EURUSD set its sights on 1.1830 following last Thursday’s breakout from 1.1720 resistance. I’ve mentioned this area several times recently, including how it may be the neckline of an inverse head and shoulders pattern.
However, before buyers could reach 1.1830, the pair suffered from some end of week profit taking on Friday. The pound’s aggressive selloff also helped strengthen the U.S. dollar which didn’t help matters for EURUSD bulls.
Regardless, Friday’s pullback wasn’t surprising to see, and the pair did catch a bid in the 1.1720/30 area as anticipated.
Whether buyers follow through on Thursday’s breakout is anyone’s guess. We’ve seen a relatively high number of false breaks recently, so one shouldn’t get overambitious here.
Still, as long as 1.1700/20 holds as support on a daily closing basis (using a New York close chart), it would be wise to respect the potential for further gains. As stated above, key resistance comes in at 1.1830 followed by 1.1950.
If this is indeed an inverse head and shoulders and buyers can follow through, the 440 pip height of the pattern puts the objective at 1.2150. That’s approximately 440 pips from the breakout point. It’s also the range low that developed between January and April.
Alternatively, a daily close back below the 1.1700 area would negate the bullish scenario I just described. It would also pave the way for a move back to key support at 1.1530.
GBPUSD buyers were on a roll last week. Since closing above descending channel resistance on the 10th, GBPUSD bulls had carried the pair 270 pips higher as of Thursday’s high of 1.3297.
Thursday’s rally didn’t last long though. By Friday’s close, sellers had erased all gains from the previous four sessions. The result was a bearish pin bar on the weekly time frame.
However, there is a strong support area that stretches from 1.3020 to 1.3050 that may attract buyers this week. Sellers would also need to contend with former descending channel resistance (now support) on the way down.
I’m often untrusting of the price action that develops on Fridays, and this is no exception. Volume tends to dry up before the weekend which means Friday moves don’t have the full “weight” of the market behind them.
Furthermore, the pound has been relatively volatile of late given the consistent flow of Brexit related news.
So where does that leave us?
For now, I’m not interested in buying or selling GBPUSD. On the one hand, the September 10th break of channel resistance is bullish. On the other, Friday’s selloff isn’t what bulls want to see regardless of liquidity conditions.
Personally, I think there are better options out there. If you insist on trading the GBPUSD though, it may be best to wait for confirming price action before doing so. Reducing your position size to cope with the increase in volatility wouldn’t be a bad idea either.
I wrote about AUDUSD on September 14th. The main takeaway from that post was that the pair was tentatively bullish so long as the 0.7150/60 support area held on a daily closing basis.
By the 17th, the pair was rebounding after carving a session low of 0.7141. And by the close on the 18th, the AUDUSD was trading 60 pips above the 0.7150 support area.
Last week’s rally ended with a retest of falling wedge resistance near 0.7300. I pointed out this level in the September 14th commentary.
Things for AUDUSD are pretty straightforward for the week ahead. The pair will either close the day above wedge resistance near 0.7300, or it will pull back into 0.7230 support before breaking 0.7300.
If it does retest 0.7230 first, it will present an opportunity to front run an eventual breakout from the falling wedge. In other words, begin to scale in before the break occurs.
On the other hand, the pair may close above the 0.7300 resistance area without much of a pullback beforehand. If it does, that would also present a chance to get long for a move to key resistance near 0.7460.
I use New York close charts, so the term “daily close” refers to the 5 pm EST close. Not all brokers offer this which is why your charts may look different from mine.
A daily close below the 0.7230 support area would reexpose 0.7150. It would also cause me to question the pair’s bullish intent as it relates to the eight-month falling wedge pattern.
Last but not least, this is a counter-trend idea. As such, you may want to reduce your usual position size if you decide to trade it or pass on the idea altogether.
One of the more reliable candlestick formations is the bullish and bearish engulfing patterns. What makes it effective, however, has more to do with how the candlestick looks on a chart.
It depends on things like whether or not it formed on the daily time frame. In my experience, patterns on the daily and weekly time frames are far more reliable than anything on the 1-hour or even 4-hour charts.
The location is also paramount to the pattern’s effectiveness. For instance, a bearish engulfing candle in the middle of consolidation or near a swing low may not tell us much.
At first glance, Friday’s GBPJPY bearish engulfing day passes all the tests. The range engulfs the previous session and the pattern also formed at a swing high which coincides with the July 16th bearish pin bar.
The only reason I have to doubt the candlestick pattern below is the day on which it developed. It goes back to the notion that liquidity thins out before the weekend which means markets can move more freely than they otherwise would.
That can be problematic. It doesn’t mean Friday’s bearish signal won’t play out this week, but it is something to bear in mind.
Immediate support comes in near Friday’s low of 147.10. However, I don’t see much in the way of key support until the 145.50 region. A daily close below that would expose 143.20 and perhaps the 140.00 handle.
Keep in mind that the GBPJPY may want to tag the 50% mark of Friday’s bearish engulfing range as is sometimes the case. That would call for a retest of 148.35 before sellers are ready to resume what they started before the weekend.
AUDNZD is exhibiting the type of price action we often see before breakouts. Last Monday I commented on an ascending channel on the daily time frame. It has developed within a broader wedge formation which you can view in this post.
Although the pair managed to hold above channel support last week, the price action on the 18th and 21st tells us two things.
To address the first point above, notice how Friday’s session closed. That late surge to put the pair just above 1.0900 before the weekend was no accident. The market is clearly paying attention as the bounce on the 18th would also suggest.
As for the inability to move higher, I’ve mentioned this type of “heavy” price action in previous lessons. Eight times out of ten, when a market begins to lean on a key level as AUDNZD has, it results in a breakout.
However, last week’s analysis still stands. It’s going to take a daily close below channel support near 1.0900 to expose downside targets. And while wedge support near 1.0600 is a key focal point, I also believe 1.0850 and 1.0660 will put up a fight.