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EURUSD bulls had a strong start last week but lost momentum on Wednesday.
The final two sessions of the week carved long upper wicks, but I don’t see this as a selling opportunity.
For one, I don’t think the euro tested descending channel resistance as displayed in the chart below.
But the primary reason I’m not selling has to do with the pattern itself.
Selling within an established descending channel such as this can be a risky endeavor.
A descending pattern that develops after an extended move lower can be indicative of a short-term bottom.
Now, I’m not saying EURUSD has bottomed. Nor am I stating the pair is a buy.
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I don’t have enough information to state either with any degree of confidence.
What we do know is that EURUSD has been in a downtrend since the February 2018 high. There’s no arguing that point.
However, the bearish momentum has also slowed since November of last year.
In situations like this, I find it best to either limit expectations by trading the smaller ranges that develop or stay out of the market entirely.
I have no interest in trading indecisive price action, so I tend to look elsewhere for opportunities.
The EURUSD is going to need to return to 1.1215 support or break 1.1400 resistance on a daily closing basis to pique my interest.
Until that time, the EURUSD will continue to be a difficult pair to trade.
Last Wednesday I discussed the possibility of a 1.3440 print for GBPUSD.
The pair was well on its way at the time, especially after clearing the 1.3200 resistance area the day before.
However, the rally was overcooked in my opinion. Bulls needed a pullback to help attract fresh bids.
Here’s what I wrote on Wednesday of last week:
The GBPUSD is too far extended to think about buying up here, at least in my opinion.
However, a rotation lower to 1.3200 support could offer a favorable buying opportunity.
That turned out to be the right call. GBPUSD lost ground on both Thursday and Friday before testing 1.3200 support before the weekend.
That 1.3200 level needs to hold on a daily closing basis for buyers to have a chance at a 1.3440 retest.
If the pair closes the day below it, we could see selling pressure intensify.
One way to help stack the odds in your favor in situations like this is to wait for bullish price action such as a pin bar or engulfing pattern.
Either formation would suggest that GBPUSD bulls intend to defend 1.3200.
USDJPY looks poised to take on the 112.50/60 resistance area this week.
It comes following Friday’s close above the 111.40/70 area I pointed out on Friday.
Before I go any further, I want to clarify something…
Key support and resistance levels break all the time.
Just because I post a chart showing a resistance area as I did last week with USDJPY does not mean it is a sell.
Nor does it suggest the level will hold.
I use these key areas coupled with the daily close to determine a market’s likely future direction.
In the case of USDJPY, it was simple.
A daily close above 111.70 would open the door to 112.50/60 while bearish price action from 111.40/70 would likely take the pair lower.
I stated that exact outlook on Friday with a note about how I was staying neutral through Friday’s close.
Here’s what I wrote:
The alternative would be a daily and weekly close above that upper resistance level of 111.70. Such a close would expose the next key resistance at 112.50.
I’m staying neutral here until I see where USDJPY closes today’s session.
Simply buying and selling at support and resistance respectively is not enough. If it were, profiting in the Forex market would be relatively easy.
And we all know that isn’t the case.
As for USDJPY, I do suspect buyers will want to defend the 111.40/70 area this week which is now serving as support.
But given the distance between Friday’s close and the 10 and 20 EMAs, I’d expect a pullback of some sort this week.
As for me, I want to see bullish price action in the 111.40/70 area before considering a long.
As I mentioned last week, the 112.50/60 area is the next resistance level.
Remember the 84.50 resistance area on CADJPY?
I pointed out this area on the 25th of February.
The reason I continue to like the 84.50 area is that it’s the former ascending channel support that extends from the 2016 low.
You may recall how this former channel support triggered the 600-pip selloff last December.
As we know, old support becomes new resistance.
That means last weeks retest of 84.50 was likely to encounter selling pressure.
Here’s the weekly chart I posted last Monday:
CADJPY did manage a high of 85.23 on Friday, but it turned out to be the last gasp from bulls.
I sold the pair at 85.06 which I announced in the member’s area.
As for key support on the way down, there is an area at 83.80 that could attract a few buyers.
However, if sellers can follow through on this bearish rejection candle, there isn’t much in the way of support until the 82.00 area.
Below that we have the lows from April 2017 and March 2018 at 80.55.
Given how choppy CADJPY has been this year, I wouldn’t be surprised to see another retest of the 84.50/60 resistance area this week.
But as long as this new resistance at 84.50/60 is intact on a daily closing basis, I will stay bearish CADJPY.
On February 20th I wrote about a key resistance area for gold (XAUUSD).
It wasn’t immediately apparent, but gold was testing rising wedge resistance at 1345.
That same session carved a bearish pin bar. It was the first sign of weakness from gold bulls.
A few days later the market was testing the support area at 1320.
Then came the breakdown on the 28th of February.
For those who were already short from the signal on the 20th, the daily close below wedge support on the 28th offered a chance to add to shorts.
The break of rising wedge support ended up being costly for gold bulls.
Friday’s session took the market well below the next key support at 1300.
However, you will recall that my target here wasn’t 1300 but rather the wedge inception point at 1280.
Here’s what I wrote last Thursday:
If sellers manage a daily close (New York 5 pm EST) below 1318, we could see gold slide lower toward the 1300 support region.
In fact, if 1318 gives out this week, I would suspect we will see gold move lower toward the wedge inception point at 1280.
With gold closing last week below the 1300 handle, any retest of the area will likely encounter an influx of selling pressure.
In other words, watch for short opportunities from 1300.
To the downside, we have the 1280 support area followed by 1260.
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.
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