Weekly Forex Forecast (September 25 – 29, 2017)

EURUSD bulls continued their fight at 1.1875 last week. The area represents the 2010 low as well as channel support that extends from the April lows from this year.

We have been discussing this ascending channel ever since the pair broke above 1.1875 on August 25th. Not far above Friday’s high, we have key resistance at 1.2040. The area has capped several advances including the pin bars on August 29th and September 8th.

In the previous weekly forecast, I mentioned that we could see a third retest of 1.1875 in the coming sessions.

Sure enough, the confluence of support came under fire between Wednesday and Thursday of last week. Friday’s session saw some positive movement, but buyers retreated in the final hours.

Although the uptrend is intact, I still favor the idea of an imminent pullback. The single currency has struggled to carve higher highs in recent weeks and seems to be having trouble moving higher from 1.1875.

That said, there are enough conflicting signals to warrant a seat on the sideline. It wouldn’t be the first time the pair has looked ready to topple over only to extend the April rally.

For the week ahead, key support comes in between 1.1870 and 1.1900. A daily close (5 pm EST) below 1.1870 would signal a break in the uptrend and expose the next key support at 1.1670.

Alternatively, any retest of the 1.2040 area will likely encounter an influx of selling pressure. This is the 2012 low and has held firm as resistance on a daily closing basis. Bulls need a session close above 1.2040 to keep the rally alive.

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Last week I mentioned that the GBPUSD was approaching a long-term trend line that could pose a problem for buyers. The level of interest extends from the 2014 high and was expected to attract sellers over the coming sessions.

The resistance area appeared to span between 1.3600 and 1.3650 as noted in the previous forecast. Last week’s high was 1.3656, but the pair spent most of the week trading below 1.3600.

Another level mentioned in the September 17th forecast was 1.3445. This is the September 2016 high and is an area that capped several advances in June and July of last year following the post-Brexit selloff.

It’s no coincidence that last week’s low was 1.3448. This is the line in the sand for buyers. A daily close (5 pm EST) below it would set the stage for a pullback toward the early August highs at 1.3250.

There isn’t much to do here as long as the narrow range between 1.3445 and 1.3600 is intact. A daily close beyond either one of these areas could trigger the next move, but right now patience is key.

I mentioned the USDJPY a couple of times last week. The first was on September 19th ahead of Wednesday’s Fed rate decision. The second came just two days later after buyers had secured a daily close above the 111.90 handle.

When we looked at the pair on Thursday it was trading at 112.22. Because our key support level was 32 pips lower at 111.90, the idea was to wait for a proper retest before considering a long entry.

That retest would also need to be accompanied by bullish price action. Friday’s session did revisit the area, but the lack of a bullish signal leaves me on the sideline to start the new week.

Although USDJPY bulls haven’t produced a bullish signal just yet, last week’s close above 111.90 does keep the current rally alive.

That said, the yen strengthened quite a bit on Friday. Some of the yen crosses are showing signs of weakness, which will make things more difficult even for the USDJPY.

As I’ve mentioned before, the yen pairs often move in tandem. Evidence of strength or weakness from the majority can foreshadow breaks that have yet to occur on others. See the AUDJPY analysis below for more.

For now, the rally is intact. A daily close back below 111.90 would signal weakness and a return to the 110.90 area. Alternatively, bullish price action from 111.90 could give us a proper setup to go long for a move toward the next resistance at 113.15.

We have been tracking this ascending trend line on the AUDUSD for several weeks. The first mention was on September 14, just days after the bearish pin bar formed at 0.8065 resistance.

Then on Thursday of last week, the pair closed the session below trend line support that extends from the June low. This confirmed the break and established a potential selling opportunity from the 0.7980 area.

Friday reached a high of 0.7986 before sellers stepped in to force a session close of 0.7957. So far it seems that former trend line support is acting as new resistance.

As long as the price remains below 0.8000 on a daily closing basis (5 pm EST), I will maintain a short-term bearish outlook. Only a daily close back above this area would negate that outlook.

With last week’s breakdown, the AUDUSD looks ready for a pullback. How low sellers will take the pair is anyone’s guess, but the August low at 0.7820 is the first target. A daily close below that would expose the February and March highs at 0.7730.

Note that 0.7730 is also the 50% retracement when measuring from the May low to the current September high. You’ll also notice that 0.7820 is the 38.2% Fibonacci retracement of the same range.

On Monday of last week we discussed the potential for a double top on the AUDJPY. At the time there was no indication that buyers or sellers would prevail which left us waiting for a proper signal.

Wednesday’s session closed well above the level of interest at 89.35. The break meant that a retest of the area as new support would likely attract buyers.

However, AUDJPY bears had other intentions. Instead of catching a bid at 89.35, the pair closed Thursday’s session back below the level.

At the moment I’m inclined to label this as a false break. The bearish engulfing pattern on Thursday backs up that claim as does Friday’s high at 89.37.

This is a perfect example of why patience is key. Yes, the bulls broke 89.35 resistance on Wednesday, and the pair retested it as support soon after. But the lack of bullish price action on the retest left us on the sideline.

Moreover, you don’t want to attempt buying a market that retraces the previous day’s gain in such an aggressive manner. This type of price action leads to engulfing patterns just like the one that formed on Thursday.

As long as 89.35 holds as new resistance on a daily closing basis (5 pm EST), I’ll approach the AUDJPY with a short-term bearish bias. The next key support level comes in at 87.80.

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