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Weekly Forex Forecast (April 4 – 8, 2016)

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EURUSD has forced those with a bearish conviction to reconsider their outlook in recent weeks. The single currency is now up a healthy 570 pips since the March 10th ECB low at 1.0820 and a massive 880 pips since the December 3rd, 2015 ECB low at 1.0515.

As impressive as those figures are, the bulls are in for what could be their biggest test yet with the pair fast approaching a critical level that dates back to March of 2015. For those who don’t remember, this is the former channel support that led to a 550-pip selloff following the breach on October 23rd.

The pair tested the new resistance level on February 11th of this year, but it seems a second retest is needed. As such, the area between 1.1490 and 1.1520 will likely attract offers while bids should come in at the 1.1340 handle should we get a rotation lower before the next leg up.

While the long-term outlook for the pair remains uncertain, the consecutive higher lows followed by higher highs of late signals a level of strength that should, at least, take the Euro to the 1.1500 area.

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EURUSD key support and resistance levels in focus

On Friday, GBPUSD gave up 130 of the 330 pips gained between Monday and Wednesday of last week. The pair started things off well in the first two sessions, but Wednesday’s bearish pin bar was a hint that the bulls were running on fumes.

However, as I mentioned in Thursday’s commentary, the potential reversal pattern needs to be respected so long as the pair trades above 1.4050 on a daily closing basis. Only a close below this level would negate the idea that 1.3835 is a meaningful low.

As for the week ahead, the pair remains trapped in a range between 1.4050 support and 1.4400 resistance. While a close below 1.4050 would likely trigger further losses, a move above the 1.4400 area would confirm the reversal pattern and could ultimately trigger a 730-pip rally.

Of course, for the latter to materialize the pair needs to climb above trend line resistance that extends from the August 2015 high, a level that is sure to test bullish conviction.

GBPUSD key reversal pattern on the daily chart

AUDNZD is perhaps my favorite currency pair as we head into the new week. Partly due to the simplicity of the price action that is currently unfolding and partly due to my longer-term bullish outlook for the pair.

Since coming off the 2016 lows near 1.0570, the Aussie cross has formed an ascending channel on the 4-hour chart. On March 29th, the pair fell below the 1.1150 handle which could give way to a confluence of support at 1.0970 over the coming sessions.

From here, traders can watch for a buying opportunity on a retest of channel support. I expect the 1.1150 and 1.1320 areas to act as resistance on the way up as they have been a factor in recent weeks. However, the bigger picture for AUDNZD still favors much higher prices through 2016 and beyond.

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AUDNZD ascending channel support area

After several weeks of consolidation, GBPJPY appears to be ready for its next move. On Friday, the pair broke below trend line support that extends from the current 2016 low at 154.70.

One thing that remains unclear, however, is just how important this trend line is relative to surrounding price action. I bring this up because we didn’t see a bounce from this area (159.60) on Friday, which would have validated the level’s importance to some degree.

With this in mind, I prefer waiting for a close below 158.50 before considering a short entry. This level played a role as resistance on February 26th and later acted as support on March 23rd and the 24th. Given the suggested strength of the level, a close below it would open up the door for a retest of the 156 area.

Speaking of the 156 handle, you may be questioning why my level in the chart below isn’t closer to the previously mentioned 2016 low at 154.70. The reason is that 156 is the 50% Fibonacci retracement when measuring from the 2011 low to the 2015 high and also attracted a strong bid on the February 24th retest, allowing the pair to recover before the session closed.

GBPJPY wedge with a bearish break

Not a lot has changed for EURAUD since I mentioned the price structure you see below on March 22nd. The pair is still treading water just above the eleven-month trend line that extends from the 2015 low.

The most significant development since the March 22nd commentary is Friday’s retest of the 1.50 area, which triggered a 140-pip selloff just before the weekend.

While EURAUD remains a watch list item as we head into a new month, there is still plenty of opportunity should the cross finally capitulate. Based on the pair’s inability to bounce from the long-term support level, an eventual break to the downside looks to be the more likely outcome.

That said, a move back above the 1.50 handle could be just as appealing (if not more so) with the right bullish signal. For now, though, all we can do is sit and wait for the inevitable range break.

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EURAUD key levels on the daily chart

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