The EURUSD broke a major resistance level on Friday. The 1.1720 handle has been a key pivot for the single currency since August of last year.
That said, I’m always overly cautious about Friday breaks. The lack of volume heading into the weekend doesn’t allow for the market as a whole to weigh in, which can sometimes lead to false breaks.
Another reason I’m not ready to jump on the bullish bandwagon just yet has to do with the pair’s failure to close above short-term trend line resistance on Friday. The level that extends from the May 14 high could offer clues for us going forward.
A daily close (New York 5 pm EST) above it would expose 1.1830 followed by 1.1940. I’d also expect buying pressure to mount on a retest of 1.1720 this week. That’s the must-hold level in my opinion if buyers want to push prices higher this week.
A failure to stay above 1.1720 on a daily closing basis would re-expose the trend line that extends from the 2017 low. That level comes in near 1.1620 at the time of this writing.
The GBPUSD gained some ground last week after closing above the 1.3180 area. And although the downtrend is still intact, the pair has formed a downward sloping flag which hints at a move higher.
However, buyers still need to get through the confluence of resistance at 1.3300 before any meaningful correction can develop.
A daily close above channel resistance would expose the 1.3460 level. You can see how this area was a key pivot for the pound between May and June. A close above 1.3460 would open the door to the 1.3600 handle.
Just keep in mind that GBPUSD bulls first need to get through the 1.3300 handle for any of the above to happen. Given the significance of the area, I doubt it will occur without some back and forth price action first.
The USDJPY has been drifting higher since the March low at 104.60. In that time, the risk-sensitive pair has managed to gain more than 600 pips.
A couple weekends ago I pointed out a descending channel that extends from the May 21st high. The pair had just come off channel resistance and was struggling to rally above the 110.70 region.
However, buyers eventually managed to break resistance on the 29th of June, which was also the last trading day of the month.
We can even see how this old resistance level served as new support last week. The USDJPY caught a bid here on both Wednesday and Thursday.
On Friday, the buying pressure subsided once more, and the market struggled to hold its head above 110.50.
The more significant area, though, may lie just below 110.50 at 110.30. If we draw a trend line from the March low and connect it with the May 29 low, it creates a confluence of support in the 110.30 region.
In fact, that trend line may be an ascending channel. The pattern connects with highs from March 13, May 2, and the May 21 daily close.
That’s going to be a key area for buyers this week. A failure to stay above it on a daily closing basis (New York 5 pm EST) would open the door to the late June lows at 109.40.
On the flip side, bullish price action from the 110.30 area this week could expose higher prices including the May high at 111.40.
I’m neutral here at the moment, but based on last week’s price action, I’m not overly confident that buyers can pull it off. As always, time will tell.
Last Sunday I pointed out what appears to have been a false break on the USDCAD. The June 19 close put the pair above ascending channel resistance, but buyers failed to maintain the level as new support two weeks ago.
Additionally, a view of the weekly time frame shows that the weekly range engulfed the prior one. That isn’t surprising given that false breaks on the daily chart often carve pin bars or engulfing patterns on the weekly.
The new resistance level I pointed out last Sunday was 1.3240. That’s the approximate intersection of ascending channel resistance.
However, I also said to keep an eye on 1.3200. Here’s what I wrote:
That places resistance near the 1.3240 area, though I doubt buyers will be able to push prices that high in the coming week. Instead, I think the 1.3200 handle will attract selling pressure on a retest of the area as new resistance.
In summary, that gave us a 40 pip range between 1.3200 and 1.3240 to begin watching for opportunities to get short. Monday reached a high of 1.3225 before selling off, and Tuesday was a bit worse for buyers with a high of 1.3207.
The first key support level came in at 1.3120. Note how the pair has indeed encountered buying pressure at this level between Wednesday and Thursday.
With Friday closing well below 1.3120, sellers will likely make a stand here if tested as new resistance this week. Key support comes in at 1.3000 followed by 1.2870/80.
I’ve discussed the EURAUD a few times in recent weeks. First was on June 20th followed by the last two weekly forecasts.
The reason it remains at the top of my watch list despite the lack of activity has everything to do with the potential 1,000 pip head and shoulders pattern.
While it’s far from confirmed, the pending structure is nearing its final stage of completion. And with an objective that stretches 1,400 pips from current levels, it’s well worth keeping an eye on.
However, just because the pattern isn’t confirmed doesn’t mean we can’t monitor for possible entry points. In fact, front running a pending reversal pattern of this magnitude can be incredibly profitable and help to ease the fear of missing out if it does begin to trend lower.
One level I’m monitoring is the short-term trend line that extends from the June low. I pointed it out last Sunday as one to watch and is best viewed on the 4-hour time frame.
You can even see how the pair caught a bid from this level at 1.5740 during the July 4th session. Of course, because it’s an ascending level the support area is now closer to 1.5800.
If sellers can manage a close below this level over the coming sessions, the completion of the right shoulder will be that much closer. It could also offer an opportunity to front run an eventual break below the neckline near 1.5340.
You could also take profit in that area; the choice is yours and depends on your style and preferred holding period among other things. On that note, if the EURAUD is gearing up for a 1,000+ pip reversal, it will likely take the remainder of 2018 and then some for sellers to see it through.
On the other hand, if buyers push prices above recent highs at 1.5880 and begin to challenge the current 2018 highs near 1.6100, we can forget about the reversal pattern altogether.