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EURUSD bulls look ready to capitulate following an impressive run so far in 2017. The 1,750 pip rally that began with the January 3 low is the longest since before the mid-2014 landslide that cost the pair 3,500 pips.
We’ve been following this ascending channel (see chart below) for more than a month now. The bearish pin bar that formed at 1.2040 was the first sign that buyers were tiring. Then came the “heavy” price action near key support at 1.1875.
See this post for the three warning signs that a turn lower was likely.
Just last week I commented that the EURUSD would face a new round of selling pressure below 1.1875. This area of resistance has been on our radar for quite some time.
Not only did sellers defend the 1.1875 resistance level on Thursday of last week, but they also showed up again on Friday. In fact, Friday’s session reached a high of 1.1874 before sliding 58 pips into the close.
As mentioned on Wednesday, there’s a chance the pair could be carving a head and shoulders pattern. That said, it’s going to take a daily close (5 pm EST) below 1.1670 to confirm the formation. Until that time, the single currency is range bound.
A close below 1.1670 would pave the way for a move toward the next key support at 1.1490. It would also open up the measured objective just below the 1.1300 handle.
Alternatively, a daily close back above 1.1875 would delay the bearish outlook and expose 1.2040 resistance.
The GBPUSD looked poised for a retest of the confluence of support at 1.3020 last Thursday. That is until news came out that launched the pound sterling higher by more than 100 pips.
I had no stake here, so the sudden spike was of no consequence. As I pointed out last week, I’m more interested in how the pair handles the ascending channel that has been in place since the start of 2017.
That doesn’t mean you can’t or shouldn’t trade the range in the meantime. A price action signal from 1.3250 support or 1.3445 resistance could produce a favorable opportunity.
As for me, I’m much more interested in what’s happening with the EURUSD at the moment. Even the EURGBP looks more appealing than the GBPUSD from a technical standpoint. More on this shortly.
I’m going to sit this one out for now. Given the terminal nature of channel support and long-term trend line resistance, it’s only a matter of time before we get a significant breakout one way or the other.
USDCHF bulls are refusing to go down without a fight. The pair carved a bearish pin bar on October 6 after testing the confluence of resistance just above 0.9770.
However, as mentioned last Tuesday, sellers failed to close the October 6 session below the 0.9770 horizontal level. That left me on the sideline as I didn’t want to sell into a level that was still serving as support.
But there’s another reason I’m not interested in selling the USDCHF.
Apart from being slightly bearish the EURUSD, the USDCHF is coming off a multi-year range low. The 0.9435 area has attracted buyers since August of 2015 and did so again in May of last year.
In fact, it was a 110 pip bullish pin bar on May 3, 2016 that triggered a move back to the range ceiling at 1.0330. And considering the pair is once again coming off this long-term support at 0.9435, there may not be much supply at or near current levels.
As always, a market is range bound until it isn’t. So as long as the 0.9435 area holds as support on a daily closing basis, we have to respect the idea of a move back toward the range top at 1.0330.
On the 5th of October, we looked at two resistance levels that could trigger a reversal for the EURGBP. The first was 0.8925 and the second 0.8980. However, I mentioned in that commentary that I suspected bulls wanted to take prices to 0.8980.
Just 24 hours later that retest came to fruition. That turned our attention to the 0.8980 handle last weekend. The idea was to watch for bearish price action for a return to 0.8744.
Thursday’s session reached a high of 0.9032 just before a sharp selloff that would eventually close the pair back below 0.8980. This resulted in a bearish rejection candle and a quasi-engulfing pattern if you use the candlestick’s range.
From here I favor a move back toward the September low at 0.8744. A break below that would target the 0.8600 handle and perhaps even the current 2017 lows near 0.8370.
Keep in mind that all of this is unfolding following the break of channel support on September 12. That was a significant breakdown in the sense that it ended the uptrend which began in May.
The 0.8880/90 area could also attract a few bids on the way down. But this could offer an opportunity to get short if you missed an entry during Thursday’s selloff.
As always, the decision is yours. My preference is to continue to watch for selling opportunities for an eventual retest of last month’s low at 0.8744.
And because of the September 12 break of channel support, my bias will remain tilted toward the current 2017 lows near 0.8370. It would take a daily close above 0.8980 to alter that bias.
We discussed the EURAUD cross in the October 1 weekly forecast. At the time the pair was moving to retest wedge resistance near 1.5140.
A few days later buyers managed a daily close above the level. However, I wasn’t interested in buying the pair given the fact that prices were more than 100 pips above the mean as measured by the 10 and 20 EMAs.
When a market becomes overextended to the upside, you have to ask yourself: who is left to buy?
The EURAUD gave its answer on Thursday when sellers closed the pair back below the key level. That signaled a false break to the upside which is a sell signal in and of itself. I made a similar comment in the member’s area as soon as Thursday’s session closed.
A false break on one side of a pattern usually results in an extended move in the opposite direction. If the EURAUD stays true to form, it’s only a matter of time before wedge support gives way to lower levels.