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The EURUSD lost significant ground on Wednesday following the retest of the 2008 crisis low. I mentioned how the 1.2325 area could attract selling pressure in last week’s forecast.
Sure enough, Wednesday’s high of 1.2323 was all Euro bulls could muster last week. The session even carved a quasi-bearish engulfing pattern, signaling that a pullback was likely.
Thursday’s session found support at the 1.2160 handle. That bullish momentum carried into the early hours of Friday but was short lived.
The late week bearish pin bar coupled with Wednesday’s engulfing pattern hint at near-term weakness. It seems that as long as 1.2325 holds as resistance, the EURUSD is at risk of pulling back.
Where might the pair find support this week?
First up is Thursday’s low just above 1.2160. A close below that would expose the early January highs at 1.2070 followed by the pivot at 1.1930.
However, a key driver at the open will be the outcome of the vote in Germany. And let’s not forget that the U.S. government shut down on Saturday, which will no doubt influence the greenback to some degree.
It will likely be a very active 24 hours for the Euro regardless of the outcome of that vote in Germany. Thursday’s session also promises to be an eventful one with an ECB rate decision at 7:45 am EST followed by a presser at 8:30 am EST.
As a purely technical trader, it’s enough for me to know when these events are scheduled to occur. The decision of whether to buy or sell will come from signals on the chart and the key levels outlined below.
The GBPUSD is a bit less straightforward in its technicals than its Euro counterpart. A look at the 4-hour chart shows a bearish pin bar that developed on Wednesday after testing the 1.3850 resistance area.
However, buyers decided to challenge sellers on Friday by forcing a retest of Wednesday’s high at 1.3942.
Despite Friday’s 1.3945 print, that 4-hour bearish pin bar is still intact in my opinion. That’s particularly true if we consider last week’s close, which appears to have broken the 1.3850 handle.
I like to give the market some time whenever things are this uncertain at the start of a new week. The technical landscape will usually clear up after the first 24 to 48 hours of trading.
As long as 1.3850 holds as resistance on a daily closing basis (New York close charts), the GBPUSD rally is vulnerable. Key support comes in at the 1.3610/20 area.
It didn’t take long for the USDCAD to reach our 1.2400 target after breaking below 1.2670 on December 27. Using the height of the range that developed between late October and December, we knew that a 240 pip drop was likely.
We ended up getting more than that, but the 1.2400 support area has held up since being tested on January 5. USDCAD buyers are trying to turn this one higher but haven’t had much luck, at least not yet.
Recent developments on the CADJPY hint at a turn higher for the USDCAD. The two don’t always move in opposite directions, but with a negative correlation of 80% on the daily time frame, if the CADJPY drops the USDCAD will likely gain some ground.
However, nothing is confirmed at the moment. As such, I’m going to stand aside for now. A retest of the 1.2670 resistance area could produce a favorable selling opportunity with the right price action signal.
A daily close above 1.2670 would place the pair back in its former range and expose the 1.2900 resistance area. Alternatively, a daily close at 5 pm EST below 1.2400 would open the door to the 2017 low at 1.2060.
I’ve been going on quite a bit about the EURJPY in the member’s area. A quick Fibonacci study using the 2017 low and current 2018 high shows that the yen cross may have topped out at 136.60.
The last time I saw such a correlation between key horizontal areas and Fibonacci levels was with the USDJPY, GBPJPY and NZDJPY in 2015 just before each produced a significant drop.
See this post if you want to learn more about this technique.
Now, that does not mean the EURJPY has topped out. There are no guarantees in trading, only possibilities and probabilities.
But as long as resistance at 136.60 is intact as resistance, I do believe that a correction is probable.
We shouldn’t have to wait long to find out. Between the U.S. government shutdown, Sunday’s vote in Germany, Tuesday’s BOJ and Thursday’s ECB, it’s going to be an overly active week for the EURJPY.
Key support comes in at 134.40/50 followed closely by the trend line that extends from the August 2017 low. A break below that would pave the way toward former range support at the 131.40 handle.
We discussed the GBPJPY a couple of times last week. The first was Tuesday when the pair was trading at 152.48 and was well within the bounds of a rising wedge pattern.
Just 24 hours later the pair closed the day above wedge resistance near 153.70. However, one of my rules is never to buy topside breaks of ascending patterns or sell downside breaks of descending patterns.
The reason is quite simple. Rising or ascending formations tend to signal exhaustion from buyers while falling or descending ones suggest fatigue from sellers.
On Friday we discussed the possibility of a false break from the GBPJPY. The idea was to watch for a daily (and weekly) close below 153.80. Friday’s 153.40 close leaves no doubt that buyers failed to hang on to support at 153.80.
For the week ahead, I would suspect that sellers will want to defend the area between 153.80 and 154.00. Only a daily close above this area would negate the near-term bearish outlook.
Key support comes in between 151.50 and 152.00. A daily close (New York 5 pm EST) below that would expose 149.35 followed by the 147.00 handle.
Similar to the EURJPY, the GBPJPY could be quite active this week given the U.S. government shutdown, various Brexit comments and Tuesday’s BOJ decision and statement.
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