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Weekly Forex Forecast (Aug 3 – 7, 2015)

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The focus for those trading EURUSD seems to have moved from Greece to China and back again. However in recent weeks those concerns seem to have developed into more of a global affair as we have seen risk-sensitive currencies sell off across the board.

During the first half of Friday’s session it appeared as though the pair was ready to break to the upside. But it didn’t take long for the US dollar to come roaring back, eventually causing the pair to close 130 pips below the day’s high.

Although EURUSD remains pressured to the downside, the pair lacks follow-through, keeping me on the sidelines for now. As mentioned in previous weeks, I still believe that any Euro exposure is better represented through other pairs such as EURCAD or even EURGBP.

From here a daily close above 1.1050 is needed for the bulls to have any chance at a push higher. That said, I still have to favor the downside which will only see follow-through on a daily close below 1.0820.

Keep in mind that Greece’s stock market is back online starting Monday. A slide there (which is probable) combined with a red week for China’s market would likely weigh heavily on the Euro.

Summary: On the sidelines for now. Key resistance comes in at 1.1050 and 1.1150 with key support residing at 1.0925 and 1.0820.

EURUSD key levels on the daily chart

Since breaking channel support on July 7th, GBPUSD has traded sideways within a 320 pip range. In fact that range was reduced to 215 pips last week as the pair bounced between 1.5465 and 1.5680.

From here we need to see a break of either 1.5355 or 1.5680 before considering an entry. In other words, we need a catalyst to trigger a decisive push one way or the other.

While certain event risk early in the week may have an effect on the pair, it isn’t likely to break this range until Thursday’s BoE rate decision. Even if the rate is left unchanged, the following inflation report is expected to trigger substantial volatility for the pound which could result in a break of support or resistance.

It should be noted that the same potential for increased volatility applies for a pair like GBPNZD, which we will discuss momentarily.

Summary: Wait for a daily close above 1.5680 or below 1.5355 and then watch for a buying or selling opportunity respectively.

GBPUSD support and resistance levels on the daily time frame

USDCAD continues to look strong above former channel resistance. This break was mentioned on July 14th, the day before the BoC cut rates from 0.75% to 0.50%. This cut triggered a 200 pip rally that put the pair well above channel resistance.

As expected, the pair tested the six-year high at 1.3063 before retreating to resistance-turned-support on July 28th. The following day produced a bullish rejection bar that provided traders with an opportunity to go long at the newly formed support level.

The most significant development, however, came on Friday as the pair managed to climb above the 1.3063 key handle. Not only did this mark a daily close above the level, it represented a weekly break near the high of day.

From here the trade idea is straightforward. We need to see the 1.3063 level hold a daily closing basis. A close back below the level would negate the bullish bias and have us looking lower to the previous support level.

Summary: Watch for a buying opportunity on a retest of 1.3063 as new support. Key resistance comes in at 1.3260 and 1.3470. A daily close back below 1.3063 would have us looking to support at 1.2970.

USDCAD break of six-year high

EURJPY remains at the top of my watch list heading into the new trading week. The potential three-month head and shoulders pattern has the ability to open up the door for a substantial move lower, however that opportunity will only materialize on a daily close below the neckline at 133.10.

EURJPY potential head and shoulders pattern on the daily chart

In the interim we can see that the pair has carved out a wedge on the 4 hour chart. This gives traders an opportunity to watch for a break lower in anticipation of a retest of (and possibly a close below) the 133.10 level.

Let me be clear that given recent Euro weakness, I am only interested in a break lower. A daily close above 137.00 would negate the reversal pattern and likely trigger a move higher, at least in the short-term.

Summary: Watch for a selling opportunity on a 4 hour close below trend line support. Support comes in at 133.10 with a daily close there opening up the door for a move to 131.50 and possibly lower. Alternatively, a daily close above 137.00 would negate the head and shoulders and have us looking higher.

EURJPY wedge on the 4 hour chart

GBPNZD continues to perform well for us after making a key break during Thursday’s session. After a three-month rally it looked as though the pair might be ready to correct at the 2.40 handle, however the bull flag pattern that began to develop on July 20th hinted at a different plan for the bulls.

Shortly after making this key break, the bulls managed to push the pair above 2.3615 on a 4 hour closing basis and eventually on a daily closing basis. Shortly thereafter I commented via social media that this level should begin acting as support.

This level was put to the test during Friday’s session which saw GBPNZD move 160 pips below 2.3615 intraday. However buyers were able to push the pair back above the key handle before the 4 hour close, giving credence to the idea that the pair remains well bid at this level.

Based on the measured move of the bull flag pattern shown below, we get an objective at 2.4470. Like any multi-year high, the 2.40 area is likely to act as resistance along with 2.4100, which was a pivot between August and September of 2009.

Summary: Watch for a buying opportunity as long as the pair holds above 2.3615 on a 4 hour close. Key resistance resides between 2.40 and 2.4100 with a measured objective at 2.4470.

GBPNZD bull flag breakout on the 4 hour chart

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