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Weekly Forex Forecast (October 3 – 7, 2016)

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It was business as usual for the EURUSD last week as speculators perpetuated the range that has kept prices capped since mid-August.

To the upside, we have trend line resistance that extends from the current 2016 high while a move lower would likely encounter bids at the September low of 1.1122. Beyond that, we have the August high at 1.1365 and 1.0950 respectively.

But the real challenge here isn’t identifying a break of a critical level; it’s finding that break that triggers follow through, something that hasn’t happened for quite some time. The single currency has struggled to find momentum since it entered this range against the US dollar in March of 2015.

With this in mind, I don’t intend on trading the EURUSD for the foreseeable future, at least until this eighteen-month range breaks down.

However, the coiled price action does indicate that the ensuing breakout could be fast and furious. So while I’m on the sidelines, for now, I’m certainly keeping an open mind to what might materialize in the coming weeks and months.

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eurusd-key-levels

GBPUSD remains vulnerable in the upcoming week. Although buyers stepped up following the September 16th plunge, the pair has struggled to move off of trend line support that extends from the post-Brexit low at 1.2790.

As always, a daily close below the level is needed to confirm a bearish breakout which would expose the 1.2790 handle.

On the flip side, a move higher would likely encounter offers at wedge resistance near 1.3060.

gbpusd-wedge-pattern

USDJPY is nearing the end of a terminal pattern that extends from the post-Brexit low at 98.80. The upper boundary is defined by a more prominent level that can be traced back to the 2016 high at 121.68.

I commented on this pattern at the end of Wednesday’s session, noting that Kuroda’s upcoming speech could offer some volatility. However, the pair was mostly unaffected and even managed to claw back some previous losses following the event.

Given the sixteen-month downtrend, I’m going to maintain a bearish bias here. With that said, only a daily close below trend line support that extends from the post-Brexit low would confirm a breakout opportunity.

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usdjpy-terminal-pattern

AUDUSD participants are going to be forced to make a major decision within the next few weeks. The pair is getting close to the end of a terminal pattern that is outlined by channel resistance from April of 2013 and channel support from the current 2016 low.

Here’s a better look at how these two patterns converge.

I commented on Thursday’s bearish engulfing pattern which by the end of the session had closed well below the 0.7650 handle. However, buyers weren’t having it and managed to close Friday’s session back above the key level.

This move wasn’t all too surprising given the substantial increase in volatility in recent weeks. From here I’ll be keeping a close eye on last week’s close to see how the pair responds to the 0.7650 area over the coming sessions.

As long as three-year channel resistance holds on a daily closing basis, my bias for the AUDUSD will remain weighted to the downside.

audusd-wedge-pattern

GBPCAD offers what I would consider one of the best (possible) opportunities in the week ahead. I mentioned the 1.70 handle on Friday and pointed out the idea that a close below the level would expose the current 2016 low at 1.6605.

At nearly 400 pips, the distance between the two levels is favorable enough to keep GBPCAD at the top of my watch list. However, as long as the current range between 1.70 and 1.7235 is intact, the pound cross will likely maintain its sideways movement.

In the bigger picture, recall that the pair has yet to satisfy the longer-term measured objective at 1.5300. This level is the target for the massive head and shoulders that I mentioned on June 1st.

Even a move back to the multi-year low at 1.6605 would leave another 1,300 pips on the table for those who maintain a bearish long-term outlook for the pair.

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gbpcad-key-support

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