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Weekly Forex Forecast (May 15 – 19, 2017)

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After a second consecutive gap higher last week, the EURUSD slipped back below a trend line that extends from the February 2nd high. At the moment that close back below the 1.0960 area stands as a false break following the May 7th run-off election in France.

Not only did the single currency give back the 1.0950/60 area, but it also retested 1.0860 last week. This area previously offered several days of support between April 24th and the 28th.

Friday’s weaker than expected data out of the U.S. that included CPI and retail sales triggered more dollar weakness. The timing couldn’t have been better for Euro bulls who were facing a fourth test of 1.0860.

However, those same buyers face a tall order in the week ahead. The area between 1.0950 and 1.0970 represents the intersection of a key horizontal level and the trend line from the February 2nd high.

This is no easy task, and I may even consider selling this rally but only if we get a proper sell signal. Otherwise, I’ll remain on the sideline.

Near-term support comes in at the March 27th high of 1.0900. But the more critical support, in my opinion, remains 1.0860. Until that area gives way, sellers will find it difficult to gain any lasting momentum.

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EURUSD resistance area

The GBPUSD traded in one of the tightest weekly ranges of 2017 last week. The pair was unable to push through resistance at 1.2985, but buyers once again held the line at 1.2860.

For the week ahead not much has changed. Until the pair manages to break free from this tight range, a favorable risk to reward ratio will be hard to come by.

For those who seek positions that last just one or two days, these tight ranges could be advantageous. For me, however, the price action of late has been too choppy and erratic to justify an entry.

GBPUSD range

Earlier this month we looked at the descending channel that had formed on the USDJPY during the first four months of 2017. Even before the run-off election in France on May 7th, the pair was testing channel resistance for the second time.

On May 8th the level gave way to higher ground. Shortly after that, the USDJPY rallied to a two-month high of 114.36. However, the final 48 hours of trade saw the risk sensitive pair give back all but 42 pips of last week’s gains.

Buyers start the new week at the 113.25 support handle. If they’re unable to hold this level, the next key support comes in at former channel resistance near 112.40.

On the surface, the USDJPY looks like a strong buy. It recently broke free from a descending channel and also held 113.25 into the weekend.

However, something isn’t sitting right with me. The decline that occurred in the final 48 hours of trade was arguably too aggressive to be a simple pullback. Corrective moves tend to drift lower rather than fall sharply like this.

I could be wrong, but the pair may give back the 113.25 level in the week ahead. As I mentioned above, the 112.40 region should attract a bid, but given the pair’s high sensitivity to risk, I’ll need to see a proper buy signal at support before considering an entry.

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USDJPY support

I mentioned the AUDUSD on Friday noting that the future direction hinged on the 0.7380 handle. The area has been a key factor since October of 2015 and is also the 61.8% Fibonacci retracement from the December 2016 low to the current 2017 high.

While it seems the pair closed Friday above 0.7380, a closer look reveals that the actual price of the 61.8% Fibonacci level is 0.7384. In that case, Friday’s 0.7383 close appears to have respected the resistance level on a daily closing basis.

That’s important because it’s the outcome we needed for the next leg lower to materialize. With that said, relying on exact prices like this rather than viewing them as areas can be a risky endeavor.

Regardless of whether buyers or sellers won Friday’s battle, we should have a definitive answer as to the future direction within the first 24 hours of this week. In fact, just five hours after the market opens we have industrial production data out of China at 10 pm EST.

Until proven otherwise, I favor selling AUDUSD rallies. Of course, a daily close well above the 0.7380 area would change my approach. Key support at the moment comes in near 0.7300, which is the trend line that extends from the 2016 low.

AUDUSD bearish rejection

The NZDUSD found a bid late last week at a trend line that extends from the 2015 low. The location of this level may differ somewhat depending on your broker, but the 0.6820/30 area seems to be accurate from the various feeds I’ve seen.

The New Zealand dollar has been one of the weakest currencies in recent weeks. Even against the greenback, which has been relatively weak on its own, the currency is down more than 500 pips since early February.

It looked as though the pair was trying to base at the beginning of April, but buyers didn’t get very far. And with prices now pressuring a long-standing trend line, a further breakdown in price could be in the cards.

I’ll be keeping an eye on the 0.6820/30 area over the coming sessions. A daily close below it would expose the 0.6690 handle. This area is the May 2016 low as well as the 61.8% Fibonacci retracement from the 2015 low to the 2016 high.

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NZDUSD weekly trend line

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3 comments
FOREX COrridor says

It will take a trader to be seasoned with derailed training to really understand how to analyse a trading chat. The profit making of any technical analyst stupendously depends on his or her ability to professionally analyse his or her trading chat and an impeccable discipline to stick his/her trading rules.

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Rauf Ahmad says

Amazing Analysis Justin

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    Justin Bennett says

    Thank you. Glad you enjoyed it.

    Reply
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