Weekly Forex Forecast (December 21 – 25, 2015)

EURUSD gave up some ground last week after back-to-back weekly gains that totaled 400 pips. Despite recent losses, the pair still managed to close above the 1.0820 handle that was so important for the bulls between May and July.

For this reason alone, we could see a bit more upside in the coming sessions. However, my overall bias remains weighted to the downside ever since the pair broke below channel support on October 23rd.

To the upside, former support from the seven-month ascending channel still stands in the way near 1.1240. I will maintain my longer-term bearish bias as long as the pair remains below this level on a closing basis.

From here, traders can watch for a close back below the 1.0820 handle to signal that further losses are likely. Key support comes in at 1.0660 and 1.0470.

GBPUSD didn’t perform quite as well as its Euro counterpart last week as the pair plummeted 330 pips between Monday and Friday. This came after the bulls had managed to put together a two-week rally during the first week of December.

Although last week’s selloff failed to close below the December low at 1.4890, it did take out the previous two week’s worth of gains. This alone could be enough to trigger additional selling pressure in the week ahead.

That said, I do feel that any trader looking to sell the pound may be better served through a pair like GBPJPY. More on this later.

The pair should find resistance on any retest of the 1.4980 area. At the opposite end of the spectrum, buying pressure should remain somewhat firm near the 1.4740 handle.

AUDUSD remains at the top of my watch list after the bulls failed to push prices higher following last Wednesday’s momentous Fed rate hike.

I mentioned the descending channel last week that has been directing price action since October of 2014. This pattern remains in place after another week of losses and gives us a good idea of where the pair may be headed in 2016.

That said, there is one key level that stands in the way of an 800 pip move lower. The trend line that extends off of the September low at 0.6900 has been tested twice since its inception and may offer sellers an opportunity to get short on a close below it.

Such a close would expose key support at 0.6900. Break that and there isn’t much standing in the way until the 0.6350 handle.

After breaking a fourteen-month trend line that we have been focusing on for months, GBPJPY extended its losses by nearly 400 pips last week.

With this trend line now in the rear-view mirror, where can traders look to capitalize on the potential for further losses?

One level to keep an eye on just so happens to be last week’s close at 180.50. This was the September low and just might prop up prices at the start of the new week. Below that there isn’t much standing in the way until the 175 handle followed by 169.50.

Keep in mind that there is a good chance that the price action over the last fourteen months is a head and shoulders reversal. If that is indeed the case, traders can look for an eventual move toward the 1,500 pip measured objective at 165.60.

NZDJPY is the “last man standing”, so to speak, as it is the only yen pair that has yet to sell off sharply.

However, when volatility picks up, the yen pairs tend to move in tandem. The recent price action for EURJPY, GBPJPY, AUDJPY and even USDJPY are all great examples of how the yen’s safe haven status has started to once again kick in.

Therefore, if NZDJPY is likely to follow suit, we can watch for a move lower in the coming weeks. But in order to effectively trade such a move, we need to find a key level that can act as a benchmark to signal when that transition might occur.

The most obvious level for this job is the trend line that extends off of the August low at 72.40. This level has been tested on four separate occasions since its inception and also looked vulnerable toward the end of last week.

From here, traders can watch for a close below it to signal the potential for further losses. Key support comes in at 79.50 and 77.50.