The EURUSD has broken free from a descending channel I’ve had on my chart for several weeks including last Tuesday’s commentary. It wasn’t the first time though. Buyers broke resistance in late August but failed to push prices higher.
I’ve removed that channel from my chart for now. While the pair may still respecting former resistance near Friday’s close at 1.1620, I’d rather not pursue a level that continues to fail.
Instead, it’s become clear how the 1.1720/30 horizontal area attracted sellers on Friday. I even mentioned 1.1730 last Tuesday as a resistance area to keep an eye on. It’s the location of several daily highs and lows going back to May 21st.
Not only did the single currency encounter sellers on Friday, but it nearly completed a bearish engulfing day. Not the kind of close you’re looking for if you’re bullish the EURUSD.
Keep in mind that the pair has lacked momentum since late May. And until the 1.1720/30 area and perhaps even 1.1830 breaks, that will continue to be the case.
A move to 1.1530 this week will likely attract an influx of buyers. It’s going to take a daily close (New York 5 pm EST) below 1.1530 to re-expose the year to date low at 1.1300.
In summary, expect more range-bound price action so long as 1.1530 support and 1.1720/30 resistance are intact.
After three and a half months of trading within a descending channel, the GBPUSD broke out last Monday. The 1.3025 close suggested that the area would begin to serve as support, which is what happened between Tuesday and Wednesday.
Now, this wasn’t the first time the pair broke free from this channel. You may recall the close below support on August 9th. However, downside breaks of a descending pattern rarely garner follow through, and that break was no different.
For the week ahead, as long as the 1.3020 area holds as support, the bullish outlook for the pound has life. If that level starts to break down on a daily closing basis, we’ll need to reevaluate the situation.
There’s clearly some resistance at 1.3130. It’s the area that capped Friday’s rally and is also the location of several closing prices from late July.
However, the next key resistance level here, in my opinion, doesn’t come in until 1.3300. You can see how the area has rejected every advance since the pair closed below it on June 14th.
A word of warning though. The constant flow of Brexit related news has made the pound a problematic currency to trade. That’s especially true given that much of that news is unscheduled.
With that in mind, take extra precautions if you decide to trade the GBPUSD or any pound cross for that matter. Reducing your standard position size would be an excellent place to start.
Last Sunday I pointed out how the USDJPY was coming off trend line support near 110.40. The level extends from the year to date low and connects with the August swing low at 109.77.
I also mentioned how the 112.00 area could attract sellers if tested. Friday’s session tagged the resistance area and did encounter some selling pressure ahead of the weekend.
It appears that 112.15 is the level that needs to break on a daily closing basis for buyers to keep the rally going. A daily close above the 112.15 area would pave the way for a retest of the year to date highs near 113.15.
Key support isn’t far from Friday’s close either. Thursday’s session cleared 111.75 which will likely attract buyers if tested again this week.
I often talk about the significance of breakouts from ascending and descending patterns. Ideally, we want to pursue upside breaks of descending patterns and downside breaks of ascending ones.
For example, a bull flag is a bullish continuation pattern, yet it’s a descending pattern. The opposite holds true for a bear flag.
To be clear, I’m not insinuating that the EURAUD channel below is a bear flag. It doesn’t have the characteristics to label it as such.
However, the pair has recently broken to the upside of an ascending channel. The odds of buyers being able to sustain this type of break are low in my experience. That doesn’t mean the pair will drop, but it is something for us to keep an eye on moving forward.
It’s important to know too that the EURAUD could trade above former resistance (new support) for several more days or even weeks. There’s no way to know if or when it might close the day back below the channel top.
Keep in mind that I use New York close charts so that each 24-hour session closes at 5 pm EST. Not all brokers offer this. Click here to get access to the same style charts I use and the ones I recommend for trading price action.
If it does close back below that 1.6220 area, it could present a chance to watch for a selling opportunity. As I’ve mentioned previously, false breaks to one side of a pattern often result in an extended move in the opposite direction.
This is just one to keep an eye on for now. I’ve also been discussing it in the member’s area and will continue to do so as things unfold.
Last Monday I discussed the GBPCAD confluence of resistance at 1.7300. It’s the intersection of the head and shoulders neckline, descending channel resistance and a key horizontal level.
However, just 24 hours later sellers carved a bearish engulfing day. I commented on this in the member’s area and also said to keep an eye on 1.7060 resistance.
Following Wednesday’s move lower, the GBPCAD did retest 1.7060 as resistance between Thursday and Friday. The latter even formed a long upper wick suggestive of the selling pressure in the area.
I’m not going to call Friday’s move a sell signal just yet though. The candle is relatively small, and it occurred at the end of the week when volume tends to thin out.
That doesn’t suggest the GBPCAD won’t sell off from 1.7060 this week. It does, however, mean that Friday’s candle is not what I’d call an “A+” setup.
If sellers do push prices lower this week, the next key support comes in at 1.6820. There’s also reason to believe that 1.6920 will attract a few bids on the way down as well.
Alternatively, a daily close back above 1.7060 would begin to cancel out Tuesday’s bearish engulfing day. It would also expose the 1.7230/40 resistance area.