A look at the docket for the remainder of the week promises that the final 72 hours will be a stark contrast to that of the first 48 hours in terms of volatility. On Wednesday we have the FOMC meeting, an event that is always good for an increase in volatility, followed by US GDP on Thursday and Canada GDP on Friday.
Needless to say, it’s going to be an eventful end to the week, especially for a pair like USDCAD. This is exactly why we won’t be discussing this pair today, partly because it will be far too volatile to trade and partly because you already know my stance on the pair.
Let me also say that the following two trade ideas are not the only ideas going into the end of the month. I have mentioned several other pairs this week with most of those still having strong potential in the coming days and weeks.
So what are my two favorite trade ideas heading into the final 72 hours?
Without question the pending head and shoulders on EURJPY and the GBPNZD bull flag pattern. I have mentioned both of these trade ideas recently as having huge potential, however it’s important to remember that that potential will only materialize on key breaks. More on this later.
Given the likelihood for increased volatility over the next 72 hours these breaks could come in short order. Of course there is always the chance that neither idea will materialize, in which case we will stand aside with cash in hand to capitalize on the next opportunity that presents itself.
Now for the setups. Let’s start with the head and shoulders pattern that has been forming on EURJPY since early May. The pattern is well-formed which gives us very precise confirmation and invalidation levels. It also has huge potential given the 800 pip range from the neckline to the head.
Summary: Wait for a daily close below the 133.10 neckline. Key support comes in at 131.50 and 129.00 with a measured objective at 125.00. Alternatively, a daily close above 137.00 would invalidate the reversal pattern and have us looking higher.
Next up is the GBPNZD bull flag pattern. This pattern is actually a subset of a much larger ascending channel on the daily chart. But here’s the kicker, this larger pattern is on the verge of breaking down, which brings us to the real opportunity here.
GBPNZD daily chart
GBPNZD took a hit at the start of today’s session on statements made by Governor Wheeler. However not only has the pair recovered those losses, it is now 120 pips higher and is once again pressuring resistance on the 4 hour chart.
This recovery tells me that there is still strength in the rally that began on April 21st. But before you jump on the bullish bandwagon, just remember that we still need to see a break higher before it makes sense to commit capital here.
Summary: Wait for a 4 hour break of the bull flag pattern. The 2.4100 level will likely act as resistance with a measured objective at 2.4470.
Note: Be aware that there is also some resistance at 2.3615, however a break of the bull flag should produce enough momentum to take this level out.