After weeks of sideways price action, it seems we finally have something to talk about. Not only concerning the EURUSD but across several other Euro and pound sterling crosses as well.
On Thursday of last week, I discussed a continuation pattern that had developed on the EURUSD. The consolidation over the past five weeks had started to narrow which forced the market to show its hand.
And it didn’t take long. A few hours after I released that Thursday commentary, the single currency closed the day (New York 5 pm EST) below the 1.1600 support area. We can also see where sellers defended a retest of the level as new resistance on Friday.
That breakdown opens the door to the range floor just above the 1.1500 handle. While I don’t usually enter positions on Fridays, I did take a small short position on that retest of 1.1600 just before the weekend.
My target here is 1.1300. You may recall that level from Thursday’s commentary. It’s the 340 pip height of this wedge pattern measured from the breakout point at 1.1600.
Technically that puts the objective closer to 1.1260. However, there’s quite a lot happening in the 1.1300 region including the June/July 2017 pivot as well as the November 9, 2016 (U.S. elections) session high.
Alternatively, a daily close at 5 pm EST back above former wedge support near 1.1620 would negate or at least delay the bearish outlook.
The GBPUSD has lost ground for four consecutive weeks now. Sellers also managed a weekly close below the 1.3050 level. Time will tell if this area continues to serve as new resistance as it did on Friday.
Despite the obvious descending channel that has been in place for several months, I’m not interested in trading the pound at the moment. Said differently, I think there are more favorable opportunities available to include the other pairs in today’s post.
There’s no doubting the accuracy of this channel. The pair has respected both support and resistance on multiple occasions since late May.
However, the reason I’m not a fan of trading the GBPUSD at the moment has to do with the lack of space. I prefer trading markets with room to run, and although the pair has moved lower in recent months, it’s done so in a relatively choppy fashion.
Additionally, a descending channel on the back of a selloff like that of April and May often suggests exhaustion from sellers. I’m certainly not bullish the GBPUSD (just the opposite, in fact), but the conflicting information is enough to keep me sidelined.
For the week ahead, resistance comes in at 1.3050. Support, on the other hand, can be found near the recent low of 1.2960. A close beyond that would expose descending channel support which may not become a factor until just below the 1.2800 handle.
The EURCAD has worked out beautifully for us since topping out in late June. There was an ascending channel at the time that helped carve the swing high that materialized between the 22nd and 26th of June.
Then came the daily close below the 1.5315 level. That breakdown was followed by a retest of the area as new resistance. That gave traders yet another opportunity to get short.
Last week’s price action puts the pair well below 1.5150, a level I pointed out in the July 31st commentary. As such, any retest of 1.5150 as new resistance will likely encounter an influx of selling pressure.
However, there is also a descending channel (see chart below) that could come into play this week. The former channel support may also prevent a full retest of 1.5150. Of course, it all depends on when the pair decides to bounce.
To the downside, there’s a confluence of support near 1.5000 that will surely attract a bid. Not only is it a key horizontal level, but it’s also the neckline of what could be a 1,300 pip head and shoulders pattern.
I’ll be sure to discuss the potential reversal pattern if and when it confirms. For now, the pair may remain gridlocked between 1.4960 – 1.5000 support and 1.5120/50 resistance.
I remain short from the late June selloff at 1.5580. I also added to that position at 1.5300. I announced both entries in the member’s area.
I wanted to show a broader view of the GBPCAD this week because, well, the chart below says it all.
We’ve been tracking this potential reversal since the end of June. In fact, it was the June 24th weekly commentary that I first pointed out the possibility of a 1,500 pip head and shoulders pattern.
That same commentary also highlighted the June 22nd bearish pin bar. That sell signal allowed the right shoulder to develop.
If that weren’t enough, the GBPCAD came within ten pips of retesting the neckline as new resistance on July 31st. As you can see, for those pyramiding with each break, the pair has been a dream to trade.
Now, with the pair trading well below the daily and weekly mean as measured by the 10 and 20 EMAs, a bounce higher is only a matter of time.
One level that could trigger such a move is the 1.6820 area. It played a critical role between September 2017 and January of this year. It’s also the 61.8% Fibonacci retracement of the September 2017 to March 2018 range that spans more than 2,500 pips.
Key resistance comes in at the May 2018 low near 1.7050. As always, I’ll be keeping an eye on this one in case something develops to suggest otherwise.
As mentioned previously, the measured objective for the 1,500 pip head and shoulders is the 2016 low near 1.5700. There will no doubt be many bumps along the way, but that area does serve as an intermediate to long-term objective.
On Friday we looked at a possible breakout on the EURAUD. Although the pair was trading well below range support at the time, a daily close was key.
Instead of rebounding higher in the final hours, sellers actually pushed prices even lower. The result was a 1.5635 weekly close, which confirms the breakout of a range that has been in place since late June.
However, Friday’s selloff also puts the EURAUD just 15 pips above key support at 1.5620. A glance at the price action from February and March illustrates the significance of the area.
The 1.5620 level also served as resistance on May 23rd and later attracted buyers during the June 20th session.
As always, it’s going to take a daily close (New York 5 pm EST) below this level to expose the next support area at 1.5450/60. Resistance for the week ahead comes in at 1.5710/20.
It’s anyone’s guess as to whether or not buyers can force a retest of the 1.5710/20 resistance area. What I do know is that the EURAUD has a habit of retracing at least 50% of the prior week’s range. Keep that in mind if you intend to trade the Euro cross.