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Another week of consolidation for the EURUSD is behind us. This has been a recurring theme since Euro bulls reclaimed the 1.2160 handle on January 12.
Friday’s close occurred right in the middle of the terminal pattern I’ve been discussing for several weeks now. The lower trend line extends from the April 2017 low while the upper boundary dates all the way back to the 2008 high.
This terminal pattern is the one to watch in my opinion. Everything that happens leading up to a break of either trend line shown below is just consolidation. A warm-up before the main event if you will.
So, if you’re looking for a big move from the single currency, it seems you’ll need to wait a bit longer.
However, the short-term trend line that extends from the February 16 high could offer an opportunity this week. The EURUSD pressured the 1.2350 resistance area on Thursday and Friday, but buyers were unable to get the job done.
A daily close above this trend line would trigger yet another run at the 2008 trend line near 1.2450. Keep in mind that it’s going to take a daily close (New York 5 pm EST) above the trend line near 1.2350 to garner attention from bulls.
Key support for the week ahead comes in near 1.2200, which is the April 2017 trend line.
While the five-week trend line below could offer an opportunity, if you prefer to hold positions for weeks at a time, it seems patience is still the best option. Only a daily close above the 2008 trend line or below the April 2017 trend line will pique my interest.
At this time last week, the GBPUSD was still trading below 1.40. The back to back attempts to break above the level between March 13 and 15 left us watching for a daily close above it.
That break occurred on the 19th. I released commentary on the same day stating that the 1.40 area should begin to attract buyers.
Sure enough, the area held during the March 20/21 retest as new support. However, the event calendar was rather unforgiving last week which made it difficult to identify a favorable entry.
But that’s okay because the GBPUSD looks poised for a move lower to start the new week. Thursday’s bearish rejection candle combined with the overextension from the daily mean suggest a pullback is in order.
As such, I’m going to remain on the sideline to see what happens should we get another test of the 1.40 area. Bullish price action could make for an attractive buying opportunity, while a daily close below it would turn our attention lower.
I will remain cautiously bullish so long as 1.40 holds on a daily closing basis (using a New York close chart). Key resistance comes in at 1.4335 with a minor area near 1.4150.
I discussed the USDJPY a couple of times back in mid-February. Following the close below the September 2012 trend line on February 13, we began looking for short entries for a move to key support at 105.50.
That level was reached just three trading days later on February 16. But even the bounce from 105.50 had us watching for short entries again between 107.70 and 108.00 per my February 20 commentary. Although a bit choppier on the way down, that too was a profitable trade.
However, since that time the price action on the USDJPY has been incredibly choppy. As such, I’ve remained on the sideline for about a month now.
Despite the last four weeks of consolidation, one thing we can discern is that 105.50 is still a significant support area. Sellers had tried to break 105.50 during six separate trading sessions since February 16. That is until last Thursday’s breakdown.
With the pair now below 105.50 on a daily and weekly closing basis, there isn’t much to prevent a retest of support at 103.70.
Despite the USDJPY ending last week nearly 150 pips below the daily mean as measured by the 10 and 20 EMAs, I’m skeptical about how much of a bounce we’ll see this week. In my opinion, we’re on the brink of another round of risk-off sentiment.
That shift in sentiment could take the USDJPY to 103.70 in a hurry. As always, time will tell. My target remains the 100.00 handle which is also the 2016 low.
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The GBPJPY has spent the month of March consolidating in a 500 pip range. It comes after the pair fell below 2016 trend line support on February 28.
Just like the USDJPY that I mentioned on Thursday, the break below a long-standing trend line on the GBPJPY is a significant development in my opinion.
Like most breaks of a multi-year level, it has been followed by consolidation. The good news for us is that this consolidation has carved a pattern we can use in the coming sessions.
The upper boundary of the pattern is former trend line support that extends from the 2016 low. This is the level that broke down on February 28. As long as the GBPJPY remains below it on a daily closing basis (New York 5 pm EST), I will stay bearish.
The lower boundary is a level that took shape following the March 19 low. It was confirmed as support on Friday, which means a close below 147.90 would expose 145.85.
When I mentioned this trade idea before the weekend, it looked as though buyers had some fuel left in the tank. However, the pair reversed course rather quickly during the final six hours of trade.
As it stands now, it appears that a 4-hour close below wedge support is just a formality. Be sure to mind the spread if we get a break below support shortly after the market opens.
I mentioned the NZDCAD break below 0.9450 on Tuesday of last week. This was considered a must-hold level for buyers to keep the rally intact.
Something else that happened on Tuesday was the close below the 4-hour ascending channel. That put the 0.9400 resistance area on the map, and sure enough, the pair fell from 0.9395 to 0.9287 during Wednesday’s session.
Wednesday’s 0.9324 close was just as telling as it put the NZDCAD below key support on a daily closing basis. Remember, I use New York close charts which are essential if you plan to be an end of day Forex trader.
However, the real reason I’m mentioning this isn’t so much Wednesday’s close as it is what occurred between Thursday and Friday.
A look at the daily time frame shows how the pair has closed below this 0.9330 area for three straight sessions. As long as this area continues to hold as new resistance, the 0.9200 support area is exposed.
That said, I wouldn’t label Friday’s candle as a sell signal. Yes, the pair encountered selling pressure above 0.9330 and closed back below it, but the buying pressure near 0.9300 has also been steady.
I’m going to sit this one out for the first 24 hours of the week. I may miss out, but I also believe there are more favorable opportunities elsewhere such as the GBPJPY as mentioned above.
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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
Click here to get access to the same style charts I use on this website.
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