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Mario Draghi’s comments catapulted the EURUSD higher on Thursday. However, the intraday rally was met with substantial selling pressure at 1.2525. I mentioned this level as one to watch last Wednesday.
The pair had also become overstretched on Thursday. At the time of the 1.2525 print, the single currency was more than 300 pips from the mean as measured by the 10 and 20 EMAs.
That meant a pullback was likely. Sure enough, the pair tumbled 150 pips into the close. Friday’s session didn’t fare much better, though it did end slightly higher than Thursday’s final print.
We could see some near-term weakness here, perhaps toward 1.2325. A daily close (5 pm EST) below that would expose 1.2160 followed closely by 1.2070.
As I mentioned on Friday, I’m much more interested in the Japanese yen right now. It’s my personal view that the commonalities between several of the yen crosses suggest a stronger yen over the coming weeks.
See last week’s commentary on the NZDJPY and CADJPY for more.
For now, I’m not interested in buying or selling the EURUSD. The sideways price action in the middle of this 200 pip range makes entries unfavorable.
A rotation toward 1.2325 or perhaps even 1.2160 accompanied by bullish price action would pique my interest.
Following an aggressive rally on Wednesday, the GBPUSD cooled off a bit in the final 48 hours of the week.
Similar to the EURUSD, we’re waiting to see what happens following a retest of key support or resistance. The 1.4070 area will likely attract an influx of buying pressure while 1.4335 serves as near-term resistance.
I do think we could see some weakness early in the week, but I’m not interested in the GBPUSD at current levels. Bullish price action at 1.4070 or a rotation lower to 1.3850 may be an attractive way to join the uptrend. For now, though, I’m on the sideline.
Even President Trump couldn’t reverse the U.S. dollar’s slump last week, particularly against the Japanese yen.
Since breaking below 112.00 on January 10, the USDJPY price action has been very one-sided.
We saw a brief sign of life following Trump’s comment on Thursday about the desire for a stronger USD over the long haul, but Friday’s plunge erased those gains in a hurry.
For the technical trader, this wasn’t a surprise. The pair had just tested 108.80, which is a support level I’ve had on my chart for some time.
Friday’s 108.56 close will likely keep pressure on the USDJPY this week. As long as 108.80 holds on a daily closing basis (New York 5 pm EST), I prefer selling rallies for a move toward the 107.50 handle.
If 108.80 resistance fails to hold on a daily closing basis, we could see a move back toward Friday’s high near 109.80.
While I do think the USDJPY will produce additional opportunities, I have to favor the EURJPY and even the GBPJPY. Both have carved attractive technical patterns, and both remain overextended to the upside.
The EURJPY is my favorite currency pair at the moment. On January 23 I commented on a particular alignment of Fibonacci levels that hint at a top just above 136.60.
If that’s true, we could see the EURJPY settle into 131.40 and perhaps even 128.30 over the coming weeks and months.
But first, sellers need to clear trend line support near the 134.00 handle. Until that happens, the pair is still within the confines of this rising wedge, so additional strength should be respected.
Friday’s close was a significant one for the EURJPY. Since January 15, the pair has traded between 135.20 and 136.20. That is until Friday’s session broke 135.20 support on a daily and weekly closing basis.
The break below 135.20 could be enough to cap any early week advance. Keep in mind, however, that key support lies just below Friday’s close at 134.30/40. And below that, we have the trend line support near 134.00.
In summary, it’s going to be a lot of tight range trading until the 134.00 support level gives way. But if it does, we’ll likely see selling pressure intensify.
Although more difficult to read than the EURJPY, the GBPJPY is another yen cross to keep an eye on this week.
I should clarify, though. The pair was more difficult to read before Friday’s close. Since that time it’s become quite clear what is happening here.
If you recall from the January 19 commentary, the rally was at risk below 153.80 on a daily closing basis (5 pm EST). Now, the pair ended up climbing back above this area, but there was no real opportunity to short it anyway.
Notice where the GBPJPY closed last week. The final print at 153.68 puts the pair back below that 153.80 area. It means the upper boundary of the wedge we discussed on January 19 is being respected on a weekly closing basis.
Last week’s price action also carved a bearish pin bar.
On Thursday I commented in the member’s area to wait and see whether or not the GBPJPY would close the week below 153.80. At the time the pair was still trading near 154.60.
It turns out I should have listened to my intuition by shorting Friday’s rally, which eventually lost more than 200 pips.
If the 153.80 area is back in play as resistance, it should cap any early advances this week. I’ll be watching closely to see what kind of price action forms during Monday’s session.
For those looking for a more conservative approach, keep an eye on wedge support near 152.00. A daily close below that would open up 149.35 followed by 147.00.
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