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Following a sluggish start last week, the EURUSD rallied 160 pips on Friday and took out the confluence of resistance at 1.2145/65. I mentioned this area on Friday as one that could attract some selling pressure.
At first, the single currency did pullback from the 1.2150 area. But after flirting with resistance for several hours, Euro bulls went on a buying spree to close the pair at a new thirty six month high.
While the 1.2145/65 area may hold as support this week, I have a couple of concerns.
The first is that the break above resistance happened on a Friday when volume tends to be light. I don’t trust Friday breakouts, especially when they occur ahead of a U.S. holiday as volume tends to be more anemic than usual.
Second, notice the distance between Friday’s close and the 10 and 20 EMAs. At the moment, it sits at 200 pips. I use these two moving averages as a mean reversion tool. When price moves too far above or below them, a retracement or consolidation usually isn’t far behind.
With all of that in mind, I’m going to give the EURUSD some space. The next 24 to 48 hours should provide us with a good idea as to whether 1.2145/65 is going to hold as new support or not.
I’m also curious to see how Monday opens. If the pair gaps down to start the week and it goes unfilled for more than 24 hours, we could see a move back toward 1.2070 or perhaps even 1.1930.
If buyers manage to keep the price above 1.2145 on a daily closing basis, we could see a move toward the 1.2325 resistance area. As the low of the 2008 financial crisis, it’s bound to attract an influx of selling pressure if tested.
Last week I pointed out a trend line on the GBPUSD that extends from the 2017 high. Although it hadn’t played much of a role as support at the time, it did appear to have attracted a few bids in early January.
Thursday’s bullish rejection candle confirmed the level as new support. What followed was a 200 pip single session rally and fresh eighteen month highs for the pound.
From here 1.3610/20 is a must hold support area. As long as the GBPUSD remains above it on a daily closing basis (using New York close charts), the bullish outlook is intact.
Back on January 2, I mentioned how the pair might have carved a cup and handle formation. While it isn’t something I trade or teach, the appearance of the last three months of price action combined with the multi-year rally is difficult to ignore.
If it is indeed a cup and handle, we could see the GBPUSD trading near 1.4070 over the coming weeks and months. The more immediate concern, however, is that the 1.3610/20 area must hold as support.
Key resistance comes in at 1.3835. This is the February 2016 low and is an area that’s sure to attract a few offers on the way up.
I’m going to keep a close eye on the pound this week. In my opinion, this is one of the better opportunities at the moment.
The USDJPY sold off sharply last week following the break below 112.00. While sellers didn’t hesitate much during Wednesday’s session, there was, in fact, a selling opportunity on the 4-hour chart.
On Tuesday I mentioned the wedge pattern that had developed over the last two months. Wedge support broke down hours later, triggering a 100 pip drop in just seven hours.
See this post where I point out the retest on the 4-hour chart.
With the 110.85 support area intact to start the week, we could see the USDJPY regain some lost ground. There is even a downward sloping flag on the 1-hour time frame suggesting the same.
Key resistance for the week ahead comes in at the 112.00 handle. The level doesn’t need much of an introduction given the lows throughout December and early January.
A daily close at 5 pm EST below 110.85 would expose the next key support at 109.85. The area served as a pivot for the pair in August and September of last year.
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Following four consecutive down days, the EURJPY found itself back below the former range top at 134.30/40. The area had capped advances between September and early December of last year.
With Wednesday’s close falling well below 134.30/40, it was logical to assume the area would begin to attract sellers.
Although Thursday’s session did encounter a few offers here, EURJPY bulls had other plans. Friday’s impressive rally in the Euro puts the pair back above the 134.30/40 area while exposing the 136.60 resistance level.
The late week rally managed to carve a bullish pin bar on the weekly chart. However, it isn’t something I will trade given how close the pattern is to a twenty-six month high.
In fact, that pin bar could very well be a hanging man, but we don’t have enough evidence to make that claim just yet.
Like all of today’s charts, I’m going to give this one some space and time. I’m always a bit distrusting of Friday breakouts, particularly those that occur ahead of a U.S. holiday weekend.
The EURNZD head and shoulders pattern we’ve discussed for several weeks is under fire. Friday’s Euro rally puts the cross back above two key levels at 1.6630 and 1.6750.
While it isn’t negated just yet, the head and shoulders reversal is on life support. Only a daily close (5 pm EST) back above the neckline near 1.6860 would cancel out the bearish reversal pattern.
EURNZD bears also face a weekly bullish pin bar.
Friday’s bounce carved a 300 pip bullish pin bar that could help lift prices this week.
That said, with the pair trading just below the confluence of resistance at 1.6850/60 (see chart below), buyers have their work cut out for them.
I’m going to stand aside for now. Large moves on Friday can often be misleading. Buyers also need to close the pair above that 1.6850/60 area before I can even consider a long position.
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