There isn’t much need for a detailed explanation regarding the EURUSD price action that ensued from last week’s ECB rate decision. The chart below sums it up pretty well. That being said, there are a few things to note here that could influence the direction of the pair in the week ahead.
Before last Thursday’s session, the pair had been holding below former ascending channel support near 1.1020. However, that quickly changed as soon as Mario Draghi began answering questions during the Q&A session that followed the rate decision.
The pair’s advance was capped by the 1.1210 handle but not before the single currency managed to climb 380 pips against the US dollar from session lows.
As for this week, I expect the 1.1210 level to continue to act as resistance while the 1.1060 area should act as support, if tested. A close above 1.1210 would expose the current 2016 high at 1.1375.
After finding a bid over the last two weeks, GBPUSD faces a major test in the coming sessions. The gap from February 19th was closed last week, however, this area will continue to be a hurdle for the pair during the first session of the new trading week.
A close above 1.4390 would expose confluent resistance at 1.4670, a level that marks the intersection of the February high with trend line resistance that extends from August of 2015. Key support from current levels comes in near 1.4250 with another area of support found at 1.4078.
I favor the upside in the near-term, but as long as the pair trades below the trend line shown below, the longer-term picture remains weighted to the downside.
EURGBP saw considerable buying pressure following last week’s ECB rate decision. However, the trend line that extends off the December 2015 low prevented the advance from overtaking the current 2016 high at 07927.
The pair gave up additional ground before the weekend, closing just 40 pips off of the 0.7700 level that has acted as support since the second week of February.
A look at the 4-hour chart below shows what appears to be a head and shoulders reversal pattern. Of course nothing is confirmed until we see a close below the 0.7700 handle, which is the neckline of the price structure.
Below that, a support area located between 0.7490 and 0.7525 could act as a target should the pair lose additional ground this week. This area happens to line up fairly close to the 220 pip measured objective of the (potential) reversal pattern.
I’ve had this GBPNZD falling wedge on my radar for quite some time. Based on the price action of late coupled with the recent bounce off of the 2.0700 handle, it would appear that the British pound has put in a final low against the New Zealand dollar.
Of course only time will tell if that is truly the case and would only be confirmed on a close above 2.1500. Such a close would indicate that the rally which began last April may be ready to resume with the first target being 2.2400.
One thing to note here is that GBPNZD has been respecting Fibonacci levels extremely well over the past year. So, if you want to quickly identify key levels to keep an eye on, simply measure from the 2013 low to the 2015 high on the weekly chart and you will get a good feel for where the pair could run into trouble.
AUDJPY faces a key test in the week ahead. The 86.35 level acted as support in December of 2015 and subsequently acted as resistance last month. A close above this level would be a big win for the bulls, however, the longevity of this rally would still be in question.
Why is that, you ask?
While 86.35 is indeed a key level, the 87.50 handle is arguably more important. This area represents the upper boundary of the descending channel that extends off the 2014 high and is also the 2016 opening price.
This means that a close above this area would not only signal a break of channel resistance, it would form a new high for 2016, a year that offered a very shaky start for the risk-sensitive pair.
That being said, I will favor the downside so long as the pair continues to trade below 87.50 on a daily closing basis. Should the bearish trend remain intact, the 74.50 support level looks like a prime target. Other key levels to be discussed if and when the pair forms a proper sell signal.