3 reasons to have downtrend bias for USDSGD
USDSGD looks like it is going to continue its downtrend further. There are 3 reasons and each fall into higher time frames. The 3 form a formidable confluence which makes the whole setup very high probability.
Reason #1 – Symmetrical triangle favours continuation to downside following previous trend
I wrote about how the Singapore Dollar has been strengthening against the US Dollar for years. It is a multiple-year bull run against the greenback that started way back in 2002. At the moment, USDSGD pair is inside a 4-year consolidation period. Printed on the chart is a symmetrical triangle. Although such chart formations can break out on either side, continuation with trend should always be favoured. In line with the decade old trend, I expect USDSGD to test the bottom of this triangle as price gets closer to the apex.
The 4-year consolidation in a symmetrical triangle is evident
Reason #2 – Downwards equidistant channel points the way
Providing recent feedback is this pair of trend lines that define an equidistant channel. Unless price exits the channel, it should continue to trade downwards.
Swing traders should be watching this channel closely
Reason #3 – Month-month price action shows lower-highs-lower lows
We have been following our Tflow® method very closely in previous postings here, here and here where we saw the downtrend unfold. It has not let us down so far. There is more. The method also tells us that USDSGD price action often show up bull traps that herd traders into a false breakout but also signal important turning points.
As we can see, the steep price drop today exposed a bull trap above July-high just a few days ago. Bulls who bought into a potential bullish reversal and breakout combo are now on the losing end. Ironically closing these bullish trades adds energy to bears.
This daily chart shows USDSGD breaking down month-month and betrays bull traps at key turning points
What is a good strategy to trade this?
So far so good. What shoulder traders do then?
Support resistance levels to look for short signal
- Price is likely already at support (April, May and June-low; orange). Jumping in at this moment has pretty high risk that the pair may retrace.
- Wait for a genuine break below and look to see price retest this support-turn-resistance. Look for signal.
- Otherwise, price may find enough support to do a retracement from here. Since the recent bull trap took place above July-high, the level (blue) may be retested if the pair goes higher now. Look for price action to confirm resistance and then a short signal to follow.
- Bears should be wary if July-high is penetrated.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum
was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015
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