Weekly Forex Forecast (December 24 – 28, 2018)

Last Thursday I wrote that EURUSD bulls had more work to do.

The level in focus was 1.1450. It has served as a pivot of sorts since the euro closed below it on October 24th.

In fact, the 1.1450 area acted as support even before that breakdown.

As you can see, EURUSD did break through 1.1450 resistance last week on an intraday basis.

But it’s going to take a daily close above it to get the job done. That’s often the case when dealing with an area this significant.

Buyers failed to close Thursday above 1.1450. And if you watched the final hour of trade (4 pm – 5 pm EST), you saw euro bulls retreat back below the level.

Late-session moves like Thursday’s prove just how vital it is to wait for the daily close before acting.

I use New York close charts so that each day closes at 5 pm EST. These charts are required for trading price action the way I do.

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As you can see, 1.1450 was still serving as resistance on Friday.

For now, EURUSD remains a range bound market. That will likely continue to be the case through the holiday season.

The pair has carved a massive wedge pattern that could become a factor in 2019, but I’ll hold off on the details until after the holidays.

Key support this week comes in at 1.1300 followed by 1.1215.

Resistance is once again found in that 1.1450 region.

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GBPUSD buyers had issues last week below 1.2700.

That continued to be the case all the way through Friday. It seems sellers aren’t willing to forfeit the level that previously served as support for several months.

As long as the pair is below 1.2700 on a daily closing basis, the pound is vulnerable.

There’s no doubting the bearish trend that has been in place since April.

However, I do want to caution traders from getting too bearish here.

I mentioned this on Friday, but the way GBPUSD has refused to sell off from 1.2700 casts some doubt over who is in control at the moment.

In other words, there’s a power struggle between buyers and sellers.

But sellers do have the upper hand so long as they control the 1.2700 handle.

As for support, I’m still using 1.2560. A glance at the price action from late 2016 and early 2017 illustrates why I like 1.2560.

It’s going to take a daily close above 1.2700 to reverse the short-term downtrend. That would expose 1.2880 followed by 1.3070.

On December 17th I wrote how the clues pointed to a USDJPY break lower, not higher.

That turned out to be the understatement of 2018.

At the time, USDJPY was still trading within the wedge pattern I first pointed out on December 2nd.

But by the 18th, sellers had cleared wedge support at 112.60.

That set up a short opportunity. And the next 48 hours played out perfectly for sellers.

Notice how USDJPY retested former wedge support as new resistance on the 18th. That high of 112.66 offered a prime opportunity to sell the pair.

Thursday’s 180-pip selloff was unexpected but not surprising.

We know how the yen can react to risk-off sentiment, and the S&P 500 had already signaled a key breakdown of its own.

Thursday’s low for the USDJPY was 110.80. You may recall that the key level below 111.70 was 110.70. I’ve talked about both levels for several weeks now.

Remember that these levels are often areas or zones. As such, Thursday’s bounce from 110.80 confirms that support for the pair lies somewhere between 110.70 and 110.80.

So where to from here?

Thursday’s 111.28 close means that any retest of the 111.70 area should attract sellers.

You can even see where 111.70 played a role on Thursday if you drill down to the 1-hour time frame.

USDJPY is still a sell in my opinion.

However, we could see near-term strength given the aggressiveness of last week’s decline.

I’m also still targeting 108.00 which I discussed on December 11th.

If USDJPY fails to retest 111.70 as new resistance, the alternative is to wait for a daily close below the 110.70/80 support area.

That would expose 109.80 followed by my longer-term target at 108.00.

IMPORTANT: I use New York close charts so that each day closes at 5 pm EST.

Click here to get access to the same charts I use.

On the 18th of December, I mentioned a potential short opportunity on EURJPY.

The risk-sensitive pair had just closed below key trend line support from the August low.

I first mentioned this level and the opportunity that could follow on the 14th.

Notice how EURJPY closed below our trend line on the 18th. The pair then retested the area as new resistance on the 19th and 20th.

Just like EURUSD, take note of the importance of the New York 5 pm EST close.

The EURJPY finished Friday’s session 160 pips below Tuesday’s breakdown. That leaves shorts in a comfortable position to start the new week.

Now, the tricky part is identifying an immediate (new) resistance level.

If the pair manages to retrace as high as 127.20, I do expect to see quite a lot of selling pressure in this area.

But there’s no guarantee EURJPY will make it that high.

The alternative is 126.60. It’s the June 19th and October 26th low.

My only reservation about looking for a short from 126.60 is that it would be an extremely shallow retracement of Friday’s move.

That means it’s a riskier level to short from.

If anything, I’d want to see bearish price action from 126.60 before considering a short. Otherwise, I’ll look to the 127.20 area.

Key support is 125.00. This is the target I’ve mentioned a few times recently.

Like several other yen pairs I’ve discussed recently, AUDJPY broke down last week.

The 78.70 area had held as support since September. You can see where the pair caught a bid from this area in late October as well.

Friday closed well below this level which means 78.70 should begin acting as resistance if tested.

My only concern is the fact that AUDJPY broke down on a Friday.

I’m not a fan of Friday breakouts as the lack of volume can sometimes lead to false breaks.

But it all depends on how 78.70 holds up moving forward. If we see AUDJPY struggle to close back above it, then it could offer an excellent selling opportunity.

The plethora of space between 78.70 and the next key support at 76.00 makes AUDJPY one to keep on your watchlist.

And if 76.00 doesn’t hold over the coming weeks, AUDJPY may very well be heading to the 72.50 area in 2019.

Alternatively, a daily close back above 78.70 would negate the bearish outlook.

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