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Weekly Forex Forecast (January 1 – 5, 2018)

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The EURUSD extended its reach last week with a 135 pip gain. It seems the December 22 long-tailed bullish candle was a legitimate signal after all.

Last week I wrote that it would take an additional 24 to 48 hours of price action to decide whether or not the single currency would hold above 1.1855/60. The December 26 session held above the level into the close and by the 27th Euro bulls were well on their way.

As we head into the new year, there’s little doubt that buyers are in control at the moment. They kept prices above 1.1855/60 last week and also took out the late November highs at 1.1940.

However, the real test for buyers will be the 1.2040 handle in my opinion. It’s the 2012 low and a resistance level that had its way with the pair in late August and early September. In fact, it was the September 8 bearish pin bar that triggered the 540 pip decline.

Given the 130 pips between Friday’s close and the mean, a pullback this week wouldn’t surprise me. The 1.1940 area hasn’t been tested much, so it will be interesting to see what happens here.

Bullish price action on a retest of 1.1940 could present an opportunity to get long. Key resistance comes in at 1.2040. Alternatively, a daily close below 1.1940 would re-expose the 1.1855/60 support area.

I will be sure to follow up on the EURUSD should buyers take out the 1.2040 area over the coming sessions.

EURUSD key levels on daily chart

GBPUSD bulls didn’t disappoint last week. Having held prices above the confluence of support at 1.3300 for several days, they eventually managed to revisit the 1.3445 level.

Another price I mentioned in last week’s forecast was 1.3545. It was responsible for capping the late November and early December rally, so it made sense to include it in my analysis.

Sure enough, Friday’s session reached a high of 1.3544 before sliding 44 pips into the close.

For the week ahead, traders can watch for buying opportunities on a pullback into the 1.3445 support area. Alternatively, a daily close at 5 pm EST above 1.3545 would expose the 2017 high at 1.3650.

On the other hand, if prices fall back below 1.3445 on a daily closing basis, we could see the pair revisit the 1.3300 area. But for now, all eyes are on buyers to see if they can take out the 2017 high as we move into the new year.

GBPUSD range on daily chart

The USDCAD turned out to be an excellent trade for those who went short early last week. Following Wednesday’s sub 1.2670 close, the pair dropped more than 100 pips.

Unfortunately, we never did get a retest of the 1.2670 area as new resistance. Seeing as how I don’t like to chase a market, I didn’t sell the USDCAD. But that doesn’t mean I won’t get an opportunity this week.

While there’s no guarantee that prices will return to 1.2670 before reaching 1.2420 support, the pair is quite overextended. It suggests that offers could begin to dry up momentarily.

I use the 10 and 20 exponential moving averages (EMAs) as a mean reversion tool. When the price moves too far away from them on the daily chart, a retracement of some sort usually isn’t far away.

At the moment there are approximately 130 pips between Friday’s close and the 10 and 20 EMAs. That’s a significant distance for the USDCAD and one that doesn’t tend to last long.

Another consideration is the fact that Friday’s long-tailed bullish candle broke a six-day losing streak. As long as last week’s low at 1.2514 holds up, a retest of 1.2670 is increasingly likely.

I’m going to remain on the sideline for now. A retest of 1.2670 as new resistance would help ‘reset’ prices and could provide a favorable opportunity to get short this week. Key support remains the late July lows at 1.2420.

Alternatively, a daily close (New York 5 pm EST) back above 1.2670 would negate the bearish outlook. It would also re-expose the former range ceiling at 1.2910.

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USDCAD new resistance area

On Friday the AUDUSD reached the second resistance level I mentioned on December 14. At the time the pair had just closed above the 0.7635 handle and looked poised to retest 0.7730.

Buyers did that and more last week. Wednesday’s 0.7766 close exposed the next key resistance level at 0.7820, which was tested just before the weekend.

Given the distance between Friday’s close and the 10 and 20 EMAs, we could see a pullback this week. The nine consecutive winning sessions also suggest that bulls could be getting ahead of themselves.

As long as buyers hold prices above 0.7730 on a daily closing basis, the AUDUSD will remain in a short-term uptrend. Keep in mind that the pair is also bouncing from long-term trend line support as illustrated in the December 14 post.

With that in mind, watching for buying opportunities on pullbacks seems the sensible approach here. Alternatively, a daily close (New York 5 pm EST) above 0.7820 would expose 0.7880 followed by 0.7955.

AUDUSD key resistance level on daily time frame

The EURNZD has made a habit of selling off into the session close at 5 pm EST. We saw this pattern develop during the December 20 retest of former trend line support and it continued throughout last week.

Even Friday’s rally lost some steam in the final hours. However, the session was still a win for buyers and could spur additional gains in the first week of the new year.

Just bear in mind that the price action on Fridays can be difficult to read. The lack of participation often produces head fakes, especially during the holiday season when liquidity is unusually sparse.

Whether or not Friday’s rebound is the beginning of an extended move is yet to be seen. One thing I do know is that trend line support from the November low is doing its job. We discussed this level on Thursday as the neckline of a potential head and shoulders pattern.

This one is still on my watchlist, although it’s going to take a daily close below neckline support to confirm the bearish reversal. Until that time, this is merely a break of six-month trend line support.

If buyers take out the December 20 high at 1.7063, I will turn my attention toward the 1.7100 area. It lines up with the November and early December lows and is also the 50% retracement of December’s range.

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EURNZD head and shoulders pattern on the daily chart

Leave a Comment:

21 comments
Fabrizio says

Hi Justin my best wishes for one happy and fantastic new year and my compliments for analysis

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Mimi says

Happy 2018 for you Justin and thank you so much for all your posts that are so easy to understand!

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dick ullrich says

thank you, new member

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    Anetor Eguakhide Ibikunle says

    Thanks Justin. You are Amongst The People That Made My 2017 A Great One, I Look Forward To Another Great Year. Happy New Year!!.

    Reply
Relebohile says

Thank you for the weekly forecast. You keep things simple and easy to interpret. If it won’t be a problem could you please explain the 10&20 EMAs(using them as a reversion mean tool). Thank you once again

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Pierre Mifsud says

Thanks for your optimum analysis. You always keep your foot on the ground so as not to mislead anyone…Well done!

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Roy says

closely watching the EURNZD. thank you justin for all your 2017 analysis. here’s to 2018, happy new year.

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Sushant says

Justin, wishing you a very happy new year. Thank you so much for all the analysis done this year and for the coming year as well.

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Zahid Nawaz says

Thank u sir for all tha analysis of 2017 and v hope again for this and 2018

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Okereke Matthew says

Great forecast. I am new and yet to understand the terms

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Steve says

Thanks Justin for the insights

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jeff says

Happy new year, Justin. Thanks for the weekly forecast analysis. Like always it’s on point. However I would like to forward a suggestion to you and have your take on it. On the EURUSD chart I couldn’t help to take a notice of an inverted head & shoulder pattern that has broken a neckline. Can you confirm whether that’s correct? If it is would it be a good idea to implement a measured objective considering the small head of the pattern? Would it be wise to extend the take profit beyond the measured objective level? Thanks

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manojshah says

Please give your view on Eurgbp weekly view

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Gede says

tks for the analysis, in my opinion the best setup for selling opportunity on AUDNZD, it has show bearish pin bar on weekly level and bouncing on daily descendant wedge

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Gulzar Zubairy says

Thank you so much Justin for your great Weekly Forecast, It’s really easy to understand. Happy New Year & God Bless You

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Saravanan Arunajalam says

Greetings Justin.
Happy New Year 2018….Thanks for your price action posts which benefits me sometimes…

Rgds
Saravanan Arunajalam

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Gerrard says

Compliment of the season. It seems u have no analysis to offer us on usdjpy

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sham says

Hi justin,

any forecast for USD/JPY?

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Long run says

Great work man

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Vangama says

Thank you for this. Good work

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srinivas says

greetings justin
wish you a happy new year
i am new to the forex trading

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