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The EURUSD continued its bounce into the weekend following a relatively bullish Wednesday candle. I’ve mentioned the 1.1300 support area a few times in the last two weeks including August 9th and again last week.
That 1.1300 area was also the target for my short from the 1.1600 area. It just so happens that Wednesday’s low was exactly 1.1300, so to say it worked out nicely would be an understatement.
For now, I’m on the sideline after booking profits. While you could have bought the single currency from 1.1300, the trend is still very much bearish. That’s particularly true given the August 10th close below the 1.1500 area.
I’m a big fan of utilizing the concept of mean reversion when timing entries. And it isn’t just about the daily chart as the weekly time frame has its own story to tell.
I use the 10 and 20 exponential moving averages to illustrate a market’s average price. As you can see below, the EURUSD is nearing its daily mean as represented by the 10 and 20 EMAs.
However, the weekly time frame shows a market that is more than 200 pips below its mean even after last week’s bounce. That alone suggests we may see some additional upside this week.
I’ll be keeping a close eye on how the Euro reacts to the 1.1500 region. Bearish price action from here could present a favorable opportunity to get short. Key support remains the same at 1.1300 followed by 1.1125.
Alternatively, a daily close back above 1.1500/10 would re-expose former wedge support near 1.1650.
On August 12th I pointed out how the GBPUSD had broken below channel support the prior week. The August 9th close below descending channel support gave us a new resistance area to watch between 1.2780 and 1.2810.
It didn’t take long for the pair to retest support turned resistance. Tuesday’s session reached a high of 1.2827 before dropping more than 100 pips into the close.
Remember, I use New York close charts so that each 24-hour session opens and closes at 5 pm EST. You can get access to the same charts I use by going here.
However, shortly after Tuesday’s close, GBPUSD caught a bid at 1.2660. Since that time the pair has regained some lost ground but remains below a confluence of resistance at 1.2770/80.
As long as the GBPUSD trades below the 1.2770/80 resistance area on a daily closing basis, the pair will remain under pressure. And given that the next key support at 1.2590 is nearly 200 pips away from 1.2770/80, there may be a favorable opportunity here this week.
Alternatively, a daily close back above the 1.2770/80 area would negate the bearish outlook. It would also expose the July swing low just below the 1.3000 handle.
Do keep in mind that the pair is still overextended despite last week’s consolidation. As such, I wouldn’t be surprised to see some additional strength to start the week.
I will also say that I’m not a big fan of trading this recent breakdown. As I’ve mentioned in the past, a downside break of a descending pattern often results in a false break. The same applies to an upside break of an ascending pattern.
In my opinion, this could go either way, so waiting for confirming price action before considering an entry isn’t a bad idea.
The AUDUSD ended the week just below a key level I mentioned on August 12th. The 0.7320 area is the location of several July lows and is sure to attract a few offers in the coming week.
How many offers will develop is unknown. However, given Friday’s surge combined with what appears to be a falling wedge pattern, I’ll be sitting this one out for now.
Similar to the EURUSD, the Australian dollar remains relatively stretched on the weekly time frame. The distance between Friday’s close and the 10 and 20 weekly EMAs tells us that much.
There is also a trend line that extends from the May low and connects with the July 2nd low. I don’t think there’s any question this level played a role in last week’s bounce.
That level alone may cause you to second guess shorting the pair. And that’s okay because there are several other opportunities brewing for the week ahead.
As it stands now, the AUDUSD will remain under pressure while below 0.7320 on a daily closing basis (using a New York close chart). Alternatively, a close above 0.7320 would delay the bearish outlook and expose the 0.7400 area.
On Friday I discussed how the EURCAD was in the process of testing former neckline support as new resistance. I wrote about the breakdown on Tuesday of last week and pointed out the 1.4970 area at that time.
A few hours after that post was published, the pair closed the day below the head and shoulders neckline confirming the 1,300 pip reversal pattern.
As long as the pair remains below 1.4970/80 on a daily closing basis, I will stay bearish. I’m still short from late June at 1.5580 and have since added to the position following the 1.5315 breakdown as well as 1.5150 retest.
One thing that could pose a problem for sellers is the distance between Friday’s close and the weekly 10 and 20 EMAs. This has become a theme across several Euro and pound crosses.
Key resistance for the week ahead comes in between 1.4970 and 1.4800. Support can be found at 1.4740 followed by the confluence of support at 1.4500.
The GBPAUD took its time selling off from the 1.7570 area last week. However, sellers who remained patient were rewarded with Friday’s late session plunge.
I’ve mentioned the possibility of a head and shoulders pattern a few times in recent weeks. I also wrote how the future direction hinged on 1.7570 on Tuesday of last week.
That area was a “must hold” for bears. The validity of the 1,200 pip head and shoulders pattern was contingent on sellers’ ability to keep prices below 1.7570 on a daily closing basis (New York 5 pm EST).
If the reaction in this area between Tuesday and Thursday of last week doesn’t convince you of the importance of the daily time frame, I don’t know what will.
For the week ahead, we may see a bid develop on a retest of that 1.7390 area. Although the pair didn’t respect it recently, the price action between November 2017 and June of this year illustrates why I still consider it to be a significant level.
Below 1.7390 sellers have the recent low at 1.7280 to contend with. However, a close below 1.7390 may not encounter much of a bid until the year to date low at 1.7100. A glance at the price action since mid-2016 will tell you why.
As I wrote last week, the objective for the 1,250 pip head and shoulders pattern comes in near the 1.6300 handle.
Justin Bennett is an internationally recognized Forex trader with 10+ years of experience. He's been interviewed by Stocks & Commodities Magazine as a featured trader for the month and is mentioned weekly by Forex Factory next to publications from CNN and Bloomberg. Justin created Daily Price Action in 2014 and has since grown the monthly readership to over 100,000 Forex traders and has personally mentored more than 3,000 students.Read more...
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