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Weekly Forex Forecast (Sept 28 – Oct 2, 2015)

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The long-term consolidation pattern continues for EURUSD as the pair has struggled to find any meaningful follow-through since March.

Although there is plenty of upside potential in this range, the price structure since August 7th has given the bulls a new resistance level to contend with. I mentioned this trend line on Monday of last week, noting that traders could watch for bearish price action on a retest of the level as new resistance.

Thursday’s 4 hour bearish rejection of the level did fit the description, however it wasn’t quite enough for me to pull the trigger on a short position.

To be honest, I have little interest in trading within this range. I still maintain the idea that the past seven months have set the pair up for what could be a continuation of the larger downtrend that began in May of 2014, a move that could see the pair trading well below parity in the coming months.

That said, the pair still has quite a ways to go before any such potential is confirmed. Until that time we can expect the choppy, directionless price action of EURUSD to continue.

Summary: Watch for a selling opportunity on a close below channel support at 1.10. More aggressive traders can watch for bearish price action on a retest of the trend line that extends off of the August 7th low. Below 1.10, key support comes in at 1.0820, 1.0658 as well as the 2015 low at 1.0470.

EURUSD ascending channel on the daily chart

From a purely technical standpoint, GBPUSD remains at the top of my watch list. The chart below shows how well-defined these levels are, providing us with a great opportunity to trade the price action between them.

For starters, the trend line off of the May low acted as support on several occasions before flipping to resistance and rejecting the advance between September 17th and 18th. That rejection triggered a 500 pip decline over the next six trading days.

Last week ended with the pair balancing on the 1.5170 key support level. This area can be seen acting as resistance on March 18th and later acted as support in early June and September.

From here traders can watch for one of two scenarios. The pair will either rally back to the 1.5330 resistance level or close below the 1.5170 handle. Either way I will be watching for a selling opportunity as long as the pair continues to carve out lower highs and lower lows.

Summary: Watch for a selling opportunity on a move back to the 1.5330 resistance level or on a close below 1.5170. Key support below 1.5170 comes in at 1.50. Alternatively, a close above 1.5330 would expose the next key resistance level at 1.5465.

GBPUSD support and resistance levels

I mentioned USDJPY last week as the pair continued to carve out a wedge pattern that began following the August 24th selloff that triggered a 580 pip decline in a single day.

Shortly after commenting on this consolidation pattern, the pair closed above resistance, signaling that the bulls were ready to take control.

Luckily I was only interested in a short position here because the next 12 hours completely reversed the breakout. This left us with what appears to be a false break to the upside.

As I often say, a false break in one direction often leads to a move in the opposite direction.

Could this be a sign that risk aversion is about to kick in again?

Perhaps, but it’s far too early to know for sure. However it will be extremely interesting to see how the pair copes with last week’s false break of wedge resistance.

Summary: On the sidelines for now. I’m inclined to use USDJPY as more of a benchmark for risk sentiment rather than an outright trading opportunity. Instead I will look to EURJPY and GBPJPY to take advantage of any move to risk aversion. More on those two below.

USDJPY 4 hour wedge

EURJPY has been fairly quiet lately as the pair continues to consolidate in what appears to be a large wedge pattern that began forming in mid April. The lower level of this wedge also lines up with the key 133.10 support area that was so prominent between May and July.

Similar to the other yen crosses, I maintain my mid to long-term bearish outlook for EURJPY. However it will take a break below the 133.10 area before that outlook can begin to materialize.

Until that time the 135 level will continue to play a role as it did during Friday’s session, along with wedge resistance near 137. While traders could technically watch for selling opportunities at these two levels, I prefer to wait until the pair is able to clear this congestion area before considering an entry.

Summary: Watch for a selling opportunity on a daily close below wedge support at 133.10. From there, key support comes in at 131.50, 129 and 126.85. Alternatively, a daily close above 135 would postpone the bearish bias and expose key resistance at 137.

EURJPY wedge pattern on the daily chart

GBPJPY worked out well for us last week after forming the bearish pin bar on September 17th. I exited my short position on Thursday for a gain of 8.4R, however I still believe that the real opportunity here has yet to present itself.

That potential could materialize on a break below the trend line that extends off of the October 2014 low. This level has been tested on four separate occasions and a break below it could trigger a much larger correction for the pair.

Although Friday’s price action formed a bearish pin bar off of the 184.20 resistance level, it is too close to support to justify an entry. That said, a move back to 184.20 early in the week could produce a favorable short setup depending on the price structure at the time.

But again, I believe that the larger opportunity here will materialize on a close below the 2014 trend line. A break there would first target 179 and possibly the 2015 low at 175.

Keeping the big picture in mind, the topping pattern between June and August appears to represent a major top for the pair. Therefore I would not be surprised to see GBPJPY trading at 165.60 and possibly 156.40 in the coming months.

Summary: Watch for a selling opportunity on a close below trend line support off of the October 2014 low. Key support below that comes in at 179 and 175. Alternatively, a close back above 184.20 would negate the bearish bias in the short-term and expose the next key resistance level at 187.30.

GBPJPY trend line support from 2014

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1 comment
Azim Salim says

ascending triangle on eurusd weekly timeframe..

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