Weekly Forex Forecast (July 3 – 7, 2017)

After five weeks of consolidating, the EURUSD made another push higher last week. The pair closed above the 1.1290 area on Wednesday, exposing the next area of resistance at 1.1430/50.

This was something we discussed in the previous weekly forecast. I also mentioned the significance of the confluence of resistance at 1.1430/50 during Thursday’s session.

We saw this area attract sellers in the final 24 hours of trade last week. However, the damage was limited, and the rally that has consumed 2017 is still intact.

Whether or not sellers will hold 1.1430/50 is yet to be seen. Any bearish price action in this region would hint at a rotation lower toward key support at 1.1290.

Alternatively, a daily close above 1.1430/50 would set the stage for a continuation of the 2017 rally. In fact, it would suggest a tentative break of the consolidation pattern that began in early 2015.

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The GBPUSD outpaced its Euro counterpart last week with a gain of nearly 300 pips. Buyers also managed a close above the 1.2950 area which once again exposes former ascending channel support (new resistance) at 1.3050/80.

With the pair so close to support and resistance, finding a setup with a favorable risk to reward ratio will be a challenge.

Moreover, the pound sterling has been one of the weaker currencies against the greenback in recent weeks. So the question must be asked as to whether last week’s surge is temporary or the beginning of the next leg higher.

To find the answer we’ll need to wait for a break of the current range. I haven’t been a fan of trading the GBPUSD in 2017, and nothing about the recent price action has changed my mind.

The AUDUSD retested a significant level on Friday. The trend line that extends from the 2016 high at 0.7834 capped two previous advances, not including the November 2016 selloff.

See Friday’s commentary for a view from the weekly time frame.

Although buyers managed to claw back some intraday losses before the weekend, the pair closed Friday well below its session high of 0.7711. We expected the selling pressure in the 0.7700 area considering this is the same trend line that triggered the March 21st selloff.

From here I’ll be watching for a bearish signal just below the 0.7700 handle. Key support comes in at 0.7620, 0.7565 and 0.7520.

On the flip side, a daily close above 0.7700 would feed the bullish scenario and expose the February and March highs near 0.7740/50. A break above that would pave the way for a retest of the 2016 high at 0.7834.

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The NZDUSD is at a crossroads. Buyers did manage to close the pair above the long-standing trend line resistance near 0.7300. However, they’ve yet to take out the June 27th high at 0.7343.

This puts the pair in a tight 50 pip range to start the new week. A close above 0.7340 or below 0.7280/90 would signal the likely path forward.

But perhaps a more interesting development is what’s unfolding on the 4-hour chart. This is one of those situations where an intraday time frame can provide an additional clue.

The 4-hour rising wedge that began forming in early June hints at exhaustion from buyers. Patterns such as this usually result in a pullback to some degree.

With that said, a pullback doesn’t have to mean a full reversal of the recent uptrend. In other words, it doesn’t suggest a close below support would offer a favorable opportunity to get short.

The reason I’m cautious here is due to former trend line support just below current prices at 0.7280/90. A close below wedge support would put the pair in the vicinity of this level which would make a short a risky endeavor.

On the other hand, if the NZDUSD closes back below this trend line on a daily closing basis, it would suggest last week’s bullish break was false.

For now, I’m just waiting to see which scenario plays out. A close above last week’s high at 0.7340 would indicate buyers remain in control while a close back below 0.7280/90 would suggest the beginning of a bearish reversal.

Is the EURGBP getting ready to reverse course?

A look at the price action since early May doesn’t offer many signs of weakness. However, two things happened last week that cast a shadow of doubt over this 580 pip rally.

The first is the bigger picture on the daily time frame. Throughout 2017 the Euro cross has been limited by a 550 pip range.

While buyers did manage to pierce the 0.8850 handle in June, they failed to close a single session above it.

Second is the bearish pin bar that formed on the weekly chart as a result of last Friday’s selloff. The long upper wick of the candlestick indicates that sellers are determined to hold the line at 0.8850, at least for now.

Last but not least is the breakdown that occurred during Thursday’s session. Sellers broke an intermediate trend line that extends from the June 8th low (see chart below), which was subsequently retested as new resistance on Friday.

From here I’ll be watching for a selling opportunity from the 0.8780/90 area. Key support comes in at 0.8725 followed by 0.8655.

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