EURUSD caved last week after once again testing channel resistance that extends off the December 2015 high at 1.1058. A closer look at the 4-hour chart shows a bearish pin bar that formed following a retest of the key level, a trade that several of our members were able to capitalize on.
From here, things become fairly straightforward. A close below the trend line that extends off of the January low would expose the 1.0710 handle followed by channel support near 1.0640.
Alternatively, a close above six-week channel resistance would open the door for a move to the aforementioned 1.1058. That said, the bigger picture continues to favor the downside.
Continuing on the theme of intraday price action, GBPUSD appears to have ended the week below wedge support on the 4-hour chart. This came after the pair shed an impressive 580 pips in the month of January.
If former support holds as new resistance, traders can expect a move back to the current 2016 low at 1.4080 over the coming sessions. Break below that and we could see bearish momentum gather pace toward the 2009 low at 1.3500 before finding a meaningful bid.
Of course those looking for additional confirmation can wait for a close below 1.4080 before considering a short entry.
On Friday, EURAUD confirmed what we had suspected was a head and shoulders pattern earlier in the week. To be fair, the price structure was first spotted by one of our members on Tuesday of last week.
With the pair now trading below the 1.5340 handle and bearish pressure mounting, a retest of the 1.50 area has become the likely scenario over the coming sessions.
As a side note, be sure to take extra precaution during times when Mario Draghi is scheduled to speak this week. It’s no secret that he has a tendency to drop bombshells when he takes the podium.
AUDNZD is holding up nicely after closing above the 1.0880 handle last week. The significance of this level can be traced back to the 1990’s, but is more likely known for its role in directing price action since late 2013.
Last Wednesday’s break above the key horizontal level coincided with a break of trend line resistance that extends off the September 2015 high. A quick glance at your 4-hour chart will show the rejection that occurred at this trend line just before buyers rushed in following a slew of dovish remarks from the RBNZ.
In the bigger picture, the two-year (potential) inverse head and shoulders pattern continues to unfold. However, as mentioned last week, nothing is confirmed until the bulls manage a close above the neckline, which currently resides near 1.1430.
From here, I favor buying dips while the pair holds above 1.0880 on a closing basis. Key resistance comes in at 1.1300, a level that acted as strong resistance during the latter half of 2015.
AUDJPY is fast approaching former channel support after the Bank of Japan’s Kuroda decided to take interest rates sub-zero last week, a move that shocked global markets heading into the weekend.
But the big question is, what kind of impact will the latest devaluation of the yen have in the medium to long-term?
With every yen pair moving considerably higher on the news, we’ve already witnessed the short-term impact. However, the law of diminishing returns says that the latest decision may not have the kind of lasting impact the BoJ is hoping for.
From a technical perspective, many yen pairs are approaching key levels of resistance, including AUDJPY. The area between 86.40 and 87 represents former channel support and is also the December 2015 lows.
That said, I’m in no hurry to short this (or any) yen pair. Friday’s volatility is still too fresh in the minds of traders, which leaves a level of uncertainty about just how far Friday’s surprise decision by the BoJ will drive these risk-sensitive pairs.