USDDKK Analysis – A long term short trade opportunity

The US Dollar, Danish Kroner makes for an exotic currency pair to trade which usually misses the attention of many forex traders. From a technical perspective, the USDDKK paints a beautiful long term picture with current price action validating the technical pattern that has been formed.

USDDKK - Weekly Charts, Head & Shoulders pattern
USDDKK – Weekly Charts, Head & Shoulders pattern

Starting with the weekly charts of USDDKK, we notice a very clear Head and Shoulders pattern that is formed, with the neckline coming in at 5.5740 region. The neckline was broken and price did drop a bit before retracing the moves and currently looks poised to test the neckline level.

This brings us to the question of entry. While it is no brainer to short USDDKK from the neckline level, taking a more informed trade decision would help traders in gaining a better price for entering the market.

Continuing with the weekly charts, when plotting a trendline from the head to the right shoulder, we notice price action currently hugging the falling resistance trend line. It is obvious that this trend line would be broken if price does indeed has to reach back to the neckline level of 5.57407. While there are risks for a further upside move, the weekly chart does show some important resistance levels.

USDDKK - Weekly Charts, View 2
USDDKK – Weekly Charts, View 2

The first level of interest is the triple top that was formed above the neckline at 5.8147 region. Looking to the left, it is easy to see that this level has been strong enough in the past to withold price from moving any higher. The next level of interest would be 5.677 region which makes for a minor support turned resistance level which has been tested just once so far for resistance.

From the above, we can conclude that the stops for USDDKK shorts sould be placed a few pips above or close to 5.81474 region. This brings us to the next question of entry.

To find a perfect entry for USDDKK shorts, we would need to scroll down to the daily time frame to figure out what has been happening.

USDDKK - Daily Charts, Technical Analysis
USDDKK – Daily Charts, Technical Analysis

Using the concept of measured moves with the Median line, we see the upside target from the daily time frame coming in at 5.58628, which just a couple of pips above the weekly Head and Shoulders neckline. This gives us our first point of entry where traders can take on a short position. The region has in the past tested for resistance and it also provides us clues in regards to the price action patterns. Notice the highlighted area, which shows multiple inside bars formed at 5.57 – 5.58.

USDDKK – The Trade Plan

Look for short opportunities based on the unfolding price action patterns either from the weekly or daily time frame within the levels of 5.58628 through 5.57407. Trade is risked to a max of 5.81474 with a downside target of 5.03320. Be sure to book partial profits or move trade to break even at 5.30375.

USDDKK - The Trade Plan
USDDKK – The Trade Plan

The trade over all gives a reasonable risk/reward ratio of 1:2.4. Alternately, another approach would be for price to stall near the neckline and wait for a low to be made and sell the rally. This approach could widen the risk/reward but gives more confirmation of the short bias.

Where to trade USDDKK?

LMAX Exchange offers USDDKK and other exotic pairs trading on MT4. Average spread of USDDKK during London-Europe/US trading session is 3.7 Pips with $7 commissions for 1 lot of position size. Click here to open account with LMAX Exchange for only $1000.