Weekly Forex Forecast (October 22 – 26, 2018)

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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.

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Three levels came into play last week for the EURUSD. First was resistance at 1.1620 which capped Tuesday’s rally. Then came the close below 1.1530 that exposed the 1.1430 support level I mentioned last Sunday.

The final 48 hours of last week saw the euro trading in a 100 pip range between 1.1430 support and 1.1530 resistance. Until the pair clears one of those levels on a daily closing basis (New York close chart), that will be the range that defines the euro this week.

However, we shouldn’t discount the bullish engulfing range that developed before the weekend. Friday’s bullish candle signals that we could see yet another break above 1.1530 to re-expose the 1.1620 area.

It’s all too choppy for me at the moment though. I prefer markets that show some form of directional bias or at least a favorable pattern. Right now, EURUSD has neither.

If you insist on trading the euro, it makes sense to limit your expectations. This market isn’t conducive to letting trades run for hundreds of pips, nor is it one that will allow you to scale into a position.

A daily close above 1.1530 would expose 1.1620 and perhaps 1.1730. Alternatively, a close below 1.1430 support would expose the year-to-date low at 1.1300.

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Much like EURUSD, the GBPUSD continued to consolidate last week. It’s been an ongoing theme since July and one that doesn’t appear to be over just yet.

After several days of back and forth price action, GBPUSD fell below 1.3070 on Thursday. You can see how this area has served as a pivot since late June. Sellers also made sure to keep prices below 1.3070 going into the weekend.

That said, this isn’t tradable, at least not for me. I’m not confident enough in 1.3070 as a key level, there’s no clear direction here, and the pound will continue to be volatile in the face of ongoing Brexit negotiations.

If you prefer a ranging market and don’t mind the increase in volatility, this may work well for you. As long as sellers keep prices below 1.3070 on a daily closing basis, the current October low at 1.2940 remains exposed.

On the other hand, a close back above 1.3070 would likely trigger a bounce higher to 1.3260. Just keep in mind that the 1.3070 level isn’t one I’d trade from without confirming price action such as a pin bar.

The bottom line is that this market lacks conviction. Combine that with the volatility risk presented by ongoing Brexit negotiations, and you have a situation where your time and money may be better spent elsewhere.

I’ve mentioned USDJPY a few times in recent weeks. Partly because of the favorable technicals, but mostly due to the opportunity that lies below the year-to-date trend line.

Most traders would look at the chart below as a buying opportunity. And it very well may be, but only in the near-term in my opinion.

Given the way the pair has struggled to extend rallies (particularly earlier this month), I’d say a breakdown isn’t far off. The aggressiveness of October’s pullback is another indication that buyers may be running out of ammo.

That said, as long as USDJPY is above trend line support on a daily closing basis (remember, I use New York close charts), the uptrend is intact and must be respected.

We also saw buyers close the pair back above 112.15 last Tuesday. The area subsequently attracted buyers between Wednesday and Friday. That 112.00/15 area will likely continue to attract bulls to start the new week.

If I can get a short entry at 113.15, I won’t hesitate to take it. I’m reasonably convinced that a turn lower is imminent based on the factors discussed above. And while that bias is considered counter-trend at the moment, it wouldn’t be the first time I’ve gone against the consensus.

For the week ahead, key resistance comes in at 113.15 with support found in the 112.00 region. A daily close below that support zone could bring an end to the 2018 rally. It would also expose 110.80 followed by 109.80.

NZDUSD bulls made a strong statement before the weekend. Friday’s 50 pip rally puts the pair just below channel resistance to start the week.

Those who read my October 16th commentary will remember that 0.6520 was the next support area for NZDUSD. Friday’s session tested the region with a low of 0.6523 before closing the week at 0.6589.

At first glance, this may look like a selling opportunity. After all, the pair ended last week just below a key resistance area within an established downtrend.

However, I think selling NZDUSD here would be a mistake. As I’ve mentioned before, channels like this have a way of foreshadowing trend reversals. It’s still early, but the pattern below has the necessary characteristics.

For the week ahead, it’s going to take a daily close at 5 pm EST above the confluence of resistance at 0.6600 to extend Friday’s rally. Key resistance above that comes in at 0.6700 followed by 0.6850.

Alternatively, a move lower would likely catch a bid at the 0.6520 level. And if buyers fail to hold that, we could see NZDUSD slide toward the year-to-date low at 0.6425.

All in all, I’m cautiously bullish here. The downtrend is still intact, but the odds of a move higher increased with Friday’s rally and retest of 0.6600.

Exactly two weeks ago on October 7th, I warned against buying U.S. crude oil at its current price of 74.20. There were two ascending channels, one on the daily and the other on the weekly, that suggested buyers were tiring.

If you look back to that post, you will even notice a bearish rejection candle on the weekly time frame. All in all, crude oil looked ready to roll over.

Fast forward to today and oil is trading below the 70.00 handle. In fact, last week reached a low of 68.50 before clawing back some losses before the weekend.

You may recall from my October 12th commentary where I stated that the market was unlikely to encounter much demand until 67.00. That’s the intersection of a key horizontal level and channel support that extends from the year-to-date low.

That may have seemed pretty far off when oil was trading above 73.00. But given Thursday’s low of 68.50, the 67.00 support area is well within reach, perhaps even this week.

For those of you still searching for an entry, I would look to the 70.00 resistance area. It was a critical factor in late August and September. It also appears to have stunted Friday’s rally to some degree.

Just keep in mind that the daily mean as measured by the 10 and 20 EMAs is up around 71.20. With that in mind, we could see the market consolidate for a few sessions before the final leg lower to 67.00 can materialize.

Last but not least, the upward sloping flag that’s been developing throughout 2018 is a bearish pattern. So although crude oil will likely bounce from the 67.00 area if tested, it may not be one you want to buy and hold for the longer term.

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