Weekly Forex Forecast (May 23 – 27, 2016)

by Justin Bennett  · 

May 22, 2016

by Justin Bennett  · 

May 22, 2016

by Justin Bennett  · 

May 22, 2016

EURUSD is teetering at a key inflection point. We’ve been watching the 1.1215 handle for several weeks now, particularly following the bearish pin bar on May 3rd as well as the May 13th break below 1.1357.

I also mentioned this level at the close of Friday’s session, noting that it could determine this week’s direction. And while the pair appears to have closed above 1.1215, it wasn’t convincing enough to call it a buy.

But even if Friday’s close had been more impressive, it wouldn’t change my approach. The truth is I’ve only been looking for selling opportunities thus far in 2016.

Why is that?

It’s because I’m using the 2015 channel as a barometer on whether to remain bearish or turn bullish. And so far the single currency has been rejected without compromise on both retests (February 11th and May 3rd) of former support as new resistance.

Yes, the pair is currently higher in 2016, but 1.1215 is the same price EURUSD was trading at in January of last year after coming off a 2,700-pip landslide; not exactly a sign to get bullish.

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EURUSD key support and resistance levels

GBPUSD has been one of the more difficult pairs to read lately. And the topic of Brexit has made trading the British pound a risky endeavor, to say the least.

You may notice that I’ve removed a couple of levels from the chart below. The reason for this is the recent false breaks, which have made trying to discern the immediate direction of the pair with some degree of confidence virtually impossible.

Then again, this has been my opinion of GBPUSD since late-April. The only way I’ll be interested in trading the pair is with a daily close above 1.4670 or a close below 1.4050. Until that time, I’ll remain on the sidelines.

GBPUSD range on the daily chart

USDCAD bulls continued their winning ways last week, adding another 180 pips to the pair’s 650-pip rally since the May 3rd low.

What’s more, the oil-sensitive pair managed a weekly close above what could be the neckline of an intraday inverse head and shoulders. I commented on this pattern and the influence of the 1.3575 handle last Tuesday.

From here traders can watch for the former resistance level to act as support in the new week. However, because the structure of this reversal isn’t as defined as I’d like to see, only bullish price action in the 1.3030 area would warrant further consideration.

Those looking for a more conservative entry option could wait for a close above last week’s high of 1.3161. Key resistance above that comes in at 1.3300 and 1.3575.

Want to see how we are trading these setups? Click here to get lifetime access.

USDCAD reversal pattern on the daily time frame

EURGBP managed to find a bid during Friday’s session and subsequently ended the day above the 0.7700 handle. I mentioned this area last Thursday after the pair had confirmed the three-month head and shoulders pattern.

Friday’s price action was a perfect example of why I don’t risk a position when a pair has made an extended move away from the 10 and 20 EMAs. Mean reversion is one of the lesser known concepts in the world of trading but one that can completely change the game for those who understand and utilize it.

With the pair finishing the week above 0.7700, our attention turns to what could be the former neckline of the reversal pattern. I say this with a hint of reservation because this level has not yet been tested as either support or resistance.

If former neckline support holds and we see the Euro cross selloff in the coming sessions, an eventual move toward the objective of 0.7386 could be in the cards.

EURGBP head and shoulders reversal on the daily chart

EURNZD has been mostly sideways for the majority of 2016. Because of this, and due to the recent break of channel support, the Euro cross may be on the cusp of gaining some traction in the coming sessions.

The chart below shows the descending channel that had been carved out between August of 2015 and early May of this year. I posted a similar chart on April 7th.

EURNZD broken descending channel on the daily chart

While this is hardly a confirmed buying opportunity, the current scenario bodes well for a push higher. Since topping out at the 1.6830 handle on May 10th, the pair has drifted lower into support at 1.6530.

The key word is “drifted” as the recent move lower doesn’t appear to have much conviction behind it, at least not yet. This seemingly corrective move could open the door to higher prices should buyers step in and take advantage of these reduced prices.

Want to see how we are trading these setups? Click here to get lifetime access.

EURNZD support and resistance levels

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  1. Hi Justin,
    I know this may not be the best place to ask this question, however a price action question is a price action question.

    If i may ask, would you rather recommend drawing trend lines connecting the tops or bottoms of the candle shadows (highs/lows) as against drawing the lines across the candle open/close?

    Thank you.

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