Needless to say, EURUSD has made its way back to the top of my watch list after last week’s break below the seven-month channel support.
I have been apprehensive to trade the single-currency over the last few months as the price action had become increasingly choppy. However now that the pair has cleared the channel floor, the odds of a move lower have never looked more favorable.
In fact, this break confirms what could be a bear flag pattern of a much larger price structure. This flag could be a sign that prices are likely to continue lower following last year’s 3,500 pip decline that began in early May.
If this is the case, a move as low as 0.8225 over the next year may not be out of the question. This level is the measured objective of the bear flag and also lines up with the 2000 low.
That said, we still have a lot of key support to chew through before such an aggressive move can be considered a probable scenario. The 1.0820 handle along with the multi-year low at 1.0470 are sure to put up a fight in the days and weeks ahead.
Summary: Watch for bearish price action on a retest of former channel support as new resistance. Key support comes in at 1.0820, 1.0658 and 1.0470. Alternatively, a close back above former channel support would negate the bearish bias and expose key resistance at 1.1280.
Despite several attempts, GBPUSD couldn’t quite break through the 1.5475 level last week. Instead, the pair carved out a massive bearish engulfing pattern on Thursday followed by a 90 pip decline on Friday.
This put the pound 37 pips below recent highs in October, which correspond to lows in both July and September. In typical form, this leaves us watching for a selling opportunity on a retest of the level as new resistance.
Another option, and perhaps a more favorable one, would be to wait for a break below the 4 hour trend line that has developed off of the October low (see chart below). A retest of this level would be the third one since its inception just four weeks ago.
We will have to see how the pair reacts at this trend line, but at the moment a close below it could offer a nice opportunity to get short.
Summary: Watch for bearish price action on a 4 hour close below trend line support that extends off of the October low. Key support comes in at 1.5110 and 1.4980. Alternatively, a daily close back above 1.5345 would negate the bearish bias in the short-term and expose the October highs at 1.5475.
EURGBP was featured at the start of last week as a pair that had a lot of downside potential given the recent break of trend line support. The level that extends off of the August low was tested on three separate occasions, making the October 19th break a significant one.
Thursday’s session saw that potential come to fruition as the pair plummeted 135 pips from the open, however the bears were unable to close the market below the 0.7210 handle.
Thursday’s selloff continued into Friday, triggering the break below 0.7210. This has set the pair up for a run at the 0.7055 area in the week ahead. A close below that would expose the multi-year low at 0.6935.
While further losses from here are likely, the overextended nature of the pair makes a blind trade from the 0.7210 level unfavorable. Instead, consolidation below this level followed by bearish price action would make a much more compelling opportunity to get short.
Summary: Be on the lookout for some consolidation below the 0.7210 area. Bearish price action from this level could offer a favorable opportunity to get short. Key support comes in at 0.7055 and 0.6935. Alternatively, a daily close back above 0.7210 would expose the next key resistance level at 0.7350.
I featured EURJPY on Friday, noting the break below wedge support, a level that has been in place since mid April. Thursday’s move below the six-month level places further bearish pressure on the pair, which could lead to additional losses in the week ahead.
However before the bearish bandwagon gets too crowded, it should be noted that the 133.30 handle is currently acting as support. This area has attracted buyers since early May, and despite the false break in September, it has been a “must break” level that needs to fall before further downside pressure can fully materialize.
From here traders can watch for a retest of former wedge support as new resistance. Bearish price action from this level could offer a favorable opportunity to get short.
That said, depending on the price action that forms, a close below the 133.30 handle may be necessary to secure a favorable risk to reward ratio. A move below that exposes the next key support levels at 131.50 and 129.
Summary: Watch for bearish price action on a retest of former wedge support as new resistance. As a second option, traders can wait for a close below 133.30 before watching for an opportunity to sell. Below that, key support comes in at 131.50 and 129. Of course a close back above former support would negate the bearish bias.
Last but not least is EURAUD, yet another Euro-based currency pair that made a significant move last week. The pair had been trending higher since late April, carving out a well-defined trend line in the process.
That level failed last week during Thursday’s session. A previous break was spotted on October 12th, however downside pressure never materialized and the pair quickly recovered during the following session.
But this time is different. There is nothing questionable about Thursday’s break of the six-month support level. To top things off, the pair lost an additional 150 pips in the final 24 hours of trading, making the break and possible trend shift that much more definitive.
Summary: Watch for bearish price action on a retest of the 1.5400 area (October 12th low). Key support comes in at 1.50 and 1.4670. Alternatively, a close above 1.5400 would expose former trend line support as new resistance.