The EURUSD played out as expected last week after closing below trend line support that extends from the March 10th ECB low on October 14th. I mentioned the retest of the level as new resistance on October 17th.
However, the one thing that didn’t sit well with me was the 100 pip gap between the price at the time and the mean (as measured by the 10 and 20 EMAs). As such, we were looking for a bearish rejection of the key area before considering a short opportunity.
The decision to stay on the sidelines turned out to be a good one as Draghi’s remarks on Thursday triggered a 70 pip rally that spiked above the new resistance level.
But those gains quickly vanished as sellers managed to push prices below the July lows at 1.0950 before the session close. Additionally, the 4-hour candle that followed Draghi’s comments formed an attractive bearish pin bar, offering traders a couple of compelling opportunities last week.
From here traders can watch for a retest of this area as new resistance. Key support comes in at the March 10th ECB low of 1.0820.
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GBPUSD didn’t make much progress last week, to say the least. Aside from breaking free from the three consecutive inside days, my commentary from last week hasn’t changed.
Key resistance comes in at the 1.2500 handle while support can be found between 1.1880 (lows from October of 1984 and May of 1985).
While this may seem like a broad range of support, remember that we’re dealing with thirty-one-year levels which always adds a higher degree of difficulty when assessing market conditions.
AUDUSD has a big test coming up. In fact, it’s arguably the biggest hurdle the pair has faced since September of 2014 when the pair was challenging descending channel resistance at 0.9360.
The test I’m referring to is the wedge pattern that’s been developing since the new year began. I’ve been commenting on this formation for several weeks now, and there’s no denying that the pair is running out of real estate.
On top of the limited space, buyers failed to hold their ground last week following the October 19th close above key resistance.
As you may well know, a false break to one side of a pattern often leads to an extended move in the opposite direction. We’ll need more time to learn whether last week’s price action will follow the beaten path or become an exception to the rule.
From here a confluence of support comes in near 0.7565 while offers are likely to materialize on a retest of the 0.7645 area. However, I’m only interested in additional selling opportunities given the multi-year downtrend.
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NZDUSD is another one of my favorite risk-sensitive currency pairs particularly given the ascending channel that extends from January 20th of this year.
I mentioned the 1-hour broadening wedge that formed on Thursday and subsequently confirmed after my commenting was released. The bearish intraday pattern was capped off with a bearish engulfing day.
So where to from here?
In the week ahead key resistance comes in at the October 4th high of 0.7310. Although last week’s high of 0.7265 will certainly attract offers, I prefer using the October high as my bearish invalidation level.
It does appear that buyers managed to close Friday above the March 2015 low near 0.7160. Then again, this level could just as easily act as resistance considering how marginal last week’s close was to the 0.7160 handle.
With that said, I see no reason why the pair won’t soon retest channel support for the second time in recent weeks. I remain short from the 0.7200 area.
Despite a lack of follow through last week, the EURCAD made a move that confirms what I mentioned in the previous weekly forecast.
Wednesday’s price action broke below trend line support; however, sellers failed to close the session below the key handle. The result of the failed attempt was a bullish pin bar.
This confirms that trend line support from the December 2015 low is significant and therefore belongs on our watch list.
But as I explained last week, the case for a medium to long-term bearish scenario here is much stronger than the bullish one in my opinion. As such, I’m only interested in selling weakness rather than buying short-term strength.
A daily close below the trend line in the chart below could make for a compelling short opportunity. From there, traders could look for a move toward the December 2015 lows near 1.4060. Resistance for the week ahead comes in at 1.4565.
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