EURUSD buyers managed to hold their ground last week after kicking things off with a 180 pip gap up. The weekend gap was the result of a Macron victory in the first round of the France elections.
I normally don’t like to use so many levels of support and resistance, but as you can see from the chart below each one serves a purpose.
The proximity of the levels below is partially due to the indecisiveness over the past few months. In fact, that statement could apply to the last two years of price action.
The most notable development from the EURUSD last week was the close above trend line resistance that extends from the 2016 high. This level had capped several advances including the November 9th spike from last year.
Does this mean the Euro is ready to begin an extended move higher?
Perhaps, but I’m not willing to bet on it nor am I prepared to say it’s the likely outcome at this point.
Sure, the single currency has made some headway recently, but the two-year range is still intact. And with the May 7th run-off election in France fast approaching, the longer-term trajectory is anyone’s guess.
But I do know one thing for certain. I won’t be trading the EURUSD this week. The event risk in Europe is too high for me to put capital at risk. Instead, I’ll wait for May 7th to pass and reassess things once we have something more material to work with.
Keep in mind that we also have a Fed rate decision on May 3rd at 2 pm EST followed by non-farm payroll on May 5th at 8:30 am EST. These two events will likely shake things up for the EURUSD as well as the next three currency pairs below.
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Last weekend I mentioned the range that had developed on the GBPUSD between 1.2770 and 1.2860. Given the 280 pip single session rally on April 18th, a break higher seemed likely.
Buyers managed a close above the range ceiling last Thursday, and Friday’s price action confirmed their intentions. From here any pullback into the 1.2860 region will likely encounter buying pressure.
The next key resistance doesn’t come in until 1.3050. This area served as a pivot between July and late September of last year following the June 24th Brexit.
On April 17th we looked at the USDJPY as the pair reached a key inflection point at 108.40. This area is the intersection of descending channel support from the January 17th low and a horizontal level that’s been a factor since 1999.
Since that time the pair has rallied more than 300 pips but found resistance at 111.70 last week. This is the location of the two swing lows last December and is also the 50% retracement from the March 10th high to the current 2017 low.
If we look at this channel in context to the 1,750 pip “Trump rally,” we seem to have a bull flag pattern developing. The structure may suggest that much higher prices are in store for the risk-sensitive USDJPY.
However, that same sensitivity to risk is what will make or break the current price structure. And with the run-off election in France coming up on May 7th, we probably won’t need to wait long to find out one way or the other.
With that said, I should also point out that April’s price action carved a 360 pip bullish pin bar. The candlestick pattern is another bullish sign for the pair, but the more immediate path forward will be dictated by the upcoming vote in France. For that reason, I won’t be trading the USDJPY until the dust settles.
Key resistance for the week ahead comes in at 111.70 while support is found at 110.10.
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The AUDUSD bulls attempted a last minute recovery on Friday, but it appears the selling pressure was too much. As a result, the pair closed out the week below a significant area at 0.7500.
We’ve discussed the Australian dollar at length since late February. Two signals that stand out are the bearish engulfing candle on March 21st and the break of support at 0.7608 ahead of the April 4th RBA decision.
With the pair now below 0.7500 on a daily and weekly closing basis, I’ll be watching for a sell signal on a retest of the area as new resistance. My short-term target remains 0.7380. This is the 61.8% Fibonacci retracement from the December 2016 low to the current 2017 high.
Keep in mind that 0.7455 could continue to serve as near-term support in the new week. It’s the 50% retracement of the range I just mentioned. But regardless, I won’t be doing anything here without a proper sell signal from resistance.
I mentioned the AUDNZD on Monday of last week and again on Friday. The first post was to highlight how buyers had reclaimed the 1.0765 handle, a key level that dates back to May of last year.
Then on Friday, we saw the pair climb above channel resistance near 1.0860. Although there was a false break of channel support on April 19th, the formation has the look and feel of a bull flag pattern.
If this is the case and the bulls manage to hold on to 1.0860 on Monday, it puts the measured objective at 1.1330. This level is just 30 pips above my longer term target at 1.1300, which is something I first mentioned at the end of 2016.
I’ll be interested in adding to my long position from last week provided we get some favorable price action above 1.0860. Key resistance above that comes in at 1.0920 followed by the current 2017 high of 1.1018. Note that the March 31st high at 1.0965 could also attract selling pressure on the way up.
One reason I like the AUDNZD above others has to do with the protection it offers from European event risk. Of course, I’m referring to the May 7th run-off election in France, which will undoubtedly impact the Euro and U.S. dollar as well as other risk-sensitive currencies.
The AUDNZD, on the other hand, is relatively insulated from any shocks that could arise from the event.
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