Daily Price Action

Weekly Forex Forecast (August 1 – 5, 2016)


EURUSD managed to find its footing last week, rallying more than 200 pips from the open. This came after the pair had been down by more than 500 pips following last month’s Brexit.

However, the pair also ended the week just below key resistance near 1.1200. This level served as both support and resistance beginning in mid-May and will likely attract sellers to start the new week.

If this level should fall, which is likely given Friday’s intense buying pressure, the single currency faces a much greater challenge in the 1.1280 area. This is the intersection of former channel support from the December 2015 low as well as channel resistance that extends from the May high at 1.1615.

For now, I will stand aside and wait for a retest of the confluence of resistance at 1.1280. A sell signal in this area could offer a favorable opportunity to get short.

Keep in mind that non-farm payroll numbers will be released this Friday at 8:30 am EST, so expect increased volatility in the US dollar around this time.

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EURUSD confluence of resistance

The sideways price action on GBPUSD persisted last week with the pair continuing to digest the post-Brexit losses that resulted in a 2,200-pip decline.

However, that might be about to change given this Thursday’s BoE rate decision. Many are anticipating a rate cut this go-round, but as always I will let the technicals tell the story.

A daily close below the 1.3050 handle would expose the multi-year low at 1.2790 with a break below that opening the door for a move toward the 1.2500 support level.

To the upside, we have 1.3500, an area that has successfully capped two advances in both June and July.

While a favorable opportunity could materialize against the US dollar, I feel that better opportunities may exist in some of the pound crosses. More on this later.

GBPUSD key support and resistance on the daily time frame

USDJPY was offered heavily on Friday following a decision by the Bank of Japan that left many wanting more. Not only did the pair close below the 104 handle, but it also did so by nearly 200 pips, leaving no doubt as to the conviction of sellers.

It may be a bit much to ask of a pair that lost more than 400 pips last week, but any rallies into 104 are likely to encounter considerable selling pressure. In fact, depending on the circumstances, I will be interested in shorting USDJPY should the pair manage to retest the level as new resistance.

A move lower from current levels would find support at the recent lows near 100.20. Remember that this week ends with non-farm payroll so be sure to manage any US dollar exposure accordingly.

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USDJPY 4-hour chart showing new resistance level

Last week EURGBP managed to break free from the consolidation that had plagued the pair since mid-June. Out of this sideways price action, a wedge pattern had developed which I mentioned on Wednesday of last week ahead of the much-anticipated FOMC statement.

With any terminal pattern such as this, the most likely trajectory of the market is determined by the side that breaks down first. In other words, we let the market make the first move before forming a bias, much less committing capital.

In the case of EURGBP, the close above wedge resistance during Thursday’s session signaled that buyers were likely to remain in control. The 4-hour bullish pin bar that formed just 20 hours following the breakout confirmed that the level had become new support.

From here traders can watch for buying opportunities to join the newly established bullish momentum. Key resistance comes in at recent highs near 0.8600.

EURGBP 4-hour wedge pattern

It wouldn’t be right to talk about a bullish break on EURGBP without mentioning Friday’s GBPCAD breakdown. After all, the two continue to share an inversion correlation of more than 90% on a daily closing basis.

I mentioned this 4-hour rising wedge pattern last Thursday, just 24 hours before buyers finally capitulated. As part of Thursday’s commentary, I also called attention to the massive weekly head and shoulders pattern that began forming early last year.

As long as the larger structure here remains intact (only a close above 1.8130 would negate it), I will continue to favor the downside.

With Friday’s close now behind us, traders can begin watching for selling opportunities on a move back toward the 1.7350 area. A continuation lower this week would encounter support at 1.7010 followed by the multi-year lows near 1.6700.

As with the other GBP pairings above, it’ll be important to keep a close eye on the price action leading up to this Thursday’s BoE rate decision.

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GBPCAD key technical break below former wedge support

Leave a Comment:

hakeem says

All what you are doing here is the BEST because you analyze with good points, and you want us to understand. Just believe you shall have more knowledge by sharing truthfully without hiding. Respect Chief.

    Justin Bennett says

    Hakeem, thanks for the kind words. I’m pleased to know you’re enjoying the content.

Dainius says

GBPUSD support 1.300 Fifo 0.7681 1985.02 – 2007.11

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