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The EURUSD ended last week at three-month lows after confirming a multi-month head and shoulders pattern. We discussed the bearish reversal pattern on Friday as one to watch for the week ahead.
I was a bit surprised to see how quickly prices sliced through 1.1670 support last week. I expected Thursday’s session to end above the level and consolidate some before an eventual break.
But sellers had other plans. It seems last week’s ECB decision and presser were that dovish in the eyes of market participants. That’s okay by me as I remain short from just below 1.1875 and have no intention of exiting just yet.
For the week ahead the 1.1670 area becomes new resistance. This level is the neckline of the head and shoulders pattern that set up last week. As long as 1.1670 holds as resistance on a daily closing basis (5 pm EST), the bearish bias is alive and well.
Should buyers close the single currency back above 1.1670, it would negate the bearish reversal pattern. As much as bears don’t want to think about that scenario, it’s essential to plan for every outcome regardless of bias.
As mentioned on Friday, the objective comes in just below 1.1300 with immediate support seen at 1.1490. The overextended prices suggest that a rotation into 1.1670 resistance is likely this week.
The GBPUSD inched closer to a key inflection point last week. Although the pair is still range bound between 1.3020/60 support and 1.3250/90 resistance, participants will be forced to commit one way or the other in the coming weeks.
The broader picture shows how sellers are defending a multi-year trend line that extends from the 2014 high. On the other end, we have buyers stepping up near the 1.3020 handle.
Those two levels intersect at some point in late November, perhaps even December. So, sometime between now and then, the pair has a big decision to make. Either break above the 2014 trend line or below ascending channel support from the March low.
Either way, the outcome could offer one of the best opportunities of 2017. In fact, a breakout from the terminal pattern will likely have repercussions that extend well into 2018.
In the short-term, however, the GBPUSD is range bound between 1.3020/60 support and 1.3250/90 resistance. We can use these areas to watch for price action signals until the pair reaches the termination point.
The EURGBP tested a significant support level on Friday. Trend line support that extends from the November 2015 low has attracted a bid on several occasions.
Here is the broader structure I have been tracking for several weeks:
Those who are familiar with how I read trends and the price action that occurs within them will understand what’s happening right away.
Although trend line support is intact for now, a breakdown is imminent in my opinion. I came to this conclusion based on two factors.
The first is the proportionally lower highs. I always say how the swing highs and lows tell the real story. Well, in the case of the Euro cross, those proportionally lower highs signal exhaustion from buyers.
It’s that type of price action that forms rising wedges like the one above. I mentioned this relationship between highs and lows in the October 5 commentary.
The second factor is the ‘heavy’ price action of late. Notice how the pair is beginning to lean on trend support more frequently as time passes. It suggests that bids are drying up.
Combine those two factors, and you have an imminent breakdown scenario. And because this level has been in place for nearly two years, the implications of a daily close (5 pm EST) below it could be quite severe.
I discuss these techniques (among others) in the webinar if you want to learn more.
I’m going to stay on the sideline for now and wait for a close below trend line support near 0.8830/40. Such a break would expose the September low at 0.8744 followed by 0.8600.
After pushing prices higher by nearly 2,000 pips since April, EURJPY buyers are starting to look exhausted. As a sign that demand is harder to come by at these elevated levels, the pair has carved what appears to be a double top.
That said, without a close below support there is no double top. In the case of the EURJPY, that support level comes in at 131.82. Until sellers manage a daily close (5 pm EST) below it, the Euro cross is range bound between 131.82 and 134.40.
A break lower would have us targeting the 129.30 area. It’s the equivalent of the current 250 pip range when measured from 131.82 support. It’s also the location of former ascending channel resistance from the December 2016 high.
If sellers were also to manage a break below that level, it could signal a more significant reversal. But for now, we need a daily close below the 131.82 handle before further consideration is warranted.
It’s been months since I mentioned the GBPCAD. In fact, we have to go back to the massive head and shoulders pattern that confirmed last year to find a commentary on the pound cross.
Speaking of a head and shoulders pattern, is the GBPCAD carving out another?
While it’s by no means as significant of the one that developed between early 2015 and mid-2016, the inverse head and shoulders below could have some bearing on future price action.
However, I would have liked to see this pattern extend a bit longer than it did. The formations that occur in less liquid pairs like the GBPCAD sometimes require more time to develop to be considered reliable.
That’s particularly true with Canadian dollar crosses which are prone to false breaks.
But we’ll know soon enough. Neckline support at 1.6730 is just 75 pips below Friday’s close. As long as this level holds as support on a daily closing basis, the objective at 1.7630 will remain in play.
As for entries, I’m going to require bullish price action on the retest of 1.6730 support. I don’t want to get caught on the wrong side of a market that I know has a tendency to false break.