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Weekly Forex Forecast (May 29 – June 2, 2017)

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EURUSD bulls have been on a tear following the first round of the French elections on April 23rd. It’s been one of the more impressive rallies since the start of 2015.

However, buyers struggled last week to overcome the 1.1240 resistance area. In fact, the five days of price action carved a bearish rejection of sorts on the weekly time frame, albeit small in comparison to the previous week’s gain.

But I won’t presume that buyers are done just yet. The pair’s overextension to the upside does suggest a reversion to the mean is in order, but momentum still favors the bulls.

Keep in mind that Monday could be relatively quiet with the U.S. offline for its Memorial Day holiday. Then again, Mario Draghi does speak at 9 am EST, so anything is possible.

For the week ahead key resistance comes in at 1.1240 while support can be found at 1.1090. Note that there is also some intraday support at 1.1166.

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EURUSD key levels

The GBPUSD continued to gain ground following the impressive April 18th rally. But the manner in which the pound carved new eight-month highs was of concern, especially to those who are familiar with sloping flag patterns.

Impulsive and corrective moves characterize a healthy pullback, and more often than not those corrections move against the grain and last for several days if not weeks. This is what gives a market that natural ebb and flow we’re used to as traders.

What’s unique about the recent GBPUSD rally is that there was no correction following the move on April 18th. Sure, the pair sold off slightly the next day, but an actual correction to help reset momentum never materialized.

This is when a pattern like the upward sloping flag in the chart below comes into play. Notice how the pair drifted higher over time rather than pulling back in a series of lower highs and lower lows.

Last week’s break of channel support suggests more losses are in store for the GBPUSD. On top of that, buyers also surrendered the 1.2860 handle, making it a prime target for a retest as new resistance. Key support comes in at Friday’s low of 1.2770 followed by 1.2670.

GBPUSD upward sloping flag

On Tuesday we looked at an ascending channel that had developed on the AUDUSD 4-hour chart. At the time the pair was trading near 0.7490 and had not yet taken out channel support near 0.7460.

However, Thursday’s price action changed that. Just before the session closed, sellers managed to push the price below channel support, which opened the door to the 0.7330 area.

Despite Thursday’s sharp selloff, AUDUSD bears had trouble finding follow through on Friday. The pair stalled to close the week just seven pips below Thursday’s closing price.

From here traders can watch for selling opportunities on a retest of the 0.7480 area as new resistance. Key support comes in at 0.7330, which is the current May low as well as trend line support from the 2016 low.

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AUDUSD channel

On Thursday we discussed how the GBPJPY had gone quiet after a burst of volatility on May 17th. That was the day risk assets as a whole came under immense pressure.

It also followed the break of wedge support. This was a topping pattern I mentioned on May 10th when the pair was trading 500 pips higher at 147.60.

One thing I pointed out last Thursday was the notion that an increase in volatility often follows quiet periods of consolidation. Friday’s 260 pip drop after six days of sideways movement certainly didn’t contradict this idea.

While last week’s analysis is mostly unchanged, I did modify support to Friday’s low near 142.40 from the 141.85 I mentioned on Thursday.

From here I’ll be watching for a selling opportunity on a retest of the 143.70 handle as new resistance. Given the May 11th break from the rising wedge and the downside pressure of late, I’m not interested in buying the GBPJPY down here.

GBPJPY new resistance

On May 17th we looked at a long-standing trend line on the AUDJPY that if broken could trigger a much larger selloff. If you remember, that was the day risk assets came under immense pressure and the AUDJPY sold off 160 pips in a single session.

Since that time things have been relatively quiet and even bullish on an intraday basis. That is until Friday.

The risk-sensitive pair is once again testing trend line support from the 2016 low, and the area of interest now appears to be 82.60. But remember that only a daily close below this area constitutes a breakdown. Any intraday move below it is meaningless as far as I’m concerned.

Since the April 20th bounce from support, the pair has carved two lower highs into trend line support. This behavior suggests a breakdown is imminent. I wrote about this type of “heavy” price action in this post.

A daily close below 82.60 would expose the current 2017 low at 81.50 with a break there exposing 80.30 followed by 78.45. Alternatively, a move above this week’s high of 83.87 would challenge the bearish outlook.

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AUDJPY trend line

Leave a Comment:

4 comments
shola says

Justin thank you for your analysis. am learning a lot about the flow of price. However I want to ask you two question . 1) how do you draw your support and resistance. its seems accurate looking at your chart 2) Where do you start your analysis? Do you use monthly levels or weekly or just daily.

Reply
Chris says

What is this risk asset under immense pressure? What caused it?

Reply
    Justin Bennett says

    Chris, if risk assets as a whole are under pressure, it’s a sign of fear or at least an increase of fear in the market.

    Reply
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