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Following a selloff from the 1.1620 area earlier this month, the EURUSD has bounced back in a big way. Not only did the pair rebound from our target at 1.1300, but it also closed back above 1.1500 with little effort.
At the moment, things look quite bullish. However, the Euro is approaching an area at 1.1660/70 that could be problematic for buyers.
It’s the intersection of former wedge support and resistance. It also happens to be very close to a horizontal region at 1.1630 which is what capped Friday’s rally.
For the record, I am not interested in selling the EURUSD at the moment. The recent buying pressure has been impressive, and there’s no indication that bulls are tiring.
I may change my stance with the right bearish price action from 1.1660/70, but for now, I see no reason to try to fade the recent bullish momentum.
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A daily close (using a New York close chart) above 1.1660/70 could present a buying opportunity for a move back to 1.1830.
I’m neutral on the EURUSD at the moment. The coming retest of 1.1660/70 will determine whether sellers remain in control or if it’s time for me to turn cautiously bullish.
After breaking below descending channel support on August 9th, GBPUSD buyers managed to close the pair back above the level last week.
I mentioned the possibility of it being a false break in last Sunday’s forecast. Here’s what I wrote:
Do keep in mind that the pair is still overextended despite last week’s consolidation. As such, I wouldn’t be surprised to see some additional strength to start the week.
I will also say that I’m not a big fan of trading this recent breakdown. As I’ve mentioned in the past, a downside break of a descending pattern often results in a false break. The same applies to an upside break of an ascending pattern.
With the pair now back inside the descending channel, any retest of the 1.2770 area will likely attract buyers. On the other side, a retest of the region between 1.2970 and 1.3000 will likely attract sellers.
I expect the GBPUSD to remain relatively congested as long as the pair trades within this channel. It’s going to take a daily close above channel resistance near 1.3000 to break this one free.
Such a break would expose the 1.3300 area and perhaps even 1.3460. But before GBPUSD bulls can think about that, they need to defend the 1.2770 support area this week.
On Thursday I discussed a falling wedge on the USDJPY that could produce a move higher. At the time the pair was trading just below 111.00, but by the session close at 5 pm EST buyers had broken wedge resistance.
Friday’s price action was indecisive at best, leaving the pair near Thursday’s close before the weekend, so not much change there.
For the week ahead, any retest of the 110.80 – 111.00 area as new support will likely attract an influx of buying pressure. Key resistance comes in at 112.00 followed by the July high at 113.17.
Although it didn’t form at a major swing low, last week’s movement did carve a bullish engulfing range. We saw a similar candle at the end of June that helped push the pair higher in July.
While I do think the USDJPY could trend higher following Thursday’s break, I’m not a big fan of trading it. The pair has been relatively indecisive for most of 2018 making it more difficult to read than some of the others I’ve discussed recently.
The AUDUSD lost significant ground on Thursday. After closing back above the 0.7320 area on Monday and beginning to look quite bullish, sellers erased 100 pips in just 24 hours on Thursday.
I would caution against selling the AUDUSD at the moment. Despite a downtrend that has consumed most of 2018, there is a falling wedge that has developed over the past few months.
I mentioned this pattern last Sunday. If it is indeed a falling wedge and buyers can clear resistance near 0.7370, it could put an end to this short-term downtrend, at least temporarily.
A daily close above wedge resistance would expose the 0.7460/70 horizontal area. A break above that would extend the AUDUSD all the way to the June high at 0.7660/70.
Note that the 0.7660/70 area is also the 50% retracement of the year to date range. The high of that range is 0.8135 while the low was put in earlier this month at 0.7202.
That said, buyers have their work cut out for them. Before they can even think about 0.7460/70 or 0.7660/70, they need to clear falling wedge resistance on a daily closing basis (New York 5 pm EST).
Any downside pressure will likely remain capped by what is now a confluence of support near 0.7200. That’s the intersection of wedge support and the year to date low.
In summary, the AUDUSD is neither a buy or sell for me at the moment, but the narrowing downtrend since May is indicative of an imminent bounce.
Not surprisingly, the NZDUSD has also formed a falling wedge pattern similar to its AUDUSD counterpart.
I should point out that there are two ways to draw the upper level. The first is how it’s shown in the chart below. The second would be with resistance starting from the April high at 0.7394.
However, the level below is a little more conservative in the sense that a close above it would give me more confidence that buyers are in control. It also lines up with the 0.6700/20 horizontal area.
It’s going to take a daily close (New York 5 pm EST) above the confluence of resistance at 0.6700/20 to expose 0.6850. One look at the daily time frame shows why 0.6850 will almost certainly attract selling pressure if tested.
Just like the AUDUSD, a break above wedge resistance could trigger a correction higher. The pair has been under immense pressure since April, so a relief rally shouldn’t be a surprise.
Keep in mind though that nothing is confirmed until buyers secure a daily close above resistance. Until that time, the NZDUSD may remain under pressure.