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Weekly Forex Forecast (May 2 – 6, 2016)

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EURUSD finished the week just five pips away from new 2016 highs. It seems the break below the 1.1340 level on April 13th wasn’t meant to last.

While a close above the current April high at 1.1463 could open the door to further gains, the single currency has yet to climb back above former channel support that extends from the 2015 low. I mentioned this pattern last October just before the pair gave up more than 500 pips in four weeks.

I’ll stay neutral here as long as prices remain below the previously mentioned level. Only a daily close above it would signal that the rally that began last December is here to stay.

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EURUSD key support and resistance levels

GBPUSD looks ready to break free any day now. Although the 1.4670 resistance level remains intact, last Tuesday’s close above the trend line from August of last year was a telling sign that buyers are regaining control.

I’m also still under the impression that the price action since late January is an inverse head and shoulders pattern. If this is indeed the case, and the pair can manage a close above 1.4670, we could see a move toward the 1.5120 handle in the coming weeks.

A push beyond that would expose another critical level at 1.5500. Both of these areas (1.5120 and 1.5500) are important Fibonacci retracement levels based on the June 2015 high and the July 2014 high.

GBPUSD breakout from trend line resistance

After losing 380 pips in three weeks, EURGBP managed to regain 80 pips on Friday alone. However, the 0.7840 handle stands in the way of further gains in the week ahead.

I can’t help but notice the potential head and shoulders pattern that could be forming on the daily chart. Of course, this structure requires an additional push higher to form the right shoulder and is therefore only a watch list item at this point.

But with the potential for a 400-pip move, this is certainly one to keep an eye on in the days and weeks ahead. A push back toward 0.7930 followed by another round of selling would put the pair one step closer to a fully-formed reversal pattern.

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EURGBP potential head and shoulders pattern

AUDUSD gave up significant ground last week following a weak CPI reading. The 200-pip selloff that followed put the Australian dollar right back to channel support that extends from the March 16th low.

What’s noticeable about last Wednesday’s move is that it came shortly after the pair made a false break of key resistance at 0.7800. As I often say, a false break to one side of a pattern often leads to an extended move in the opposite direction.

While the pair could find a bid at the confluence of support, a close below this area would make for a more interesting setup in my opinion.

Two weeks ago, I mentioned the idea that the AUDUSD rally could be in trouble based on the upward sloping flag that had formed. We’ll see if there is any truth to this for the Aussie in the coming week.

AUDUSD confluence of support in focus

GBPNZD remains one of my top picks in the week ahead. After breaking eight-month wedge resistance on April 22nd, the pair has moved back to critical support at 2.0850.

While last week’s RBNZ rate statement triggered a rally in the New Zealand dollar, I wouldn’t be surprised to see GBPNZD move back toward its April highs over the next couple weeks.

As I mentioned last week, the sheer size of the falling wedge pattern that began forming last August could trigger an aggressive rally in the near to medium-term. However, we first need to see buyers step up at the 2.0850 handle before a retest of 2.1500 can be realized.

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GBPNZD key break from falling wedge and retest of new support

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2 comments
Joseph Goodyer says

Justin, love your work.

Cheers

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    Justin Bennett says

    Joseph, thanks for the kind words. Glad to hear you’re finding it helpful.

    Reply
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