Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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I wanted to show a “zoomed out” view of the EURUSD today to appreciate just how far sellers have taken the single currency in recent weeks.
You may recall my commentary from April 20. That was the day that Euro bears began to take back control by closing the pair below the April 2017 trend line. We had discussed this level at length for the better part of 2018.
Since April 20, the EURUSD has lost more than 600 pips. That’s impressive considering the breakdown occurred just five weeks ago. And based on Friday’s close, I see no reason to change my bearish stance on this one.
Last Wednesday’s close below 1.1720 and retest of the area as new resistance on Thursday produced yet another opportunity to get short.
I mentioned this 1.1710/20 area in last Sunday’s forecast. In that commentary, I wrote that it would take a close below 1.1710/20 to force a retest of the next key support at 1.1570/80.
That brings us to this week’s price action. So long as the EURUSD trades below 1.1720 on a daily closing basis (using a New York close chart), I’ll continue to favor shorts.
Key support for the week comes in at 1.1575. This area was responsible for attracting buyers last November.
When I commented on the GBPUSD last Sunday, the pair was still trading within the 140 pip range between 1.3460 and 1.3600.
On Sunday I quoted what I wrote on May 13, and I’m going to do so again today just to show you how simple (yet powerful) price action trading can be.
Here’s what I wrote on May 13:
Those two levels, 1.3460 and 1.3600 give us a range to keep a close eye on for the week ahead. While I’m not interested in trading the range, I am awaiting a daily close (New York 5 pm EST) below 1.3460 or above 1.3600.
If I were forced to choose the one that’s more likely, I’d have to go with a break lower given the recent selloffs. But as always, it’s best to let the market make the first move.
A daily close below 1.3460 would expose the next key support at 1.3300. Alternatively, a close above 1.3600 would target the February and March lows at 1.3760.
So let’s break last week’s price action down step by step.
On Monday, the pair closed the day (New York 5 pm EST) below the 1.3460 support. That close represented a range break but left us waiting for a sell signal. By the way, I also commented on this breakdown as it was unfolding on Monday.
The very next day on Tuesday, the GBPUSD formed a bearish pin bar. Notice the length of the upper wick which signaled an increase in selling pressure above former support at 1.3460. That pin bar was the sell signal.
On May 20 and again on the 21st I pointed out the next key support at 1.3300. Sellers reached that area during Wednesday’s session, just 24 hours after the bearish pin bar had formed. The 1.3300 area was our target.
Now, I’m not writing this to imply that this was an incredibly profitable trade. The truth is, it would have barely qualified as a 2R (two to one reward to risk ratio) setup. However, the way it unfolded was precisely what you should be scanning for as a price action trader.
As for the 2R bit above, I suspect that those who are still short will be able to squeeze more out of the GBPUSD. Just like the EURUSD above, I don’t see any reason to reverse my bearish outlook so long as 1.3460 holds as new resistance.
On Wednesday I discussed a 4-hour ascending channel on the USDJPY. The pair had just broken below channel support and was in the process of retesting the 110.30 area as new resistance.
Within the next few hours, the USDJPY plunged 100 pips. Buyers attempted to push prices higher on Friday but ultimately failed to gain any meaningful ground.
My outlook for the risk-sensitive pair hasn’t changed. As long as prices remain below the 110.00 resistance area on a daily closing basis (New York 5 pm EST), I’ll stay bearish.
Key support for the week ahead comes in at 108.60 followed by the support zone that stretches from 107.40 to 107.70.
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A couple of weeks ago we had a healthy debate about whether this was a bullish or bearish structure in the member’s area. I maintained the stance that the price action since the 2017 low was merely consolidation in the form of an ascending channel.
That consolidation, by the way, began following the massive 7,000 pip decline that started in mid-2015.
I wrote a Q&A post on this very topic which I just published yesterday. For now, though, I’d like to focus on where I believe the GBPJPY may be headed.
I’ve had my eye on the June and August 2017 lows near 139.50 for quite some time. It’s near the 50% retracement when measuring from the 2016 low to the current 2018 high.
Furthermore, the 139.50 area represents the closing price of the June 24, 2016 Brexit selloff. The following session gapped down, and although it was filled within the next few weeks, gaps like that tend to act as price magnets.
Now, if we take a step back and also draw a descending channel starting from the current 2018 high and connect it to the April swing high and the March swing low, we get a chart like the one below.
I wrote a lesson a while back about how to use channels to identify profit targets. Although the channel below isn’t fully formed just yet, given that support lines up nicely with that 139.50 area, it could be a clue.
It may suggest that the GBPJPY has another 500 or more pips of downside left before buyers come to the rescue. However, don’t take that to mean that there won’t be bounces along the way.
There’s bound to be some turbulence for sellers. Just look at Friday’s session which was positive by 60 pips at one point and then closed down 70 pips.
As for what to watch this week, I’d say that any retest of 147.00 is a chance to scan for selling opportunities. Whether or not such a retest materializes is anyone’s guess, but you certainly don’t want to chase here.
Key support comes in at 144.00 with a minor area near the 145.00 lows. I don’t see much below 144.00 to prevent a move to the final target just below the 140.00 handle.
I pointed out this GBPNZD rising wedge during Wednesday’s session. The title of that post mentioned that a breakdown was imminent.
That may sound presumptuous of me, but the recent lower high in mid-May and failure to retest wedge resistance was a red flag for buyers. It signaled that a breakdown wasn’t far away.
By Wednesday’s close, the GBPNZD had broken below support on a daily closing basis. Remember, I use New York close charts so that each 24-hour period closes at 5 pm EST. You can get access to the same charts I use by clicking here.
Thursday’s session rallied, but buyers failed to close the pair back above wedge support. For the price action trader, this is exactly what you want to see.
Thursday’s movement gives credence to the idea that intraday price action is just noise. If you’re an end of day trader like me, that spike to 1.9394 was inconsequential. What matters is where the market closes at 5 pm EST.
Speaking of Thursday’s close, you’ll notice that it formed a bearish pin bar. It’s an indication that sellers remain in control following Wednesday’s breakdown.
Now, Friday’s close is a bit harder to read. The market closed right in that 1.9210/20 support area, so it’s likely going to take the next 24 to 48 hours to determine whether the area will serve as support or resistance going forward.
Below the 1.9210/20 area, we have 1.8900 followed by the inception point of this rising wedge at 1.8620.
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