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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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After moving sideways for three months, the EURUSD appears to have broken a significant level on Friday.
I’ve had my eye on the trend line that extends from the April 2017 low for months. Since early March, I’ve illustrated the April 2017 trend line along with the one from 2008, noting that a break of either would be a key driver.
Does Friday’s breakdown mean that “key driver” is a bearish one?
It looks that way, but the question now is whether or not sellers can follow through. In a perfect world, the break of the April 2017 trend line would have occurred during the middle of the week when there’s more volume.
But we don’t get to make the rules, and just because the breakdown occurred on a Friday doesn’t mean it isn’t valid. It does, however, warrant a more cautious approach if selling the EURUSD this week.
For now, though, as long as the 1.2310/30 area holds as resistance on a daily closing basis (New York 5 pm EST), I will stay bearish. I’ll also be interested in selling a retest of this area as new resistance.
Key support comes in at 1.2160 followed closely by the 1.2090 handle. Keep in mind that we have an ECB rate decision this Thursday at 7:45 am EST followed by the usual presser at 8:30 am EST.
The GBPUSD has enjoyed an impressive rally since coming off of a multi-year low in October 2016.
Despite taking out the former 2018 high at 1.4345 last Tuesday, albeit briefly, the pound looks exhausted at current levels. The bearish outside week is proof of that.
In fact, it’s the first bearish outside week at a swing high since the rally began 18 months ago. If that isn’t a sign to stay away from the buy side, then I don’t know what is.
That said, I do think sellers have gotten ahead of themselves. Last week’s four-day plunge puts the GBPUSD 120 pips below the daily mean as measured by the 10 and 20 EMAs. Therefore, an early bid this week wouldn’t surprise me.
But just like the EURUSD, I’m only interested in selling strength. If buyers can manage another retest of the 1.4080/90 area this week, I will entertain a short entry for a move back to 1.40 and perhaps 1.3915.
Alternatively, a daily close (using a New York close chart) below 1.40 would open up the 1.3915 area. A close below that would bring us back to the February and March lows near 1.3780.
Despite closing below a significant trend line in late February, GBPJPY bulls have been incredibly resilient.
Since the March 3 low (and also the current 2018 low), the pound cross gained nearly 900 pips. That is until buyers gave back 300 pips last week.
Before we get to the immediate trade idea, I want to point out a structure that’s been significant from a technical perspective since August of last year.
The ascending channel above is inherently bearish. Although it has outlined the rally that commenced last April, the ascending nature of the formation signals an eventual turn lower.
Of course, the timing of that turn lower is difficult to pinpoint. That said, Thursday’s close may offer some clues.
You may recall my posts about the trend line that extends from the 2016 low. The GBPJPY closed below that level on February 28. But the rally that ensued was too much for sellers, and the pair closed back above the trend line on April 10.
There’s a reason I don’t buy upside breaks of ascending levels or sell downside breaks of descending ones. The price action over the last eight trading days is a prime example of why I created those rules for myself.
So, was the time spent above the 2016 trend line a false break?
Perhaps. There is a chance that this level is holding as resistance on a monthly closing basis (note that February closed below the 2016 trend line).
I entered short during Friday’s retest of the 151.60 area. I’ll be interested in adding to it should we get a daily close below the short-term trend line that extends from the current 2018 low.
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The CADJPY is another example of why I don’t buy upside breaks of ascending levels.
Sure, the Canadian dollar cross gained 215 pips since closing above channel resistance on April 4. But if this was indeed a false break, the move lower could be much more severe and lasting.
For that to materialize, though, sellers need to defend the 84.60/70 area as new resistance. As long as they can do that, channel support near 83.50 remains exposed.
In addition to the 84.60/70 area, a close below channel support near 83.50 would signal a second opportunity to get short. Such a breakdown would pave the way for a move to the current 2018 low of 80.55.
I mentioned the AUDNZD on Tuesday when the cross was trading at 1.0584. At the time, the price was still contained by falling wedge resistance.
Shortly after that commentary went out, buyers secured a daily close above the 1.0600 area. And 24 hours after that, the pair retested key resistance at 1.0660.
We can see how the AUDNZD bounced between this two levels on Thursday and Friday of last week. Expect this to continue until buyers manage a daily close (New York 5 pm EST) above the 1.0660 area.
I don’t usually include so many levels on my charts, but I think that omitting any one of the levels below would be a mistake. As for a final target, though, the 1.0820/30 area appears to be a prime suspect.
I’ll remain bullish as long as the pair trades above former wedge resistance on a daily closing basis.
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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
Click here to get access to the same style charts I use on this website.
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