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In what feels like a repeat of the February 2 selloff, EURUSD bulls gave up ground last to the tune of 115 pips. The weakness ensued following the February 16 bearish pattern at the 2008 trend line shown below.
Speaking of the chart below, if it looks messy it’s because it is. In fact, several U.S. dollar pairs are at or are fast approaching key inflection points.
As for the EURUSD, that inflection point is the intersection of 2008 trend line resistance and trend line support from the April 2017 low. Even if the single currency holds out until the very end, the terminal nature of this structure places a breakout by no later than mid-April.
And make no mistake, a daily close below trend line support or above resistance would have a lasting impact. It could quite easily kick off a new multi-month downtrend or be the starting point for the next significant leg higher.
In the near-term, however, the 1.2330 area could continue to attract selling pressure on retests. To the downside, we have a smaller trend line from the January 18 low followed by horizontal levels at 1.2160 and 1.2080.
I suspect the EURUSD will remain congested and relatively difficult to trade until one of those longer-term trend lines breaks. Until that occurs, the story will continue to be a lot of back and forth price action.
On Monday of last week, we looked at a way to capitalize on pound strength or weakness. The smaller 4-hour ascending channel within a larger descending one provided a way for us to go long or short depending on which structure gave way first.
While the GBPUSD is still consolidating within the smaller ascending channel, Thursday’s price action is quite useful.
I often talk about the idea of not just watching for buy or sell signals, but monitoring a market’s movement to help confirm key levels. Thursday’s bounce from the 1.3875 area is a prime example.
I was fairly confident about the ascending channel last Monday, but the bid that formed at 1.3875 during Thursday’s session confirms my suspicion. It will also help with the conviction of any short entry should the pair close below channel support over the coming sessions.
Of course, there’s always a chance that the GBPUSD will close above descending channel resistance first. In which case we can begin watching for bullish price action on a retest of the level as new support.
For now, last week’s analysis remains unchanged. But I am more confident that a close below channel support which is now closer to the 1.3920 handle, would trigger a move lower toward 1.3600.
Alternatively, a close above descending channel resistance would take us back to the current 2018 high near 1.4335. Because this is a terminal pattern, it isn’t a question of if the pair will break, but when?
I’ll be sure to provide an update when that time comes.
AUDUSD bulls put in one heck of a run starting December 11, 2017. The pair managed to gain 630 pips in just 32 trading days. What’s more impressive is that of those 32 days, only 9 were losing sessions.
We were able to capitalize on the first part of that rally following the December 14 close above the 0.7635 area.
However, it all unraveled relatively quickly starting on January 29. What took buyers 20 days to accomplish was erased in half that time.
Since the February 9 low at 0.7760, the AUDUSD has consolidated within a 230 pip range. But Wednesday’s session tested a level that could help us determine where the Australian dollar will go next.
The trend line that extends from the December 8, 2017 low is well organized. We can see how the pair retested the level on Wednesday and subsequently bounced from it on Thursday and again on Friday.
As such, we could see further upside at the start of the week, but keep an eye on the 0.7875 handle. It has served as a pivot of sorts since the beginning of 2015.
That said, I’ll need to see a daily close (New York 5 pm EST) below trend line support near 0.7820 before considering a short entry. In my opinion, the 0.7875 horizontal level is too close to trend line support to consider selling on a retest.
Below the December 2017 trend line we have the February 9 low at 0.7760 with a daily close below that exposing 0.7635. Depending on if and when all of this plays out, a move lower toward 0.7635 could coincide with a retest of the January 2016 trend line.
The NZDUSD has a similar structure to that of the AUDUSD. No surprise there considering the vast commonalities between the New Zealand dollar and Australian dollar.
Note that the pair features a similar trend line that extends from the December 8, 2017 low. The NZDUSD also broke below a key horizontal level late last week at 0.7315
I’ve received several questions about a possible double top given the highs on January 24 and February 16.
It could very well be a topping pattern, but confirmation of such won’t come until we get a daily close (using New York close charts) below the February 8 low at 0.7175.
That doesn’t mean you can’t short a daily close below trend line support. But a daily close below 0.7175 is needed to validate any notion of a double top pattern.
As for a bullish scenario, buyers will need to secure a daily close back above 0.7315 to keep the rally alive. The longer it takes for that to occur, the more likely a break lower becomes.
Either way, the pair is running out of real estate. A decision one way or the other is only days away.
The USDCAD worked out quite well for us after rebounding from 1.2250 support. The February 2 close above the 1.2400 area provided an opportunity to get long, which I mentioned in the February 4 weekly forecast. Price reached our target at 1.2565 within 48 hours.
That 1.2565 level then served as support between the 8th and 13th. However, buyers lost the handle on February 14 only to gain it back four days later.
Now, last Wednesday’s close above 1.2670 was a significant break. It put the pair back inside the range that had held prices in check between late October and December of last year.
I didn’t consider going long as the pair had become quite overextended by the middle of last week. At the time, the 10 and 20 EMAs were lagging below price by approximately 150 pips on the daily time frame.
It’s a good thing I held off given that buyers lost the 1.2670 handle during Friday’s session.
The big question now is whether or not we get a repeat of the February 14 candle whereby the pair loses critical support only to gain it back in a matter of days.
Of course, nobody knows the answer. I will, however, be keeping a close eye on how the pair responds to 1.2670 should it come under pressure this week as new resistance.
There’s also a chance that the pair catches a bid at 1.2620. It’s an area that has played a critical role, particularly as the December 5, 2017 low as well as the more recent February 12 and 13 highs.
In situations like this, I find it best to wait it out. I’ll be sure to provide an update during the week should something catch my attention.
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