Weekly Forex Forecast (December 25 – 29, 2017)

Merry Christmas and Happy Holidays!

Special thanks to all DPA members and followers. You have made this site what it is today.

Wishing you a safe and joyous holiday season!

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EURUSD bulls came out on top last week after testing the 1.1730 support level I mentioned last week. The area has influenced the single currency since July and is still having its way in December.

Another area from last week is 1.1855/60. We can see how it has served as a pivot since August and more recently capped the December 14 rally.

At first glance, Friday’s session appears to have breached the area. Moreover, the long lower wick suggests that buyers remain in control. While that may very well be the case, it’s too close to call in my opinion.

If the level is 1.1860 and not 1.1855, bulls failed to keep their heads above water. Additionally, with the holiday season in full swing, price action is bound to become indecisive as liquidity continues to drain from the markets.

That applies to every currency pair in today’s post and any others I mention this week. It’s an excellent time of year to practice patience. And if you do decide to trade, cutting your usual position size in half isn’t a bad idea.

As for the EURUSD, it will probably take another 24 to 48 hours to decide whether or not the pair is going to hold above the 1.1855/60 area. Keep in mind, however, that there is another resistance level just above at 1.1945. Even the 1.1890 area could attract a few sellers.

In summary, I’m not interested in the EURUSD at the moment. The holiday liquidity drain combined with the choppy and indecisive price action is a surefire way to lose money in my opinion.

The GBPUSD price action of late makes the EURUSD look resolute. Since the pound sterling closed above trend line resistance on November 29, the pair has gone nowhere fast. In fact, last week never managed to break free from the December 15 range.

Much like the Euro, I’m not interested in trading the GBPUSD. The choppy price action isn’t conducive to the way I trade and the holiday season makes it even less appealing.

As long as the confluence of support at 1.3260/90 holds on a daily closing basis (New York 5 pm EST), the 1.3445 level remains exposed.

A daily close above that would open the door to the late November/early December swing high at 1.3545 followed by the current 2017 high near 1.3650.

Alternatively, a daily close at 5 pm EST below the 1.3260/90 area would suggest that sellers have regained control. It would also expose the October and November lows near 1.3020/30.

The USDCAD continues to trade in a range that has been in place since the pair closed above 1.2670 on October 25. It looked like buyers were ready for the next leg higher early last week, but sellers had other plans.

Thursday’s 85 pip selloff puts prices back in the lower half of the 240 pip range. In fact, last week carved a quasi-bearish engulfing candle (using the range instead of the open and close).

It will be interesting to see whether the USDCAD can break loose this week. It’s no secret that the week between Christmas and New Year’s Day is one of the least active all year. Breakouts aren’t very common during this time due to the lack of volume.

If it does occur this week, I’ll stand aside. However, if we get a break from this range after the new year, it’s fair game, at least for my part.

A daily close at 5 pm EST (New York close charts) above 1.2910 would expose 1.3160. Alternatively, a daily close below the range floor at 1.2670 would pave the way for a move toward the July lows at 1.2420.

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Last Wednesday I pointed out a resistance zone on the EURNZD. The area spanned 50 pips between 1.7050 to 1.7100. The lower portion was former wedge support and the upper a key support level throughout November as well as the first week of December.

We first looked at this rising wedge on December 6. At the time the Euro cross was trading at 1.7132 and was well above support.

Just three trading days later I named it the top trade idea to close out 2017. The decision was partly due to the choppy price action across the majors but mostly because of the 170 pip drop on December 11.

That decline broke support at 1.7100. It also put prices dangerously close to six-month wedge support.

On December 13 sellers closed the pair below wedge support at 1.6950. However, the distance between the current price and the 10 and 20 EMAs meant that a retracement of some sort was likely.

Sure enough, last Wednesday’s session tested former wedge support as new resistance. The result was a bearish rejection candle.

There was even a bearish 4-hour pin bar shortly after last Wednesday’s commentary.

Both the 4-hour pin bar above and the bearish rejection candle below offered 50% entries.

As long as last week’s high at 1.7063 holds, the 1.6620 level remains exposed. But even if buyers were to take out last week’s high, they would still need to close the pair above 1.7100 to negate the bearish outlook.

There is also a chance that the last two months have carved a head and shoulders pattern. It wouldn’t be much of a surprise given that rising and falling wedges tend to produce head and shoulders formations quite often. See the second half of this lesson.

I will be sure to comment on the EURNZD as things progress.

On Wednesday we discussed how the EURNZD was in the process of testing former wedge support as new resistance. The ascending pattern gave us reason to believe that buyers were tiring after six months of gains.

The trade idea is still relatively new, but so far so good. For those who followed along, there was a 4-hour bearish pin bar on the EURNZD shortly after my Wednesday commentary. Even the session closed formed a bearish rejection candle. Both signals offered 50% entries.

But in case you missed those, the EURAUD—a counterpart to the EURNZD—is also forming a rising wedge. However, unlike the EURNZD this particular formation hasn’t broken down just yet.

Wedge support that extends from the 2017 low at 1.3626 is still intact. It just so happens that the pair tested the diagonal level for a fourth time on Friday. We can see where buyers stepped in at the December 22 session low at 1.5325.

Because we’re coming up on what is arguably the slowest week for the markets, I’m going to ignore any breakdown this week. If sellers hold off until the new year, however, I will be very interested in a daily close below support.

The only exception would be a daily close below support followed by a candlestick pattern that’s too good to pass up. But even then I would use a relatively small position size given the holiday liquidity drain.

Where things get tricky is what happens after a daily (New York 5 pm EST) close below wedge support. I would argue that there’s a horizontal level near Friday’s low at 1.5325. To make things trickier, there is also some support at the June 1 and October 11 highs at 1.5230.

Depending on where and when the EURAUD breaks wedge support, those two levels could affect the entry.

I’m going to hold off on crafting a plan until I see where the pair breaks support. If it’s high enough, an entry could be possible without waiting for prices to clear 1.5320 or 1.5230.

Below the 1.5230 handle we have a key pivot at 1.5070/80. A daily close below that would expose the August to September support level at 1.4800 followed by the July low near 1.4440.

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