The EURUSD lost the 1.0635 handle on Friday after breaking above it the previous day. This was a risk that I mentioned just hours before the weekly close.
But why am I focused on 1.0635?
I know some of you were questioning the importance of this level, and it’s a valid concern. Here are a few reasons why the 1.0635 area could play a key role going forward.
- It’s been the closing price of several weeks lately
- It was the February 10th closing price which resulted in a gap down
- It was Friday’s (early) intraday swing low which triggered a 30 pip bounce
- It’s the 38.2% Fibonacci retracement for the current 2017 range as well as the current range for February
That’s enough for me to pay attention to the 1.0635 handle this week, especially number four.
Whether bearish price action is needed or a simple retest is sufficient is up to you. As for me, it will depend on how things look if and when the pair retests the level as new resistance.
Key support comes in at last week’s low of 1.0520. A daily close below that would expose the multi-year low at 1.0366.
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One week ago I commented on how I didn’t believe the GBPUSD was a buy despite several publications supporting a bullish bias.
My reasoning was twofold.
- Lack of momentum (this has been the case since mid-October of last year)
- The bullish engulfing candle that formed on February 7th was in the middle of a 700 pip range
Last week’s price action confirmed my suspicion. The pair never managed to breach the previous week’s high and instead closed down 130 pips near the key 1.2410/15 support area.
Whether the GBPUSD managed a break of this support zone on Friday is unclear. It’ll likely take another 24 hours of trade before we have a definitive answer.
A daily close below 1.2410/15 would expose the key pivot near 1.2200. This area played a significant role at the end of 2016 and continued to dictate price action until January 13th.
Alternatively, a move higher from current levels would likely encounter resistance near 1.2670.
The AUDUSD has been trending higher since the first session of 2017. Last week even saw a new high for the rally at 0.7730.
However, the slope of the price action since late January should raise some concerns if you’re a bull. If this were “healthy” consolidation, we would see the pair trending sideways with a slight bearish tilt.
But instead, we have this upward sloping flag that hints at an upcoming correction.
With that said, any attempt to go short right now is a pure gamble in my opinion. Sure, the rally looks to be running on fumes, but there’s nothing to make me think that a correction is imminent, at least not yet.
From here it’s likely going to take a daily close below the 0.7608 handle to suggest lower prices are in store. Without a close below this area, buyers are in the driver’s seat, but they need to break 0.7730 to sustain upward momentum.
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I mentioned the NZDUSD on Thursday just hours after the pair retested the 0.7240 area as new resistance. This was a potential opportunity we had been tracking for over a week.
At the time I published Thursday’s commentary, the pair had not yet given us an indication that 0.7240 was likely to hold. Also, the previous day’s 80 pip rally was a bit disconcerting for those on the lookout for selling opportunities.
By the close of Thursday’s session, sellers had carved out a small bearish rejection candle. While some considered this a compelling opportunity (and it appears to have worked out), I remained on the sideline.
When you’re trading candlestick patterns, relative size often matters. And Thursday’s 35 pip bearish candle didn’t give me the conviction I needed to enter given the previous day’s rally was twice that size.
For the week ahead key resistance remains 0.7240 while support comes in at last week’s low of 0.7133. A close below that would open the door for a move toward the 0.7040 area.
Last Tuesday was a big day for the AUDJPY. The pair had finally broken above the 87.06 handle on a daily closing basis. This area had previously capped three separate advances since December 15th.
But the victory was short-lived. By the close of Friday’s session, the yen cross had not only closed back below the 87.06 level, but it had also turned negative for the week.
The reversal and close back below such a significant area suggest that Tuesday’s breakout was false. If this is the case, traders can watch for a retest of the 87.00 area as new resistance.
Key support for the week ahead comes in at 85.35. This area served as a key pivot for the pair between January 4th and February 9th.
Alternatively, a daily close above 87.06 would negate the bearish bias and expose last week’s high at 88.16.
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