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Weekly Forex Forecast (January 2 – 6, 2017)

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After consolidating for a few sessions, the EURUSD finally made a move that started on Thursday of last week.

However, the 250 pip rally stalled on Friday, forcing buyers to give up more than half of the recent gains. This selloff formed a bearish pin bar at the 1.0515 handle, a level we’ve had our eye on for several weeks.

While I believe Friday’s price action is a sign that sellers maintain control, the big question is, did the extremely low liquidity play a part?

Judging by the lack of event risk needed to cause such a spike, it would seem that liquidity did indeed play a role. As such, I’ll need to see how the next few sessions play out before any further consideration is warranted.

For the week ahead, the 1.0515 area continues to serve as resistance while support comes in at 1.0366.

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EURUSD pin bar

The GBPUSD spent last week consolidating below the 1.2326 handle before testing it as new resistance on Friday.

One thing I found interesting is that several brokers I use gave very different closing prices for the pound versus the US dollar. Some show the pair closing below 1.2326 while others show a close above it.

This no doubt was due to the low liquidity last week, particularly in the last few hours of Friday’s session.

But the discrepancy is nothing a bit of patience can’t resolve. We should know where the GBPUSD stands after the first few sessions of 2017. However, due to the New Year holiday, full liquidity isn’t expected to kick in until sometime next week.

At the moment, key resistance is at 1.2326 while support resides at the October lows near 1.2090.

GBPUSD range

Like several other majors, the AUDUSD found a bid on Thursday which took the pair up to the 0.7245 handle.

But US dollar bulls weren’t having it and quickly extinguished the rally. This left a bearish pin bar to end the week, a sign that more weakness is likely over the coming days.

However, just like the other currency pairs we’re discussing today, the AUDUSD price action is a bit suspect due to the holiday-induced liquidity drain.

So while things look bearish to start the new year, it may be best to remain on the sideline until we have further evidence that sellers maintain control.

A daily close below 0.7160 would expose the next key support level at 0.7065. Alternatively, a move above last week’s high at 0.7245 would expose the November 2016 lows near 0.7330.

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AUDUSD support level

The EURGBP formed a massive 150 pip bearish pin bar on Friday. This came after a retest of the 0.8580 area, which served as resistance in July and November of last year.

A review of the chart below also reveals what could be a head and shoulders pattern with a neckline at 0.8330.

While still unconfirmed, a close below 0.8330 could open the door for a much larger move over the coming weeks and months.

Note that in addition to 0.8330 we also have trend line support that extends from the November 2015 low. It’s still a long way off, but this is a level that could play a significant role going forward.

For the week ahead, key resistance comes in at 0.8580 while support (and possible neckline) is at 0.8330.

EURGBP bearish pin bar

On December 16th, the NZDCAD broke below trend line support that extends from the August low at 0.9275. Then on the 22nd the pair tested this level as new resistance before sliding 30 pips into the close.

Last Monday, I mentioned the idea that a retest of the 0.9340 area could offer a favorable selling opportunity.

However, buyers managed to close the pair back above new trend line resistance, thus negating the bearish bias in the short-term.

There was no sell signal, so we never entered short.

Fast forward to the end of last week, and it appears that the entire relief rally was a false break.

NZDCAD false break

Notice how the week closed back below this trend line. But as I’ve mentioned in the past, a pin bar is nothing more than a false break on a lower time frame.

So while this appears to be a false break on the daily chart, it turned out to be a bearish pin bar on the weekly.

This development keeps the bearish bias alive for the new week with the 0.9340/50 area once again serving as resistance. Key support comes in at the July low of 0.9080.

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NZDCAD weekly pin bar

Leave a Comment:

4 comments
Carlos Montes says

Hi Justin, Just one question: for enter in the EURUSD with the bearish pin bar formed, do you thing the best strategy is to wait for the 50% retracement?. Thanks.

Reply
    Justin Bennett says

    Carlos, as I mentioned, I’m not particularly interested in the EURUSD pin bar.

    Reply
Bongani Miya says

When you check all the euro pairs had some spike. I believe it was because of the announcement by USA about France

Reply
    Justin Bennett says

    Bongani, as far as I can tell, it was mostly due to “thin” market conditions.

    Reply
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