EURUSD has come back to life following a two-month stint of choppy price action. In fact not only has the pair come back to life, it put in one of the most volatile weeks we have seen all year last week.
After climbing 700 pips between August 19th and August 24th, a day when the pair rallied for an impressive 340 pips, EURUSD erased all but 130 of those pips during last week’s selloff.
Immediate support for the pair comes in at 1.1150 while resistance can be found at 1.1280. Although the pair may find some support at current levels, the bearish rejection bar that formed as a result of last week’s price action is certainly cause for concern for the bullish camp.
What is even more alarming is that this bearish rejection bar formed after the pair failed to hold above the 1.1450 level after closing above it with conviction on August 24th. This alone forces me to have a bearish bias toward the single currency moving forward.
That said, I do think there are better opportunities in the market that have a more obvious trajectory. One such pair is GBPUSD, which we will discuss next.
Summary: On the sidelines for now. Traders can watch for bearish price action on a retest of 1.1280 or a daily close below 1.1150, both of which would have bearish implications. However, a close below channel support off of the April low would present a much greater opportunity for a short position in my opinion.
As mentioned above, GBPUSD has real potential in the upcoming trading week. After consolidating for nearly a month starting in mid June, the pair managed to break trend line resistance on August 12th.
However these gains were short-lived as the pair found immediate selling pressure on a retest of 1.5814. By the following day the pair was back to 1.5677 and would eventually lose another 225 pips over the next 24 hours.
This decline left the pound well below several key handles including the 1.5465 horizontal level along with the upward sloping trend line off of the May low and the downward sloping trend line off the 2015 high.
Similar to EURUSD, the fact that the pound was unable to maintain these levels leaves me bearish going forward. From here traders can watch for bearish price action on a retest of the 1.5465 area as new resistance.
Keep in mind that we have several PMI readings this week for the British pound along with nonfarm payroll for the US dollar on Friday, all of which should make for a volatile trading week.
Summary: Watch for bearish price action on a retest of the 1.5465 area as new resistance. Key support comes in at 1.5355 and 1.5195. Alternatively, a daily close back above the trend line that extends off of the May low would negate the bearish bias and turn our attention higher.
EURJPY remains at the top of my list in terms of price structures with the most potential. After failing to hold above the key 137.00 handle last week the pair slipped even further below trend line support that extends off of the 2015 low.
Speaking of 137.00, this is a “must hold” level for the bears if they intend to push the pair lower in the coming week. This level has played a major role since May and is actually the high of the left shoulder that helped form the broader head and shoulders pattern.
Another sign of weakness occurred on August 24th when the pair failed to maintain bullish territory after closing above trend line resistance during the previous session. In typical fashion, a false break in one direction eventually led to a breakout in the opposite direction.
From here traders can watch for a retest of the 137.00 area as new resistance. Note that any daily close back above this level would negate the bearish bias and would indicate that higher prices are likely.
Summary: Watch for bearish price action on a retest of 137.00 as new resistance. Key support comes in at 135.00 and 133.10, which is the neckline of the four-month head and shoulders pattern.
Another major mover last week was AUDJPY. Like the other Yen crosses, AUDJPY experienced a massive selloff to the tune of 715 pips during Monday’s session.
More technically notable than the selloff was the break of key support at 89.20. This area had served as support since February and more recently kept the pair afloat on two separate occasions in July.
As we know, former support becomes new resistance, which is the foundation for this week’s game plan. From here we can watch for a retest of 89.20 as new resistance. Such a retest could trigger a continuation of the downtrend that began in late June.
Summary: Watch for bearish price action on a retest of 89.20 as new resistance. Key support comes in at 86.40 and 84.00. Alternatively, a daily close above 89.20 would target the April low at 90.20.
Similar to AUDJPY in price action is NZDJPY. The two are certainly sharing some characteristics in the face of increased volatility and the recent flight to safety via the Japanese yen.
What is also similar is the fact that NZDJPY broke a key level last week during Monday’s debacle. The level in question is that of 80.45, a price that can easily be seen influencing the pair all the way back to 2013.
From here the idea is simple – we’re looking for a bearish signal on a retest of the level as new resistance. From there, key support can be found at 78.50, 76.40 and 75.00, which was the measured objective of the weekly head and shoulders pattern that confirmed on June 18th.
Although the objective has been reached, there is a good chance that the pair could see even lower prices by the end of 2015. That said, we have to remember that nothing moves in a straight line, which means further consolidation could be in order before the start of the next leg down.
Summary: Watch for bearish price action on a retest of 80.45 as new resistance. Key support from there comes in at 78.50, 76.40 and 75.00. Alternatively, a daily close above 80.45 would negate the bearish bias and target the former range high at 83.00.