Although EURUSD managed to finish last week higher, the pair failed to overcome former channel support that extends off the December 2015 low. This leaves the immediate downside risk wide open as we head into a new week of trading that could prove quite volatile.
With the pair still ranging between former channel resistance and former channel support (depicted in the chart below), the future direction remains unclear. This is especially true when you factor in this Thursday’s ECB rate decision, which will be a major driver for the single currency going forward.
Given the tight range, directionless price action of late and upcoming event risk, attempting to trade the EURUSD at this point in time would be less than prudent in my opinion.
That said, there are other Euro-based currency pairs that could offer favorable opportunities in the week ahead, a few of which are mentioned below. Just keep in mind that any Euro cross will be susceptible to the increase in volatility that Thursday’s event promises to deliver.
Despite the February 23rd close below the multi-year low at 1.4078, GBPUSD managed to climb back above the key handle last week, leaving traders to question how much conviction is left in this multi-month bear trend.
The recent move higher flips near-term pressure back to the upside toward 1.4390. This area was a key pivot between January and mid February and also represents the unclosed gap from the 19th of February.
From here, traders can watch for bearish price action on a retest of 1.4390 as resistance. A daily close above this level would expose the February high at 1.4670.
I mentioned EURGBP last week as the pair was in the process of breaking below the 0.7754 handle, a level that previously acted as resistance in January.
Following Wednesday’s close below the level, the pair formed an inside bar during a rather quiet Thursday session. However, what caught my eye was the way the pair reacted on Friday when prices retested 0.7754 as new resistance.
The three-day sequence created a technical break followed by a bearish inside bar pin bar combo. This hints at the idea that the coming week will see the pair weaken further toward the next support area located between 0.7490 and 0.7525.
That said, just like any Euro pairing, the trajectory for the coming week relies heavily upon the outcome of Thursday’s ECB rate decision.
EURNZD is another pair I mentioned last week. Having broken below trend line support that extends off the April 2015 low, the pair looks ready to test the 1.5840 support level.
As I (re)studied the markets over the weekend, I noticed something interesting on EURNZD in addition to the price structure that I mentioned last week.
Using the two highs from August of 2015 and February of this year, a well-worn pattern emerges in the form of a descending channel. What is most notable here is how the lower boundary lines up perfectly with prominent highs/lows from July, August, October and December of last year (see red circles on the chart below).
This leads me to believe that if the 1.5840 level fails over the coming sessions, we could see losses extend toward the support area defined by 1.4780 and 1.4940.
Per my commentary from Friday, CADJPY managed to close above the range high on the very next 4-hour candle. The pair also managed to hold above this level to close out the week.
From here traders can watch for bullish price action on a retest of the 85.20 handle as new support. Key resistance comes in at the February high of 87 with a minor level of resistance found near 86.20.