probably goes without saying, but a decisive break of the long-term rising trend-line, 10417, negates this bullish bias.
Written by Paul Robinson of FXSIMPLIFIED.COM
