The EURUSD has backed itself into a corner to start the new week. On Friday, the pair failed to breach new resistance at 1.0715 but also didn’t break below the 4-hour trend line I mentioned on Thursday.
You can see from the chart below that the pair spent most of Friday hovering just above the trend line that extends from the current 2017 low.
We’ll need to wait and see how this plays out, but given the narrowing price action, I’m maintaining a slightly bearish bias for now.
A close below trend line support would expose the 2016 closing price at 1.0515. This area also served as support on multiple occasions in November and December of last year.
Alternatively, if buyers manage a daily close back above 1.0715, we could see the single currency extend gains toward the confluence of resistance at 1.0860.
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Last weekend I pointed out how the GBPUSD looked relatively bullish despite being capped by the 1.2415 handle. Sure enough, by the end of Monday’s session buyers had pulled off a 160 pip gain.
The importance of the 1.2415 level was once again confirmed on Tuesday when the pair bounced 100 pips after carving out a session low of 1.2417.
However, buyers were stunned on Thursday when they ran into the November 2016 high at 1.2673. The losses continued into Friday’s session, but the pair still squeezed out a 170 pip gain for the week.
There is a chance that the last four months of price action has carved out a double bottom. But for an 800 pip reversal to become a reality, the bulls need to overcome several key areas first.
For this reason, I’m going to hold off on suggesting that a major reversal is in the cards and instead view this as a sideways market for now.
The USDJPY bounced back last week after a rough start to the new year. At the moment, this second bounce appears to have formed a double bottom pattern on the 4-hour chart.
However, a close above the neckline at 115.60 is needed to confirm the bullish reversal pattern.
As mentioned last week, an interesting observation here is that the two areas are nearly equal distances apart. The distance from the neckline to the double bottom is 304 pips while the distance from the neckline to the measured objective is 300 pips.
We’ll see if buyers can manage a close above the 115.60 handle in the week ahead. If they do, a buy signal on a retest of the level as new support could catapult prices toward the objective at 118.60.
Alternatively, a close below key support at 112.60 would negate the bullish bias and expose the May 2016 high at 111.40.
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The NZDUSD hit a brick wall last week at the confluence of resistance at 0.7300. This is the intersection of two trend lines, one from the 2016 high at 0.7484 and the other from the 2016 low at 0.6346.
I mentioned the potential for a reversal in this area on Wednesday of last week, just hours before the pair carved out a bearish engulfing pattern.
However, the decline halted on Friday as weaker than expected U.S. fourth-quarter GDP failed to inspire confidence for USD bulls.
With that said, the downside risk remains for the week ahead as long as last week’s high at 0.7311 remains untarnished. And judging by Friday’s price action, it’s going to take a close below the 0.7237 handle to trigger additional selling pressure.
All in all, I remain cautiously bearish the NZDUSD. I’ll discuss downside targets if and when sellers manage a close below the December 2016 high at 0.7237.
EURGBP could be on its way to confirming an 800+ pip head and shoulders pattern. We discussed the potential reversal pattern in the previous forecast and last week’s 130 pip decline puts the Euro cross just 200 pips above the 0.8330 neckline.
On Tuesday of last week, I also mentioned a more immediate opportunity. The pair had recently closed the day below the 0.8625 handle and was beginning to pressure trend line support from the December 15th low.
Just hours after releasing that commentary the pair broke the 4-hour trend line. The breakdown went on to produce another 100 pips of losses before the pair found support in the 1.8460 region, a minor support area that I had pointed out in the member’s forum.
From here it seems it’s going to take a daily close below the 0.8460/70 area to open the door for a move toward 0.8330. And if that support level fails, we could see the EURGBP slide as much as 800 pips over the coming weeks and months.
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