Weekly Forex Forecast (December 5 – 9, 2016)

The road ahead for the EURUSD looks pretty straightforward from here. The pair closed last week 40 pips below key resistance at 1.0710. This level is the January low and also served as support on a couple of occasions between March and April of last year.

To the downside, we have the 1.0515 handle. This is a level we’ve had our eye on for quite some time. It’s the April 2015 low and is also currently holding as the new 2016 low.

However, the recent consolidation makes a trade in either direction a bit of a gamble in my opinion. Also, note that this week’s Italian referendum is the latest hot topic that promises to rock markets.

With this in mind, I’m going to stay on the sidelines until a favorable opportunity presents itself.

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I mentioned the GBPUSD on Friday. Specifically, we were looking at the potential for a retest of the post-Brexit swing low at 1.2790. This level is accompanied by a trend line that extends from the June 29th high.

However, I wanted to use today’s commentary to view the price action from a different angle.

While we’re still focusing on the 1.2790 area, this time we’re analyzing things from the 4-hour time frame. As you can see from the chart below, the pair is fast approaching what could be channel resistance.

Note that the two horizontal levels in the chart below are from two prominent swing lows in July and August. The first is the post-Brexit low at 1.2790 followed by the August low near 1.2860.

But to be clear, I won’t entertain a position here without the right bearish signal. The momentum of late has favored the bulls and is something I’d rather not challenge at the moment.

The NZDUSD has gone back to its old ways of being a difficult currency pair to analyze, much less trade. Having said that, I’m still interested in it due to the ten-month trend line that broke down last month.

As you can see from the chart below, the pair has already retested this level as new resistance on two occasions. The first came just 24 hours after the bearish break while the second occurred just last week.

While a short seems most appropriate, there’s now reason to believe that the US dollar could give up additional ground before getting back to its bullish ways.

Why do I think so?

A quick glance at the major currency pairs supports this idea. But even a constrained view of the AUDUSD and NZDUSD shows the two commodity dollars could gain against the greenback in the near-term.

Of course, I’m referring to the AUDUSD closing last week back above the 0.7440 handle. 

As for the NZDUSD, the fact that the pair is carving out higher lows into resistance is enough for me to remain cautiously bearish in the week ahead. Immediate support comes in at the 0.7100 handle.

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Although things have been a bit dicey for the EURGBP of late, the pair has continued its descent since my November 21st commentary.

Just last week the cross closed below a key level at 0.8490. This area has been a pivot for the pair since early July and will likely continue to act as resistance in the near-term.

For the week ahead, support comes in just 38 pips below last week’s close at 0.8340.

However, the confluence of support at 0.8120 could very well be the primary target for sellers. This area includes the trend line from the November 2015 low as well as the post-Brexit gap.

The idea of further downside for the EURGBP is another reason why I believe that GBP bulls haven’t exhausted their resources just yet.

Last week we discussed the ascending broadening wedge that the GBPJPY has been forming since mid-November. And although the pattern is quite evident, the commentary received several questions concerning the implications of the structure and even its validity.

As such, I wanted to clear a few things up. But first, let’s take another look at the 4-hour wedge without the distraction of other levels.

I don’t think there’s any denying that this is indeed an ascending broadening wedge. The unknown of course is whether it will adversely affect the recent bullish momentum.

But the truth is that nobody knows the answer to that, which is why I’m on the sidelines for now. Furthermore, there are only two scenarios that would pique my interest.

The first scenario would be bearish price action from the 147.00 area. The level was a key pivot for the pair back in 2013 and also intersects with wedge resistance.

The second and more appealing scenario would be a close below wedge support.

But here’s the thing…

That break would need to occur at a point where there is ample room between wedge support and the 138.80 horizontal level. Otherwise, the risk to reward ratio required to pull the trigger just isn’t there.

Regardless of whether you’re looking to buy or sell the GBPJPY, the wedge pattern below is an important detail. Without it, you could find yourself buying into resistance or selling into support, neither of which would likely produce a desirable outcome.

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