FX Technical Strategy: New Bullish Patterns Have Emerged

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FX Technical Strategy

Today’s session may have affirmed our medium-term projections for the commodity currencies and GBP. Our preliminary analysis we may be in front of a new financial crisis. Greece is the most convenient trigger for the turmoil but we must admit we do not know what is due to come. The UK referendum may be sufficient to trigger a global crisis if Britain votes to exit the EU and although GBP is currently sold in response to polls that predicted a majority for the YES camp, Britain’s Gross Domestic Product (GDP) will increase by over +3.00% if the exit materializes. The alternative scenario is that Britain rejects to exit the EU during a global crisis, which will strengthen GBP against a basket currencies.

All the commodity currencies, the Australian Dollar (AUD), the New Zealand Dollar (NZD) and the Canadian Dollar (CAD) are positioned for heavy selling in the Foreign Exchange (Forex) market. We favourite GBPCAD, GBPAUD and GBPNZD but we should highlight that the commodity currencies’ weakness is not limited to the crosses we mentioned.

In addition, the leading indices such as the SP500 or Dow Jones 30 (DJ30) are also positioned for heavy selling, which is why we are fairly confident an event will trigger a mass risk aversion in global markets.

SP500 Monthly Chart

Please click on the chart to enlarge:

SP500 Monthly Chart 21/04/16

SP500 Monthly Chart 21/04/16

As these projections are derived from the monthly chart as assume this ‘event’ will occur in May 2016 but it is merely an assumption.

The most difficult part of translating our projections into trade alerts is the required protective stop loss order. As we emailed all our subscribers, we are dealing with monthly entries rather than weekly or daily. The stops’ size may exceed 300 pips as we are dealing with crosses that tend to be more volatile than the majors. Assuming we are able to enter we must also determine how we can capitalize over all these projections while maintaining a low market exposure.

The New Zealand Dollar Signal

The New Zealand Dollar (NZD) is the most attractive currency at the time of this writing,

NZDUSD Monthly Chart

Please click on the chart to enlarge:

NZDUSD Monthly Chart 21/04/16

NZDUSD Monthly Chart 21/04/16

We have been monitoring the progress of the potential bearish flag in NZDUSD for a few weeks. There was a possible daily entry as the price re-tested the upper resistance of the flag but we decided to dismiss it as combining the daily with the monthly chart when there is plenty of time to the daily close is often a lethal combination. The

Reserve Bank of New Zealand (RBNZ) is due to hold its monetary policy meeting on 28 April, 2016. The central bank initially hiked rates prevent the creating of a housing bubble. In order to weaken NZD the central bank intervened in the Forex market without alerting the market. Some time later the central bank released a statement during the Asian session, admitting to intervening in the Forex market in order to weaken the New Zealand Dollar (NZD). The possibility for a rate cut is not small in the next meeting.

As this a monthly entry the required stop is over +300 pips. Despite the potential target in NZDUSD we are not fond of exercising such stops unless it is a cross with a clean entry. We can use the daily resistance (0.6955) and simply layer the protective stop above.

NZDUSD Daily Chart

Please click on the chart to enlarge:

NZDUSD Daily Chart 21/04/16

NZDUSD Daily Chart 21/04/16

As you may see there is nothing preventing NZDUSD re-testing the resistance before reversing lower. A potential -50 pips drawdown may seem limited but NZDUSD is not a volatile pair by nature and bearing in mind the negative interest that is incurred as a result of a short trade we are uncertain if we are willing to accept the potential -50 pips kick.

GBPNZD Monthly Chart

Please click on the chart to enlarge:

GBPNZD Monthly Chart 21/04/16

GBPNZD Monthly Chart 21/04/16

As you may see GBPNZD has reached a strong monthly support. Although the price may retrace lower the weekly chart also highlights the cross has reached a strong support. The monthly chart demands a stop below April 2016 low, which have no plans of doing. We do not believe in excessively large stops unless they are completely justified and in this case it is not.

GBPNZD Daily Chart

Please click on the chart to enlarge:

GBPNZD Daily Chart 21/04/16

GBPNZD Daily Chart 21/04/16

What we are witness is a potential breakout in GBPNZD daily chart. Following a breakout the price tends to re-test the breached resistance. By the book the required stop is approximately +300 pips but similar to NZDUSD, 2.0655 may contain the weakness. If we were to enter the trade after the daily close we have to bear in mind the price could very retrace lower before reversing higher and the real question is, do we wish to absorb it.

GBPCAD Monthly Chart

Please click on the chart to enlarge:

GBPCAD Monthly Chart 21/04/16

GBPCAD Monthly Chart 21/04/16

Similar to GBPNZD chart, GBPCAD has reached a strong monthly support level. The difference is that we cannot ignore the potential top Head-And-Shoulders (H&S) that may emerge if GBPCAD reverses higher. The required stop is relatively high but the daily chart may be used rather than the monthly entry.

GBPCAD Daily Chart

Please click on the chart to enlarge:

GBPCAD Daily Chart 21/04/16

GBPCAD Daily Chart 21/04/16

We have emailed earlier that GBPCAD may have found support at 1.8110. The daily support may lead to a larger retracement in GBPCAD but again, we cannot rule out a re-test of the support (1.8110) before reversing higher.

To conclude, we have multiple potential entries in the market. We must decide whether we wish to incur a possible drawdown or wait for a retracement. If the retracement does not take place we must acknowledge we may not have the ability to enter unless a moderate bearish correction takes place.

GBPNZD Trade Alert

We are initiating a long trade in GBPNZD. There may be a retracement lower to test the breached daily resistance but as it is not guaranteed we hope it will not take place and the cross will lift higher on Friday, allowing us to take new trades on Sunday night.

Please click on the chart to enlarge:

GBPNZD Daily Chart II 21/04/16

GBPNZD Daily Chart II 21/04/16

GBPNZD long at market price (2.0711)
Take profit: 2.1475
Protective stop: 2.0510
Risk Ratio (RR): 1 : 3 (approx.)
Estimate duration: 20 days

22/04/16 UPDATE: GBPNZD is trading at 2.0883 at the time of this writing.

Please click on the chart to enlarge:

GBPNZD Daily Chart 22/04/16

GBPNZD Daily Chart 22/04/16

We are closing 20% o the long trade at market price.

22/04/16 UPDATE II: GBPNZD is trading at 2.0915 at the time of this writing.

Please click on the chart to enlarge:

GBPNZD Daily Chart II 22/04/16

GBPNZD Daily Chart II 22/04/16

We have decided to close 30% of the long trade at market price and shift the protective stop to the entry.

22/04/16 UPDATE III: GBPNZD is trading at 2.1003 at the time of this writing. We are closing 10% of the long trade at market price and shift the protective stop to 2.0780.

Please click on the chart to enlarge:

GBPNZD Daily Chart III 22/04/16

GBPNZD Daily Chart III 22/04/16

This is our last partial realization until the cross gains approximately +200 pips or if we suspect the gains are stalling we are likely to exit the trade.

25/05/16 UPDATE: The daily chart is likely to close with a warning signal. We can shift the stop below today’s low but the odds of the stop being triggered by the market is high. A similar warning was noted in USDCHF and had we shifted the stop rather than exit the trade the stop would have been triggered by the market. We are aware USDCHF missed the original take profit by less than 3 pips.

We will attempt to re-enter GBPNZD if the price corrects lower. We would require a moderate bearish retracement in order to re-enter. If it will not occur we are unlikely to re-enter. Although we believe GBPNZD is due for further gains we are sticking to the daily chart.

Please click on the chart to enlarge:

GBPNZD Daily Chart 25/04/16

GBPNZD Daily Chart 25/04/16

GBPNZD is trading at 2.1135 at the time of this writing. We are closing the trade at market price and finish with a decent profit.

GBPCAD Trade Alert Details

We have decided to opt for GBPCAD based on the 4hr chart. The price may retest 1.8315 as seen on the chart, we are also prepared for a deeper retracement towards the latter support (top blue line). The reason why we chose not to wait for a re-test as we suspect the gains will continue in the currency cross.

Please click on the chart to enlarge:

GBPCAD 4hr Chart 25/04/16

GBPCAD 4hr Chart 25/04/16

GBPCAD long at market price (1.8354)
Take profit: 1.8627
Protective stop: 1.8243
Risk Ratio (RR): 1 : 2.8 (approx.)
Estimated duration: 10 days

26/04/16 UPDATE: GBPCAD cleared above the 1.8405 resistance, paving the way for further gains. As this is a 4hr entry we can already take action.

Please click on the chart:

GBPCD 4hr Chart 26/04/16

GBPCD 4hr Chart 26/04/16

GBPCAD is trading at 1.8428 at the time of this writing. We are shifting the protective stop to 1.8360 and close 30% of the long trade at market price.

26/04/16 UPDATE II: We are reminding this is an intraday entry, which is why we are more aggressive.

Please click on the chart to enlarge:

GBPCAD 4hr Chart II 26/04/16

GBPCAD 4hr Chart II 26/04/16

GBPCAD is trading at 1.8461 at the time of this writing. We are closing 10% of the long trade at market price and shift the protective stop to 1.8388.

26/04/16 UPDATE III: GBPCAD triggered the protective stop loss order of the long trade, ending the trade with a fair profit as the stop was shifted above the entry. The protective stop was layered beneath the breached resistance.

FX Technical Strategy: New Bullish Patterns Have Emerged

As GBPNZD and GBPCAD trades are closed this page can now be accessed by all traders. Open trades are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
FX Technical Strategy: New Bullish Patterns Have Emerged

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FX Technical Strategy: New Bullish Patterns Have Emerged

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FX Technical Strategy: New Bullish Patterns Have Emerged