The EURUSD reached our target at 1.2275 on Friday. I mentioned the break below 4-hour wedge support on Thursday when the single currency was trading at 1.2338.
Although it made for a decent trade, a much bigger opportunity is brewing.
I’ve maintained for several weeks now that the price action since late January is nothing more than consolidation. It’s expected to see this type of push and pull action from bulls and bears given the implications of what’s to come.
So what is this bigger opportunity?
In my opinion, it will materialize on either a daily close below the April 2017 trend line support or above 2008 trend line resistance. Regardless of the direction, such a breakout would signal the beginning of the next multi-month leg higher or lower.
For now, though, traders will have to settle for smaller 50 to 100 pip moves. As for this week, it’s going to take a daily close (using a New York close chart) below 1.2275 to expose the confluence of support at 1.2160.
Alternatively, a move back to trend line resistance from the February 16 high would likely encounter resistance near 1.2370. However, keep in mind that Friday’s high at 1.2335 is also key and could repel advances this week.
GBPUSD bulls closed the pair above a significant level last week. The trend line that extends from the January 25 high served as resistance on several occasions before succumbing to buying pressure on Tuesday.
However, despite Tuesday’s breakout, buyers had some trouble in the 1.40 region. It’s easy to see why when viewing things from the daily time frame.
The 1.40 area has served as a pivot for the better part of 2018. So it’s no surprise that the pair had some trouble here last week.
But even Friday’s retest of former trend line resistance as new support didn’t garner much attention from pound bulls. This alone leaves me uncertain about the validity of Tuesday’s bullish break.
Because of that uncertainty and the fact that the 1.40 handle is just 60 pips above Friday’s close, I’m going to stay on the sideline. I’ll take an interest if buyers can clear 1.40 on a daily closing basis, but until that time, last week’s breakout runs the risk of being false.
On February 12 I pointed out a wedge pattern on the EURGBP that could produce a breakout opportunity. That break came on March 1, and former wedge resistance was tested as new support between the 12th and 13th.
However, the level gave way last Wednesday and was once again serving as resistance by Thursday’s session.
For those wondering why this wasn’t a buy, two reasons come to mind. The first is that there was no buy signal. Although Monday and Tuesday held above the level, neither formed a bullish pin bar or even a rejection candle.
The second point is that, as I mentioned on February 12, the velocity of the selloff last September raised some doubts about a potential bullish scenario here.
So despite the descending wedge (usually a bullish sign), I wasn’t willing to commit capital, at least not without some form of bullish price action.
With the EURGBP now back inside this wedge pattern, it may be time to begin looking for short entries. In my opinion, Thursday’s retest of wedge resistance at 0.8860 was a valid area to short the Euro cross.
But in case you missed it, sellers broke a level on Friday that could produce an opportunity this week.
The short-term trend line that extends from the January 25 low broke down on Friday. As such, I would expect the 0.8830 area to attract an influx of selling pressure if tested this week.
As long as the 0.8830 area holds as resistance on a daily closing basis (using a New York close chart), the lower portion of the wedge near 0.8670/80 remains exposed.
On Tuesday I wrote that the GBPJPY could overshoot new resistance at 149.40. For those who missed the commentary, the 149.40 area is former trend line support that extends from the 2016 low.
I was seeing quite a bit of confluence building in the 150.75 area, which is why I thought we might get an intraday spike to revisit the level before selling off again.
Fast forward to today, and it seems Tuesday’s high of 149.38 was as good as it’s going to get for buyers. Of course, anything can happen, so it’s best to take that comment with a grain of salt.
Still, Friday’s close below the 147.90 to 148.00 area looks rather convincing for bears. This was the area that gave way last Tuesday and subsequently held as new support between Wednesday and Thursday.
Like any Friday break, especially one as marginal as this, I’ll need to see how the pair reacts to the 148.00 area before further consideration. But as long as 148.00 holds as new resistance on a daily closing basis (New York 5 pm EST), the 145.85 handle remains exposed.
The EURCAD tested a confluence of resistance for the second time last week. The 1.6100/50 area came under fire on March 7, and despite a brief yet violent selloff, it’s once again under pressure from buyers.
As you can see from the chart below, 1.6100/50 is ascending channel resistance that extends from the May and June 2017 highs. However, what you cannot see from this chart is that 1.6100 is also the 2016 high.
In fact, before January 2016, the EURCAD hadn’t traded in the 1.6100 region since late 2009. So there’s no question that this is a critical horizontal level. Add ascending channel resistance to the mix, and you have an area worth watching.
That said, the Canadian dollar has been incredibly weak of late. And as for the EURCAD, the lack of bearish price action at current levels suggests that patience is the best course of action for now.
I’m going to keep this one on my watch list given the confluence in the 1.6100/50 area. The ample space to the downside also makes this one worth keeping an eye on over the next few weeks.