Weekly Forex Forecast (October 8 – 12, 2018)

by Justin Bennett  · 

October 7, 2018

by Justin Bennett  · 

October 7, 2018

by Justin Bennett  · 

October 7, 2018

Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.

Click here to get access to the same charts I use.

EURUSD dropped below a significant horizontal level last Wednesday. Apart from one breakdown in August, 1.1530 has held as support since late May.

As anticipated, the single currency retested 1.1530 as new resistance on Thursday and again before the weekend. These retests were not unexpected considering the distance between Wednesday’s close and the 10 and 20 daily EMAs.

However, for those interested in shorting EURUSD this week, it would be prudent to wait for bearish price action below 1.1530. You could enter short without waiting, but doing so doesn’t allow you to “test” the conviction level of sellers.

For now though, EURUSD remains at risk of additional losses. As long as the pair remains below 1.1530 on a daily closing basis (using a New York close chart), the 1.1410 support area is exposed.

My one concern is what’s happening with GBPUSD. While the two don’t move in tandem quite like they used to (especially last week; just look at EURGBP), they do still share some commonalities.

We’ll have to wait and see if GBPUSD’s bullish move in the final 48 hours of last week spills over into EURUSD. All we can do for now is analyze the price action on a daily closing basis, which suggests 1.1530 remains resistance for now.

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EURUSD daily key levels

GBPUSD began last week with 1.3050 serving as resistance once more. The long upper wick of Monday’s candle is proof of that.

However, following Thursday’s bounce from key support (which was also a bullish engulfing range), the GBPUSD ended the week higher by 80 pips.

As aggressive as the late-week bounce was, it shouldn’t have been a total surprise. I mentioned the 1.2925/55 support zone in last Sunday’s commentary.

Here’s what I wrote last week:

We could also see a bid develop at 1.2925/55. This is the location of the early September gap as well as several highs and lows that make the area stand out.

For the week ahead, I’d expect any rotation lower to 1.3050 to attract an influx of buying pressure. On the other hand, a retest of 1.3190 resistance would likely attract sellers.

I’ll reiterate what I’ve said about GBPUSD for a while now. Although an opportunity may present itself, you have to be aware of the Brexit-related risk surrounding the pair. As long as the term “Brexit” is showing up in the news, the pound will be more volatile than most currencies.

You also have to weigh the price action here against other markets. If you find movement that’s more favorable elsewhere, why trade GBPUSD at all?

Of course, these are your decisions to make. As for me, I’m going to leave GBPUSD alone for now as I believe there are more favorable and less volatile markets to trade.

GBPUSD support and resistance

If the euro continues to weaken against the U.S. dollar and the S&P 500 comes under additional pressure (see below), the EURJPY could be the ideal vehicle to express a bearish bias.

You see, the Japanese yen is considered a safe haven currency. In times of angst or all-out fear for the stability of risk assets such as equities, market participants tend to buy the yen.

A perfect example is the 2008/2009 financial crisis. If you compare the S&P 500 or Dow Jones to the EURJPY, GBPJPY, AUDJPY, etc., you will find an unmistakable correlation.

Of course, I’m not saying a move of that magnitude is about to happen. However, it doesn’t take a full-blown financial crisis for the yen to catch a bid if an index like the S&P 500 begins to weaken.

A glance at the EURJPY daily time frame shows the support area that needs to give way to attract the next round of sellers. 130.90 is the intersection of a key horizontal level and trend line support from the August low.

It’s going to take a daily close (New York 5 pm EST) below the 130.90 support area to expose the 129.30 area. Keep in mind that a break of 130.90 does not guarantee further losses. It also doesn’t signal a major top for the pair.

On that note, I will state that EURJPY has been range bound between 125.00 and 133.00 for the better part of 2018. So as long as the 133.00 range ceiling is intact, there is a decent chance for an extended move lower to 129.30, 127.00 and perhaps even 125.00.

EURJPY key support area

If you’re considering buying (U.S.) crude oil, you may want to have a look at the two charts below first.

There’s no question the market is in an extended uptrend. At the start of 2016, oil was trading just below 28.00. Here we are less than two years later at 74.00.

However, every uptrend has pullbacks, and crude oil is no different. And judging by the weekly chart, I’d say the market is due for one.

US Crude Oil weekly time frame

Notice how the market has been bumping its head on ascending channel resistance since May. And while I wouldn’t technically label last week’s price action a bearish pin bar, it certainly hints at an influx of selling pressure above the 75.00 handle.

This does not mean the U.S. oil market will plummet this week or next. That said, it is enough evidence to suggest buyers could begin to struggle at these lofty heights.

Even the daily time frame is signaling the likelihood of a reversal. You may recognize the pattern below as an upward sloping flag. It’s an exhaustion formation that usually develops near a significant top; similar to a rising wedge.

Of course, none of this negates the two-year uptrend that began below 28.00. It will take much more than a late-week selloff to change that. However, it is enough evidence for us to at least consider the odds of a short-term pullback while below 76.70 resistance.

I’ll be sure to keep this one on my radar and provide updates on additional support and resistance levels as things unfold.

US crude oil daily time frame

I’ve discussed the S&P 500 a couple of times in the last two weeks. First was on September 27 when the index was still holding above rising wedge support near 2920. The second mention came last Friday following a break of that same support level.

You’ll also recall that 2870 was the next key support of interest. Friday reached a session low of 2869 before rebounding to 2890 to close out the week, so no surprise there.

If you look at the S&P 500 weekly time frame, you will notice that last week carved a bearish engulfing range. Of course, the body of last week’s candle didn’t engulf the prior week, but the range (2870 – 2940) certainly did.

That weekly candle provides additional evidence that the S&P may continue to weaken. That’s the base case I’m working with moving forward.

As long as the market trades below the 2920/40 resistance area on a daily closing basis (remember, I use a New York close chart), the market is at risk of a more substantial pullback.

A daily close below 2870 would expose the next key support at 2790 followed by 2740.

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S&P 500 rising wedge

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  1. You are a great mentor.. The BUY GBPCAD has been rewarding. Truly your past week’s analyses and updates have been spot on. Have great respect for you my brother Justin. Keep up the good work. By Bothwell from Gweru City Zimbabwe!

  2. JPY is getting stronger due to a falling wedge. As for crude oil would not be surprised to reach the 80 + handle by December.

    1. The technicals for crude say otherwise. 80.00 may be within reach by December as you suggest, but in my experience, an upward sloping flag like the one I illustrated above will trigger a considerable pullback nine times out of ten.

  3. Guys, what’s your take on trading on Mondays? Considering market manipulation, sometimes due to the weekends political activities, I know a lot of people who do not like opening trades on Mondays. Thanks in advance

    1. Hi Lerato, I trade any day of the week as long as my set-ups are triggered and I’m a full-time trader. You do find “gaps” over weekends, but as long as you understand how to analyse them, all OK.

  4. Good day! Please i am a beginner and i want you to assist me to know how to know open a trade pair and which one to open come Monday. I will appreciate if you can guide me further. Thanks

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