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Despite a strong stand from buyers on Friday, the EURUSD lost ground last week for the first time since the week of June 10th. Sellers were also able to close the single currency back below the pivot at 1.1720.
That may not mean a whole lot, though. Since May 21st, the pair has traded above and below this level on several occasions. So while it is a significant level, it won’t give us any hints as to the likely future direction for the pair.
But let’s discuss Friday’s bullish pin bar for a moment as I have no doubt it’s on everyone’s radar.
During the second half of Friday’s session, the pair caught a massive bid at the confluence of support near 1.1615. It appears to be the intersection of a trend line from the May 14 high and the 2017 trend line I mentioned a couple weeks ago.
Friday’s signal is no doubt a bullish one. The shape of the candlestick is ideal and it also formed at a key support area.
However, keep in mind that the EURUSD is still range bound. There hasn’t been any momentum one way or the other since the single currency broke below 1.1830 on May 16th.
You may also know how I feel about Friday signals. Essentially, the lack of volume before the weekend tends to produce patterns with relatively high rates of failure.
That doesn’t mean the EURUSD won’t move higher this week. It does, however, suggest that I’m in no hurry to buy the pair.
If buyers can take out last week’s high followed by the 1.1830 handle, then we could very well see a move to 1.1940 and perhaps even 1.2100. Until that time, the EURUSD is range bound.
Alternatively, a move below last week’s low at 1.1612 would suggest that Friday’s signal was more of a liquidation event than a directional cue.
We looked at the GBPUSD on Monday of last week. I also pointed out the descending channel you see below in the previous weekly forecast.
Here’s what I wrote on Monday:
Despite the selloff from the 1.3300/20 area, the GBPUSD remains a somewhat tricky pair to trade.
The reason for that is due to the descending channel (which I refer to as a downward sloping flag). A descending formation such as this after a strong downtrend can often signal a correction higher.
So, while it is true that the GBPUSD is selling off from a resistance level we were aware of per yesterday’s forecast, the price action since May is tilted in favor of buyers.
If you shorted the pair during Monday’s rejection from the confluence of resistance at 1.3300 you were able to make a few pips. However, you were also probably forced out of that short position during Friday’s impressive 130 pip rally.
The final 24 hours of trade last week is what I meant when I wrote that the price action since May is tilted in favor of buyers. So while Friday’s rally was quite sudden, it shouldn’t have been a surprise.
But buyers aren’t out of the woods just yet. As impressive as Friday’s move was, there are two things holding me back from turning outright bullish.
Firstly, the large bullish pin bar you see below occurred on a Friday. As you may well know, Friday signals have a higher failure rate than others due to the liquidity drain that arises before the weekend.
Secondly, that 1.3300 resistance area looms just 60 pips above Friday’s close. So while we will likely see a push higher this week, the question is, how high? The 1.3300 handle is the key to answering that question.
It’s going to take a daily close (New York 5 pm EST chart) above 1.3300 to attract additional buying pressure. Above that, we have resistance at 1.3460 followed by 1.3600.
Alternatively, bearish price action from 1.3300 could keep the pound contained for a few more days.
On July 6, I pointed out the 110.30 area on the USDJPY. Given the confluence of support that had gathered there, I deemed it a “must hold” for buyers.
I was skeptical at the time as to whether buyers could pull it off. The pair was having trouble moving higher from the region and was beginning to lean on ascending channel support quite heavily.
However, the two-day rally below speaks for itself. The pair is still up an impressive 130 pips since Tuesday’s close, and I see no indication of fatigue.
Thursday’s close puts the USDJPY back above the 112.00 handle. The level supported prices throughout December 2017 and also helped attract a bid on January 2nd of this year.
As long as the pair stays above this level on a daily closing basis (New York 5 pm EST), the bullish outlook is intact. The next key resistance doesn’t come in until the December 2017 highs near 113.60.
That doesn’t mean we won’t see a pullback though. In fact, judging by the gap between the current price and the 10 and 20 EMAs (which I use to find the mean), a pullback to 112.00 would only benefit the rally effort.
Additionally, if we treat the smaller descending channel as a bull flag, then the USDJPY may not exhaust itself until the 115.00 region. That also happens to line up with several highs between January and March of last year.
In summary, I’m bullish the USDJPY, but I won’t consider an entry at the current price. A pullback into the 112.00 support area would pique my interest for a move higher to 113.60. Alternatively, a daily close below 112.00 would put the bullish outlook on hold.
Last Wednesday I discussed a significant level on the USDCAD. The 1.3120 area had served as support between the 4th and 5th of July and later acted as resistance on the 10th.
However, shortly after testing key trend line support on the 11th, buyers took the pair higher by more than 100 pips. That put the pair well above the 1.3120 handle on a daily closing basis.
Despite what may seem like a time to buy, USDCAD bulls have their work cut out for them. In my opinion, the pair won’t be a buy until it clears ascending channel resistance near 1.3260. Until that time, the USDCAD is vulnerable.
At the same time, I’m not willing to short the market while above the confluence of support at 1.3100/20. This will be a key test for the pair in the coming week.
Overall, I have to stay slightly bearish the USDCAD while it’s trading below that 1.3260 area. It’s going to take a lot more than last week’s price action to reverse the late June breakdown.
A daily close below 1.3100/20 would present a selling opportunity for a move to 1.3010 and perhaps 1.2870. Alternatively, a daily close at 5 pm EST above the 1.3260 region would turn our attention higher.
The EURAUD continued to bounce between range support at 1.5720 and resistance at 1.5870 last week. Without a daily close (using a New York close chart) below or above one of these levels respectively, we can expect this range-bound price action to continue.
I’ve highlighted the head and possible right shoulder of what could be a 1,000 pip head and shoulders pattern below. I first mentioned the formation in the June 20th commentary.
Although far from confirmed, the potential reversal structure is still intact. I’d like to see the 1.5870 resistance area hold moving forward. If it doesn’t, we can probably scrap the idea of a head and shoulders reversal.
For now, though, it’s going to take a daily close below 1.5720 support to open up downside targets including 1.5620 and 1.5470.
Also note that the trend line support I mentioned on July 5th did indeed break down. That level helped attract selling pressure during the final hours of the session on the 11th of July.
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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