The forex market remains sideways, but the key levels are incredibly appealing. In today’s forecast, I’ll share the levels to watch and scenarios to be aware of for next week.
Watch the video below for key insights on the DXY, EURUSD, GBPUSD, USDJPY, and USDCHF. Don’t forget to scroll down to save the annotated charts before trading next week.
US Dollar Index (DXY) Forecast
The DXY remained mostly indecisive this week after testing the 101.80 confluence of resistance. The lack of movement made trading the major currency pairs less than exciting.
However, times like this often foreshadow aggressive moves. This week’s sideways movement is the market’s way of coiling before its next big move.
Although we don’t know the direction of the next move, the DXY key levels couldn’t be more straightforward. Key support is 100.20, and the February descending channel provides overhead resistance near 101.30.
For the US dollar to move higher next week, bulls must take out 101.30 and 101.80. A sustained break above these zones on the high time frames would open the door to the 103.40 pivot from March and April.
On the other hand, a sustained break below 100.20 next week would pave the way toward the recent 98.00 low. Notice how the DXY didn’t thoroughly retest the 97.70 level from March 2022. That could become a factor if 100.20 fails next week.
EURUSD Forecast
This week, EURUSD traders have been at a stalemate. On one hand, sellers are defending 1.1200, which failed on Monday, and on the other, buyers are protecting 1.1060 support.
As discussed in previous videos, I’m waiting for this week’s close. A weekly close below 1.1200 could signal weakness going into next week.
However, a weekly close above 1.1200 would keep buyers in the game. EURUSD would need to reclaim 1.1200 and 1.1275 to convince me that the uptrend is alive. The bottom line is that euro bulls have work to do.
One note about this week’s close. The EURUSD needs to close convincingly below 1.1200 to confirm a buy-side fakeout. It won’t be enough to see the pair close the week at 1.1200 or a few pips below. It must be convincing.
GBPUSD Forecast
GBPUSD is another currency pair that has stalled this month. Since climbing above 1.3200 one month ago, the pound has consolidated in a 300-pip range.
It isn’t surprising to see the pair take a breather. The April rally was incredibly aggressive, so profit-taking from buyers is expected. 1.3440 is also significant resistance, so sellers will naturally defend it.
One thing I’m watching as we head into next week is the potential for a bull flag pattern. Given this choppy price action, I’m not yet convinced, but the potential exists.
GBPUSD must break channel resistance near 1.3330/40 to confirm the bull flag. Just above that is the multi-month resistance at 1.3440. A sustained break above that on the high time frames opens the door to 1.3630 and 1.3750.
Key support for GBPUSD is 1.3200. The pair fell below that on May 12th but quickly rebounded. That shows strength from bulls, but they have more work to do.
Lastly, I can’t rule out the potential for a deeper retracement to 1.3050 while below channel resistance. But as mentioned in Thursday’s video, the price action during this pullback favors bulls for now.
USDJPY Forecast
USDJPY has been a difficult pair to trade. On the other hand, the yen basket of currencies is an incredibly clean chart on the high time frames. See the video above for details.
If the Japanese yen holds above its March 2020 trend line on the weekly and monthly charts, pairs like USDJPY could suffer. That’s especially true if the DXY breaks below 100.20.
However, if the yen fails to hold above its March 2020 trend line, it would confirm a failed breakout. A fakeout on the high time frames would likely trigger a move in the opposite direction.
That could trigger a rally for USDJPY, but only if the yen index fails to hold support. I discuss this scenario in detail in today’s video (above).
USDCHF Forecast
USDCHF is one of the more promising-looking charts for dollar bulls. The pair reclaimed the 0.8330 level I discussed in recent videos. Monday’s rally flipped the 0.8330 area to new support.
However, the 0.8475 lows attracted sellers during Monday’s rally. 0.8475 is the other level I mentioned recently that could be a significant hurdle for USDCHF bulls.
A view of the weekly time frame (see the video above) isn’t as convincing for bulls. USDCHF is trading above the 2023 low, but to turn higher, it must also close above the August and September 2024 lows.
Currently, USDCHF is between 0.8330 and 0.8400, so the stalemate continues. I’m keeping the pair on my radar for now, but this week’s price action has been less than convincing.
