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Weekly Forex Forecast (December 7 – 11, 2015)

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EURUSD is coming off a banner week after posting its largest one-day rally since 2009. To put it in more relative terms, Thursday’s rally managed to take out the previous twenty days’ worth of losses.

As you may know, I had been short from the break below the channel floor at 1.1040. However, my trailing stop was hit late last week for a 3.6R profit.

This came after the pair failed to reach the objective at 1.0470 by a mere 40 pips. Still, I can’t complain about a 3.6R profit (7.2% profit if risking 2%) from a single position.

While Thursday’s massive bullish engulfing bar could lead to further gains, I won’t entertain any buying opportunities for quite some time. It would take a daily close back above former channel support for me to reverse my bearish bias.

With this in mind, I will continue to watch for selling opportunities. The next resistance level that could trigger such an opportunity is the 1.1010 handle, a level that has played a significant role since March.

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EURUSD key levels on the daily chart

Like EURUSD, GBPUSD made up quite a bit of lost ground last week following the more-hawkish-than-expected presser from Mario Draghi.

Just before Thursday’s session, the pound had dropped to levels that hadn’t been seen since April. It had also cleared the 1.4980 handle, a level that previously acted as resistance between March and April.

Although the close set us up to watch for a selling opportunity, there was no bearish price action to justify an entry. That, combined with the heavy event risk late last week kept us on the sidelines.

At the moment it’s unclear where the British pound wants to go in the week ahead. That’s okay, though, because there are other pound-based pairs that look more favorable in my opinion. More on this later.

A close above 1.5160 would expose former channel support, while a move lower would retest the 1.4980 support area.

GBPUSD key levels on the daily chart

So far so good for those banking on the idea that GBPAUD confirmed a four-month topping pattern on December 1st. The pair managed to find a bid during last Thursday’s session, however the weakness that followed on Friday could be a sign of things to come for the pair.

Although the price action on Friday appears to have tested former support as new resistance, it didn’t quite give us a valid sell signal. With a new week upon us, I wouldn’t be surprised to see a move back above the 2.0650 area before the next leg down materializes.

I will only entertain selling opportunities while below the neckline of the head and shoulders pattern. Only a daily close above this level would negate the bearish bias.

Looking lower, key support comes in at 2.0027 with a measured objective at 1.9262.

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GBPAUD head and shoulders reversal on the daily time frame

I mentioned GBPCAD last Thursday, noting the descending channel that the pair has been carving out since the multi-year high in August. Friday’s session put additional pressure on the level, however the bulls were unable to hold prices above resistance on a closing basis.

This keeps GBPCAD on my watch list for the upcoming week. One reason I like the potential here, which I also mentioned last week, is the pair’s tendency to rally quite hard after breaking free from consolidation.

The break from the channel that formed between early 2014 and early 2015 triggered a 2,600 pip rally. Not only was this an impressive move over the course of eight months, it satisfied the 3,440 pip measured objective perfectly.

Will a break from the current range do the same?

Who knows, but I will certainly be keeping an eye on this one over the next few weeks. A close above channel resistance would expose the multi-year high at 2.0970. The measured objective for the pattern comes in at 2.2500.

GBPCAD channel on the daily chart

Despite its best effort, CADJPY failed to climb back above former wedge support last week. This level extends off of the August low and has now been heavily tested as new resistance.

So far the bears have passed the test as they have managed to keep the pair below the level on a closing basis. In fact, Thursday’s rejection from the level was so severe that it carved out a bearish engulfing candle.

Whether sellers continue to win the battle for control will depend on what happens this week. And although the price action has been sideways for some time now, the selloff that occurred in late June taught us that CADJPY can change direction without much warning.

My bearish bias will remain intact as long as the pair stays below former wedge support on a closing basis. Key support comes in at 89 and 87.33 with a minor support area residing at the October low near 90.60.

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CADJPY bearish engulfing bar on the daily chart

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10 comments
Shaon says

I am focusing on GBPAUD and CADJPY . All the best Justin.

Reply
    Justin Bennett says

    Shaon, those are also two of my favorite at the moment. In fact I’ve been short CADJPY for some time now.

    Reply
Charity Burr says

What makes the test of the GBP/AUD support as resistance invalid for a sell? What makes you think it will go higher? Any insight would be greatly appreciated.

Reply
    Justin Bennett says

    Charity, the lack of bearish price action. New weeks often overlap a portion of the previous week, which is why I had a feeling that we might see a brief rally to start the new week.

    Also remember that this is just my opinion. It doesn’t mean that last week’s retest wasn’t a valid sell signal, it means that it wasn’t valid according to how I like to trade.

    Looks like I was on to something though as the pair is back to 2.0700 as I type this.

    Reply
      Charity Burr says

      I understand that. I don’t trade without a retest and am still learning so much so when I saw what you said I just wanted to make sure I wasn’t missing anything obvious. Thanks so much!

      Reply
      Charity Burr says

      I guess I don’t understand what constitutes a retest.

      Reply
Fathin says

I have a buy position open (GBPAUD) because there is a beautiful bullish engulfing candle bar.

Reply
    Justin Bennett says

    Fathin, I remain bearish here due to last week’s lower low, but best of luck with your trade.

    Reply
      Fathin says

      Thank you Justin, you too good luck with your trade. I really hope it will shoot up ;-). So far already 200 pips.

      Reply
Justin Bennett says

Nantha, you’re right on the latter half of your comment. The 2% figure I gave was only an example to help those who are not familiar with R-multiples. I wasn’t implying that I personally risked 2% of my account on that trade.

Reply
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