Best Financial Markets Analysis Article Adam G writes: In this article, we look at the market forecast for an exotic currency pair, the USDZAR. Traditionally, this currency pair has hovered in a range of 6 rands to one US dollar, to 10 rands per US dollar. For some time in 2012, it has stayed within the 7-8 rand per dollar range. Lately, the trade setup shown below has been in formation.

We can see clearly that the lower trend line that forms the base of the triangle is a strong support which has been tested several times without a break occurring. That is about to be challenged.

Another point worth considering is that a descending triangle formation has formed on the USDZAR hourly chart. A look at the daily chart below will reveal that the chart formation above is occurring in the context of prices being at the upper end of what has been a two-month price range. The implication of these two factors is that the USDZAR is due for a drop, and this is the market forecast of what prices will do in the next few days/weeks.

The first snapshot shows us clearly that a descending triangle has formed, so we should be expecting the price of USDZAR to experience a downside break in a number of days. At this point, the trend lines that make up the boundaries of the descending triangle have almost completed the convergence, meaning that this breakout could occur sooner rather than later. There are two ways to take this trade.

With the bias firmly bearish, it is dangerous to buy at the lower trend line (close to current levels). If the trader wants to trade from the trend line, he should wait for prices to retrace up to the upper trend line, and then place a SELL order from there. Such a trade would be extremely close to convergence and it is most likely that a breakout would follow from here.
The second scenario is that the USDZAR may not get to the upper trend line from present levels. It may just turn downwards and breakout from there. In this case, it is actually wise to place a Sell Stop order about 15 pips below the lower trend line. For this trade to be successful, the trader must ensure that the candle that breaks the lower trend line, CLOSES BELOW IT. If it merely touches the trend line and closes above it, the price has merely tested the trend line and this is not a breakout. You may be surprised at how many traders get this all wrong and end up messing up what should be a wonderful trade.

Let us assume that the breakout occurs. What levels should be set as profit targets? The daily chart provides the answer. The lower trend line on the daily chart shows the lower end of the price range that the USDZAR has been in for two months now, and this support level has been tested twice on July 3rd/4th and on August 10th, 2012. This is where the trader should set his profit target.

So possible trades are as follows:

Sell USDZAR @ 8.4130 with stop loss at 8.4270 and profit target at 8.2093 as 1st target and 8.0490 as 2nd target (if price were to retrace upwards to upper trend line before resuming full descent into breakout).
Sell Stop USDZAR @ 8.3640 with stop loss at 8.4022 and TP at 8.2093 (1st target) and 8.0490 as 2nd target (if trading the full length of the breakout).

These are not 100% sure banker trades, and a lot still needs to happen for the trade to play out as predicted. Market news may cause these trade setups to be re-evaluated before trade entries are made.

Adam G
Investing.co.uk
The UK’s No.1 Investment and Trading Website

© 2012 Copyright Adam G - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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