GBPJPY bulls may be getting ahead of themselves. Apart from today’s session which is still in progress, the pound cross has had eleven consecutive winning days. That’s quite the feat for a pair that couldn’t make up its mind just one month ago.
However, the good times may be coming to an end for buyers, at least momentarily. Yesterday’s session slammed into the 147.50 resistance level which dates back to early 2013 and was also a factor in December of last year.
The 147.50 area is nothing new for readers of this site. We discussed it on December 1, 2016, shortly after the pair had begun carving out a broadening wedge pattern. In that commentary, the 147.00 area stood out as a zone that could trigger a reversal.
Two weeks later on December 15th, the GBPJPY formed a bearish pin bar from the 147.00 region. At the time the pair was also retesting broadening wedge support, a break that triggered a 900 pip selloff.
So here we go again. The pair is encountering selling pressure right where we’d suspect in that 147.00/50 area.
On top of that, we have yet another rising wedge forming on the intraday charts. But instead of a broadening wedge, we have a narrowing one, yet the bearish implications are the same for both.
So what could push the GBPJPY out of this uptrend?
On Thursday at 7 am EST we have a BOE rate decision along with the accompanying monetary policy summary and inflation report. As always, this combination is likely to influence the future direction of the pound.
For this reason, I won’t be doing anything until the dust settles following tomorrow’s events. But a break from this rising wedge pattern would be an attractive scenario for bears under the right circumstances.
To confirm such a break, we need a 4-hour close below the 147.00 area. The first key support below that comes in at 145.70 followed by 143.70. Alternatively, a daily close above the 147.50/80 area would at least delay a more bearish scenario from playing out.
Over the weekend I presented the idea that market participants could react in a “buy the rumor, sell the news” manner following Sunday’s Macron victory in France. Given the 270 pip rally since April 21st, the idea of a EURUSD selloff this week was certainly plausible.
Now that participants have had some time to digest the weekend volatility, it appears that selling the news was indeed the way to go. After gapping up 20 pips to 1.1019 on Monday, the single currency has reversed course and has now closed back below 1.0950 on a 4-hour closing basis.
As long as 1.0950 holds as new resistance, there’s a good chance we’ll see the EURUSD slide lower toward 1.0860. But a lack of market moving data could also lead to some indecisiveness over the next few sessions.
We may have to wait until later this week when we get the latest U.S. PPI and CPI figures before we see this range break down. Friday’s U.S. retail sales could also play a part in the dollar’s path forward.
Then again, something as simple as a reversion to the mean could easily take the Euro back to 1.0860 against the greenback. On the weekly chart, that reversion could even extend to the April 20th high at 1.0775.
From a purely technical standpoint, if sellers manage a daily close (5 pm EST) below 1.0950, a move lower toward 1.0860 and perhaps 1.0775 seems likely.
Buyers have a harder task ahead of them to extend last week’s rally. To do that they not only need a daily close above 1.0950 but they’re going to need to take out the 1.1025 handle as well.
That doesn’t seem likely given today’s price action. So for now, the path of least resistance appears to be a move toward 1.0860.
The Euro ended the week at a six-month high against the greenback after Thursday’s close above the 1.0950 handle. The strength came as a result of the first round of the French elections on April 23rd.
With the run-off results just in showing a Macron victory, one would think the single currency is heading even higher from Friday’s close. However, the risk of a “buy the rumor, sell the news” type of reaction does jeopardize that view.
We won’t have any answers until the market opens, but even then it may take a day or two for participants to digest the outcome in France that would establish a clearer direction forward.
For me, it all comes down to the technicals. As long as the EURUSD is gaining ground and breaking levels, the short-term trend is up, so buying seems appropriate.
With that said, I always combine my analysis with a big picture view. And although the chart below looks promising for bulls, it’s important to remember that a two-year range still caps the intermediate to long-term outlook.
Until that range high at 1.1600 to 1.1700 is breached, this is still a range play. That doesn’t mean the EURUSD won’t move higher as it very well could, but the larger range is a key factor here.
For the week ahead, key support comes in at 1.0950 while sellers will likely camp near the 1.1025 area.
The GBPUSD continues to trade in a relatively tight range following the 280 pip rally on April 18th. Like the EURUSD above, as long as the pound is trending higher, the buy side seems most appropriate in terms of positioning.
Last week I pointed out that buyers would likely camp near 1.2860. Sure enough, Thursday’s session retested the support area but closed the week 117 pips higher at 1.2977.
For the week ahead, the 1.3050 will likely serve as resistance if tested while the 1.2860 handle should continue to act as support.
I mentioned the USDJPY on Friday as one that I’d be watching following today’s French election. The pair went nowhere in the final 48 hours of the week, no doubt some hesitation ahead of the weekend’s main event.
It’s going to take a daily close above the 113.00/25 area to extend recent gains. A close above it would expose the next resistance level at 115.10 followed by 117.00.
On the flip side, a move lower would likely encounter buying pressure at 111.70 followed by 110.10.
As a side note, the pattern that has emerged since the current 2017 high appears to be a bull flag following the late 2016 rally. However, without a close above 113.25, there’s no confirmation to suggest higher prices are likely.
I’ll be keeping a close eye on this one particularly once markets have a day or two to digest any weekend volatility.
The AUDUSD ended the week just below a level I mentioned on Wednesday. At the time of my post, the pair was trading at 0.7450 and as such was above wedge support near 0.7420
Shortly after that, prices plunged below the level and later found sellers on a retest of the level as new resistance.
What’s notable, however, is where the pair found support. We’ve been discussing the 0.7380 handle for more than a week now. It’s the 61.8% Fibonacci retracement from the December 2016 low to the current 2017 high.
The AUDUSD begins a new week somewhat boxed in between 0.7380 and 0.7420. But like the other currency pairs I’m featuring in this post, it will all depend on where markets open on Monday.
The EURGBP has spent the last two weeks consolidating after retesting the 0.8300 key support area on April 18th. This region could be the neckline of a head and shoulders pattern, but nothing is confirmed just yet.
It’s going to take a daily close below 0.8300 to confirm the structure. Until that time there isn’t much to do here.
A close below 0.8300 would pave the way for a move toward 0.8100 and possibly the 2012 low at 0.7760. Alternatively, a move above the current 2017 high at 0.8851 would negate the potential reversal pattern.
After starting out strong this week with a 90 pip rally, the AUDUSD is back below where it opened at 0.7466. Where we go from here will be critical for a few reasons.
First, as I just mentioned 0.7466 is where the pair opened the month of May. Now that price has retraced its footsteps, it will be interesting to see whether buyers or sellers take control.
The next talking point is the 0.7500 handle. This level has been a significant influence for the pair since March of 2016 and had more recently served as support between March 9th and April 20th of this year.
Last week closed well below this area, which meant that a retest as new resistance should have attracted sellers. Instead, buyers closed Monday’s session at 0.7522 with ease, which implies this level may be losing some of its influence.
On top of that, we’d expect today’s retest of 0.7500 as support to attract a bid yet here we are trading at 0.7457 at the time of this writing. So once again, we don’t see the follow through that would make a trade in either direction appealing.
So what’s a better gauge of where the AUDUSD might be heading?
There is one pattern I’m keeping an eye on in addition to the three horizontal levels at 0.7608, 0.7500 and 0.7380. The formation in question appears to be a descending wedge, which could indicate sellers are becoming exhausted.
But I’m not convinced of that just yet. There simply isn’t enough information at this time to call it one way or the other. One thing I do know is that we have a plethora of news over the next 60 hours that could push the AUDUSD out of its comfort zone.
At 2 pm EST today we have a key Fed rate decision and statement. Shortly after that at 9:30 pm EST we have Australia trade balance followed by a statement by Governor Lowe at 11:10 pm EST.
Things calm down a bit on Thursday, but we still have the RBA monetary policy statement at 9:30 pm EST. The hectic week wraps up with non-farm payroll at its usual time on Friday at 8:30 am EST.
And if all of that weren’t enough, keep in mind that this Sunday, May 7th is the run-off election in France. While the Euro will feel most of the impact, the U.S. dollar isn’t immune. Look no further than the 20 pip gap on the AUDUSD following the outcome of round one on April 23rd.
For now, I’m just keeping an eye on the descending wedge you see below in the context of the larger wedge pattern I mentioned on March 31st. We’ll see whether the next 60 hours favor buyers or sellers and go from there.
The EURNZD had one of its largest weekly gains last week following a 180 pip gap up from the Euro. We have to go all the way back to January of last year to find a larger five-day rally.
But even the most volatile and substantial moves have pullbacks, and the EURNZD is no exception. Although the previous week’s rally ended near its high, Friday’s session found sellers at a significant level.
I’ve written about using channels to find potential reversal areas and the price action since March is an excellent example. As you can see from the chart below, using this technique we could have predicted with a high degree of conviction that the 1.5920 area would attract sellers.
If we get a daily close below the 1.5760 area, there’s a good chance we’ll see the EURNZD slide lower toward the 1.5500 region. However, keep in mind that any pullback here could be corrective given last week’s rather convincing bull move.
Also, with the May 7th run-off election in France fast approaching I’ll be hesitant to take on any Euro exposure. I’m anticipating another gap for the single currency to start next week regardless of which candidate comes out on top.
Moreover, although a currency cross like the EURNZD is relatively insulated from a Fed rate decision and non-farm payroll, the events on Wednesday and Thursday of this week could stir things up.
So, for now, I’m just watching from the sideline. If nothing else, having a prominent channel like this on my chart makes reading future price action that much easier.
Note that New Zealand reports employment figures at 6:45 pm EST.
Since carving out a high in mid-December following the Trump inspired rally, the CADJPY has dropped 840 pips. We looked at the pair earlier this month, but buyers never managed a close above channel resistance that extends from the February 15th high.
So here we are 100 pips lower still focused on the same channel. But the lower price is a good thing if you’re interested in buying, an idea I’m not entertaining right now. Buyers would need a close above the confluence of resistance at 82.00, which looks highly unlikely at the moment.
Instead, I’m interested in a drop toward 80.55. The level attracted a bid on Wednesday and Friday of last week and could come under fire again shortly.
Before we get to that, let’s discuss something that could affect the viability of a trade here. You have no doubt heard there will be a run-off election in France on May 7th. The first round caused the CADJPY to gap up more than 100 pips due to the yen’s sensitivity to risk.
The upcoming May 7th vote will likely trigger another weekend gap. Which direction is anyone’s guess but I won’t be carrying exposure when it happens. As such, any trade that occurs this week will be given a five-day lifespan before being liquidated.
If sellers take out the 81.50/60 area on a 4-hour closing basis, there’s a good chance we’ll see a move back toward the 80.50 area and perhaps 80.20. See the smaller ascending trend line below to find out why I’m favoring 81.50/60.
I’m on the sideline for now, and if we do get a favorable opportunity, I’ll be out of the position by May 5th at the latest. Keep in mind that Canada reports GDP this Friday at 8:30 am EST.
Sometimes it pays to wait. This is especially true when faced with weekend gaps that disrupt market equilibrium, such as those triggered by Sunday’s first round of voting in France.
The EURUSD gapped up by nearly 180 pips. And contrary to popular belief, gaps such as this don’t always close, at least not right away. Look no further than the Brexit-inspired gap on the GBPUSD which remains unfilled almost one year later.
Going back to my first comment above about waiting, I haven’t done much this week aside from adding to my AUDNZD long position. For the pairs that gapped significantly, I was waiting for a few days to pass to see if any patterns would develop to suggest where they might go next.
One such pattern has materialized on the EURUSD. Ascending and descending channels are inherently bearish and bullish respectively, but only when they form against the trend.
That last part is key because without it the directional implications break down completely. For instance, an ascending channel that forms after a run up is an exhaustion pattern and therefore has bearish implications. If that same channel were descending, it would have bullish implications.
A look at the EURUSD 1-hour chart shows the former. We have what appears to be an ascending channel following Monday’s 180 pip gap up. The formation comes after 48 hours of gains and could signal a change in direction.
The event calendar is relatively light today but tomorrow is a different story. Mario Draghi takes center stage at 8:30 am EST shortly after the ECB rate decision at 7:45 am EST. These events are known to produce excessive volatility so do keep this in mind if you’re considering an entry here.
Below channel support, the next key level comes in at 1.0870 followed by 1.0825. A move higher from current levels would likely encounter selling pressure at 1.0885/90.
After gapping up to start the week, the AUDUSD is now trading below Friday’s close. It didn’t take long for sellers to sniff out an opportunity following the weekend gap which was triggered by the outcome of the France elections on Sunday.
Following a successful short last week, I’m also on the hunt for another opportunity. However, with Australia CPI just around the corner at 9:30 pm EST, I’ll wait for the dust to settle before considering an entry.
As for levels, the pair just closed below a key level at 0.7532 on a 4-hour closing basis. The next support level from here is the stubborn 0.7495 handle. This is an area that has held on three separate occasions since the pair closed above it on January 17th.
Below 0.7495 is my target from last week at 0.7380. It’s the 61.8% Fibonacci retracement from the December 2016 low to the current 2017 high. It’s also the location of two prominent swing highs from October and December of 2015.
Alternatively, should the AUDUSD find a bid at current levels, the next key resistance comes in at 0.7608. This area has served as a pivot since January 24th and is also last week’s high.
I mentioned it at the end of March, but the twelve-month wedge pattern outlines the extreme boundaries for any range play here.
Should the AUDUSD close today’s session below 0.7532, the level will likely attract sellers on a retest as new resistance. Key support, of course, comes in at 0.7495 with a close below that exposing 0.7380.
For those who saw yesterday’s AUDNZD commentary, you may be wondering how a weaker Australian dollar will affect the bullish outlook for the cross. Oddly enough, the Aussie isn’t the primary driver for the AUDNZD, at least not at the moment.
The correlation between the AUDUSD and the AUDNZD stands at just +5.9% on a daily closing basis. The NZDUSD, on the other hand, is correlated to the tune of -68.1% at the time of this writing.
Those correlations do change over time, so it’s something to keep an eye on for sure. But as long as the technicals are pointing to a higher AUDNZD and a lower AUDUSD, that’s how I’ll approach the two currency pairs.
As for the AUDUSD, it would be prudent to wait for the 0.7500 support area to fail on a daily closing basis before considering an entry. You’ll avoid the risk associated with the upcoming Q1 CPI, and the break of a key level will give you more confidence in any resulting setup.
To be clear, I’m staying rather neutral here until I have more information with which to make a decision, which could also be to do nothing.
I’ve mentioned the AUDNZD twice in April. The first was when the pair was carving out a bull flag and the second just after it had dipped below the 1.0765 key support level.
However, the Aussie cross never set up for us as 1.0765 gave out before an opportunity could materialize. But despite last week’s dip, buyers reclaimed 1.0765 at the end of yesterday’s session.
I mentioned the selloff that began on April 18th on Twitter. Even as sellers took out channel support near 1.0710, I commented that it looked like a bear trap. Something about the way the pair was moving didn’t feel right given the run-up in February and early March.
The April 20th bullish engulfing candle followed by yesterday’s close support my suspicion. There were obviously a large number of stops below 1.0750 that needed to be cleared before the next leg up could materialize.
From here any retest of the 1.0765 area will likely encounter buying pressure. Key resistance comes in at 1.0832 with channel resistance just above that being the gatekeeper to much higher levels.
My longer term target for the pair remains last year’s highs near 1.1300. I’ll discuss additional levels on the way up if and when the bulls clear channel resistance on a daily closing basis.
One reason I like the AUDNZD, apart from the more than favorable long-term objective, is its insulation from the France elections. We just witnessed how disruptive weekend volatility can be, and the event is far from over. The AUDNZD provides a degree of protection from such shocks.
The most notable event that could affect the pair in the next 48 hours is Australia CPI on Tuesday at 9:30 pm EST.
The EURUSD is up 160 pips so far this week after catching a bid at trend line support that extends from the current 2017 low. This is a level we discussed over the weekend as one that needed to break down for sellers to gain momentum.
From a technical standpoint, the price action is playing out in textbook fashion. Tuesday’s rally put the single currency above the 1.0710 area which has acted as a pivot since March of 2015.
Then we saw some consolidation yesterday, but buyers appear to have held prices above new support at 1.0710. We won’t be able to confirm that until today’s close at 5 pm EST.
Another key level on the chart I shared over the weekend was 1.0775. The area has attracted selling pressure today which is what we’d expect. In fact, today’s high so far is 1.0776, just one pip above the horizontal level.
However, there is one thing that leaves me a little suspicious about today’s rally. The level I’ve had on my chart for quite some time is 1.0712, not 1.0710.
That may not sound like a material difference, but the price action just before yesterday’s close indicates that buyers lost the 1.0712 handle. Whether it’s a significant development or not will show in today’s closing price.
Either way, the first round of the French elections on April 23rd will likely keep me sidelined, at least for the remainder of this week. I don’t want to get caught on the wrong side of the market, particularly if the pair gaps at the open.
If buyers do manage to close the pair above 1.0775, the next key resistance comes in at 1.0825 followed by 1.0870.
Alternatively, if we see sellers take back the 1.0710 region, the next key support would come in at 1.0635. This area is actually a confluence of support due to the intersection of a horizontal level with trend line support from the current 2017 low.
A daily close below the 1.0635 area would expose 1.0520 followed by the multi-year lows at 1.0370.
The time has come to delve further into what could be an 800 pip reversal pattern on the EURGBP. I’ve mentioned this potential bearish reversal formation several times over the past few months, but the pair had never been so close to capitulating as it was yesterday.
Tuesday’s surge in the pound led to an intraday move of more than 200 pips for the EURGBP, the largest since November 9th of last year. It also triggered a retest of the neckline of what could be a ten-month reversal pattern.
This particular head and shoulders has several swing highs that form both the right and left shoulders. This isn’t uncommon for a structure that spans such a long period. Similar formations on the NZDJPY and CADJPY between 2014 and 2015 come to mind.
I do want to stress that this head and shoulders remains unconfirmed at the time of this writing. As such, I will continue to refer to it as a potential reversal rather than an outright signal.
The neckline, which is our trigger to confirm the pattern, comes in at 0.8330. A daily close below it would establish a selling opportunity on a retest of the level as new resistance. Keep in mind that there is another horizontal level closer to 0.8300 that could also become a factor.
Because the spike high occurred as a result of the October 7, 2016, pound flash crash, the measured objective is a bit more subjective than usual. For this reason, I’m using the October 11th high at 0.9140 to determine the measured move to stay conservative.
When measuring from the neckline at 0.8330 to the 0.9140 high, we get a measured move of 810 pips. If we then measure 810 pips lower starting from the neckline, we get an objective of 0.7520.
With that said, there is a long-standing level that could become a factor before 0.7520 is realized. The level in question is former channel resistance that extends from the 2008 high at 0.9802.
But while this level may become a factor before the measured objective is reached, there is still plenty of room to the downside should the 0.8300/30 area fail.
As for support levels on the way down, the first area of note comes in near 0.8100. This is the April high from last year and is also the location of the post-Brexit session close which may have left an open gap depending on your broker.
A close below 0.8100 would pave the way for a move toward the 2012 low at .7760. Should buyers take prices higher before breaching the neckline, I suspect sellers will be camping near the 0.8420 area.
Keep in mind that with the first round of the French elections coming up on April 23rd, volatility is all but guaranteed to increase. As such, I’ll be on the sideline for the remainder of this week and will also use relatively small positions to scale in should a favorable setup materialize.
A worried tone at the open of the trading week proved fleeting as Wall Street returned online after the Easter holiday. Gold prices reversed from intraday gains as recovering sentiment weighed against Treasury bonds and bid up yields, boosting the US Dollar along the way. Not surprisingly, this undermined support for non-interest-bearing and anti-fiat assets.
Tellingly, financials led US shares upward. An index tracking the sector’s representation within the S&P 500 closely parallels the 2017 rate hike outlook implied in Fed Funds futures. This speaks to expectations of continued tightening even amid first-quarter slowdown fears, although the hawks’ exuberance has waned somewhat. The probability of a June hike is 50.2 percent now, down from 63.2 percent last week.
Crude oil prices seemed to get caught up in macro-level capital flows, with the USD-denominated Brent and WTI benchmarks falling as the greenback found a lifeline. The monthly EIA Drilling Productivity report may have compounded downward pressure. It said US shale output will hit 5.2 b/d in May, the highest since November 2015, and upgraded its April forecast to 5.1 b/d from 4.96 b/d projected previously.
The data docket is relatively quiet from here, with API inventory figures at the forefront. Familiarly hawkish comments from Kansas City Fed President Esther George should not be particularly surprising and so might pass with little fanfare. On balance, that is likely to keep broad-based sentiment trends in control, particularly as market-wide liquidity levels rebuild with the return of European participation.
Worries about the French presidential election may sour sentiment anew. First-round voting begins on April 23 and leading candidates are clustered near 20 percent in the polls, making for unusually high uncertainty about who will make it into the final face-to-face contest. This fuels fears that right and left extremes Marine Le Pen and Jean-Luc Melenchon, neither of which excite the markets, may be the last left standing.
GOLD TECHNICAL ANALYSIS – Gold prices retreated after touching the highest level in five months. Support is marked by the 61.8% Fibonacci expansion at 1282.31, with a move below that exposing the 1263.87-65.66 area (50% level, February 27 high). Alternatively, a push above resistance in the 1302.90-08.00 zone (76.4% Fib, former support) targets the 100% expansion at 1336.19.
Chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices continue to mark time below the $54/bbl figure. A daily close below support at 52.04, the 38.2% Fibonacci expansion, exposesthe 23.6% level at 50.14. Alternatively, a push above the 50% Fibat 53.57 targets the 55.10-21 area (January 3 high, 61.8% expansion).
Chart created using TradingView
The EURUSD closed last week just 24 pips above the open. The pair continues to teeter on trend line support that extends from the current 2017 low which has quite literally kept buyers on edge.
A comment from President Trump concerning the strength of the U.S. dollar spurred a 60 pip relief rally on Wednesday, but the gains were short-lived.
I was asked on Twitter whether I thought the bullish sprint had legs and responded by saying I wouldn’t be a buyer. That was my way of saying no without excluding the possibility of an extended bullish move.
Less than 24 hours after Trump’s comment, the EURUSD lost the 1.0635 handle. We’d expect buyers to hold this area if Wednesday’s bull move was truly the beginning of a larger rally. But that didn’t happen.
From here I’ll be watching for a daily close (5 pm EST) below trend line support near 1.0610. A subsequent retest of the area as new resistance could set up a favorable short opportunity.
Key support below that comes in at 1.0520. This is the location of several lows between mid-February and early March. A close below 1.0520 would pave the way for a move toward the multi-year lows at 1.0370.
Despite showing strength in late March, the GBPUSD lost the 1.2410 support level on April 7th. This area has served as a pivot since late November of last year.
However, the first 24 hours of last week suggested that the break was false. Tuesday’s price action confirmed the suspicion with a 77 pip rally. But buyers soon hit a brick wall near 1.2570 which is a level I’ve mentioned several times in recent weeks.
I’m not too interested in the GBPUSD at the moment. In fact, I haven’t been for some time now. The choppy and directionless price action since October of last year has made a lasting move hard to come by.
For the week ahead, key support comes in at 1.2410 while resistance can be found near last week’s high at 1.2570. A close above that would target the range high near 1.2670.
As anticipated, the AUDUSD found a bid last week in the 0.7500 area. This is a level that’s been a key factor since March of last year.
We had previously discussed the pair quite a bit between late February and the April 4th RBA rate decision. However, after a couple of profitable short trades, I decided to leave the AUDUSD alone last week given the likelihood of a rebound.
But with the pair fast approaching the 0.7608 key level, it seems appropriate to refocus our attention on the Australian dollar.
For the week ahead, I’ll be watching for a sell signal on a retest of 0.7608 as new resistance. This level has acted as a pivot since January 24th, and if past price action is any indication, we should see offers begin to emerge if tested over the coming sessions.
If buyers should close the pair above 0.7608, we could see prices extend toward former trend line support near 0.7700. This area is joined by trend line resistance from the 2016 high.
Key support comes in at 0.7495 with a close below that exposing the 0.7330 handle. A more appropriate target, however, might be the 0.7380 region which is the location of two prominent highs (among other things) between October and December of 2015.
I mentioned the AUDNZD last weekend. The bullish pin bar that had formed on April 7th from the 1.0765 handle suggested that buyers were ready to take the pair higher.
The 1.0765 area previously served as resistance between May of last year and March 2nd of 2017. The March 3rd close above the level meant that any retest of the area as new support was likely to attract a bid.
Looking at the price action since the March high at 1.1018, it appears the currency cross has carved out a bull flag pattern. Of course, the structure is unconfirmed until buyers manage a close above resistance near 1.0900.
Buyers did have some trouble last week getting prices off the 1.0765 floor. With that said, I’ll take recent price action with a grain of salt given the limited holiday volume last week.
I should note that 1.0765 is also the neckline of what could be a ten-month inverse head and shoulders pattern. I commented on this formation last year, and as long as 1.0765 holds on a daily closing basis, the 1.1300 area remains the most likely objective.
I don’t trade the EURCAD often, but the activity on March 27th caught my attention. On this day the Euro cross retested a trend line that extends from December 3, 2015, as new resistance.
This level could also be the neckline of a 2,000 pip head and shoulders pattern. I first mentioned this structure on October 16th of last year.
I didn’t manage to catch the 4-hour bearish pin bar on March 27th although several of my members did. However, I did take a short on April 6th from 1.4321 and added a second position at 1.4170. Both were covered last week for a total gain of 271 pips.
Thursday’s bullish engulfing candle hints at a move higher, but buyers had some trouble on Friday. With that said, as I mentioned above, the limited volume last week isn’t conducive to generating high probability signals.
For the week ahead I’ll be keeping a close eye on the 1.4185 area. A sell signal from here could reestablish the bear move toward 1.4095 and perhaps 1.3960. A close above 1.4185 would turn our attention toward the next key resistance at 1.4260.
Alternatively, if sellers regain control at the open, I’ll look for a daily close (5 pm EST) below 1.4095. Such a break would keep the bearish momentum intact and would warrant consideration for another short entry.
Exactly one week ago we discussed how the EURCAD bulls were tiring following a 430 pip bearish engulfing week. When I released that commentary on April 6th, the pair had already broken channel support on an intraday basis.
While writing that post, I took a short position at 1.4321, which I shared with members at the time of the entry. I also added to that position on the April 11th retest of 1.4170, a level I mentioned in last week’s post.
For a more detailed write up of the EURCAD including the March retest of a 2,000 pip head and shoulders neckline, see this post.
Another level I was keeping a close eye on is 1.4095. The area served as key resistance in late January and early February as well as a brief period on March 1st and 2nd. It was also the technical catalyst for yesterday’s rebound.
A quick Fibonacci study shows that 1.4095 is the 61.8% retracement when measuring from the current 2017 low at 1.3783 to the high at 1.4598.
While sellers have already managed a 4-hour close below the area, I’d like to see a daily close (5 pm EST) to confirm the break. If that happens, a retest of 1.4095 as new resistance is likely given that the pair is currently 150 pips below the mean as measured by the 10 and 20 EMAs.
On the other hand, should buyers close the pair above 1.4095 before today’s close, traders can watch for selling opportunities from the 1.4170/90 area. A close above that would expose the next resistance level at 1.4260.
I’m standing aside, for now, to find out which side will be victorious at the end of today’s session. I’d like to add to my current short position, but a confirmed break of support is needed first.
Over the weekend I mentioned the 1.0765 handle on the AUDNZD. Before the March 3rd close above the area, it had served as resistance on several occasions since May of last year.
Although buyers haven’t shown much urgency, they have managed to hold price above the 1.0765 area this week. Furthermore, if we drill down to the 4-hour chart, we have what appears to be a channel within a channel.
The price action over the last four weeks has carved out the larger of the two patterns. This formation has the look of a bull flag following the 690 pip run up from the current 2017 low of 1.0325.
Within this descending channel, we have a similar yet steeper pattern. Today’s intraday break above resistance at 1.0808 signals that buyers may be ready to have another go at the larger channel resistance near 1.0900/10.
From here, there are two ways to play the recent price action. The first is to watch for a buying opportunity on a rotation back to former resistance near 1.0800. A firm bid in this area would likely take the pair back to the 1.0900 region.
The second option is to wait for a break of the larger channel before considering an entry. Although you’ll miss a portion of the move, the four-week structure is the more obvious play here in my opinion.
I’m going to stand aside for now given the upcoming Australia employment figures at 9:30 pm EST. If we get a proper buy signal following the event, I may consider an entry. Otherwise, I’ll wait for a close above resistance near 1.0900/10.
The EURAUD is in the process of carving out an ascending channel on the 4-hour time frame. It’s the result of the 280 pip rally that began in the final session of March.
Although the pair climbed to a high of 1.4216 yesterday, sellers were out in force above the 1.4180 handle. The selling pressure formed a 4-hour bearish pin bar, hinting at a substantial depth of offers in this area.
To confirm lower prices are likely over the coming sessions, a close below channel support is preferred. Such a close would expose the trend line that extends from the March 20th low at 1.3872.
From a broader perspective, the technical landscape since early March seems to indicate a head and shoulders pattern. While I don’t personally trade these patterns on anything below the daily time frame, the structure could still signal that lower prices are likely.
From here, I’ll wait for channel support to break on a 4-hour closing basis before considering an entry. At the moment that level comes in near 1.4120. A close below it would expose trend line support near 1.4020 and possibly the 1.3890 handle.
Alternatively, a 4-hour close above 1.4180 would make the chart a bit harder to read. It wouldn’t negate the ascending channel, but it would cause me to doubt the potential for an immediate move lower from current levels.
The CADJPY isn’t something I trade often. But recent price action suggests the pair could be in the early stages of the next leg higher. And with the right amount of patience, the technical structure that’s been forming since mid-February could offer an attractive entry.
The pattern I’m referring to is the descending channel that extends from the February 15th high. Buyers have already tested the upper boundary of the channel twice and seem intent on having a third go at the 83.50 area.
Additionally, the CADJPY bounced from a significant area last week. The 82.00 handle has been a key factor since April of last year and is also the 50% retracement of the 2016 range that spans 1,410 pips between 74.81 and 88.91.
From here I’ll be on the lookout for a daily close above channel resistance near 83.50. If it happens, I’ll then need to see bullish price action on a retest of the area as new support.
The next key resistance would come in at 84.60. The level has served as a pivot since December of last year and is also the 38.2% Fibonacci retracement from the 2016 high to the current 2017 low. A close above 84.60 would expose 85.45 followed by 86.25.
But nothing is confirmed until buyers manage a daily close above channel resistance. Also, keep in mind that we have the Bank of Canada rate decision and statement this Wednesday at 10 am EST.
With this in mind, I’ll wait for the event to pass before considering an entry here.
The EURUSD spent the first half of last week consolidating above the 1.0635 handle. This wasn’t surprising given the previous week’s 260 pip bearish engulfing candle.
However, just before Friday’s non-farm payroll (NFP), the single currency began to slip below 1.0635 support. It turned out to be a sign of things to come as the NFP report only exacerbated early session losses.
For the new week, the pair finds itself caught between trend line support from the current 2017 low and the 1.0635 horizontal level, which is now resistance. I mentioned this trend line on Friday as one that could become a factor over the coming days.
But I’m not interested in buying the Euro. Instead, I’ll look for additional weakness below the trend line near 1.0590. Another option would be to sell a retest of the 1.0635 area, but the current 40 pip range doesn’t interest me enough to put capital at risk.
So, for now, I’ll stand aside to see what the next few session have to offer. A daily close below trend line support would expose the next key area at 1.0520. A close below that would pave the way for a retest of the multi-year lows near 1.0370.
Alternatively, a daily close back above 1.0635 would negate the bearish bias for now.
The GBPUSD lost its bullish momentum last week. I commented on the 4-hour wedge pattern on Wednesday which at the time seemed to favor the bulls.
But as is the case with any terminal pattern, it’s best to let the market make the first move.
With the pair now below 1.2410 on a daily and weekly closing basis, I’d expect any retest of the area to encounter selling pressure. However, former channel resistance (new support) isn’t far below current prices.
As such, we have a similar situation to that of the EURUSD. The tight range on the British pound against the U.S. dollar will keep me sidelined until we have more space to work with.
AUDUSD played out nicely for us last week. In fact, from a technical perspective, the pair has offered a few attractive opportunities since late February. One of those was the March 21st bearish engulfing candle at trend line resistance.
But last week’s break of the confluence of support at 0.7608 was no doubt the main event. The potential for such a move is something we’ve had our eye on for some time now.
As long as the pair stays above 0.7500 on a daily closing basis, there’s a decent chance we’ll see buyers try to claw back some of last week’s losses. But given the recent breakdown, I’m only interested in selling opportunities going forward.
Two minor resistance levels on my list are 0.7555 and 0.7585. Bearish price action from one of these two areas could offer another chance to get short.
A daily close below 0.7500 would pave the way for a move toward 0.7330. There is some support at 0.7450 and 0.7380, but the 0.7330 area will likely act as a magnet if 0.7500 falls.
I explain why I’m favoring the 0.7330 area as a target in the March 31st commentary.
The NZDUSD has been a slow mover lately. It took sellers fifteen sessions to move just 150 pips.
However, Wednesday’s close below 0.6970 was a significant development. This level is the November 2016 low and is also an area that has served as a pivot since March of last year.
As assurance that 0.6970 is now resistance, both Thursday and Friday encountered substantial selling pressure above the area. Therefore, any rotation back to 0.6970 could offer a favorable opportunity to get short.
Do note, however, that the March lows at 0.6890 will likely attract a bid if tested. As such, any position I take here will be a short-term play.
The AUDNZD came alive in February and continued its bull move through the first half of March. It was the first significant higher high since March of last year when the cross was trading at 1.1280.
Since last month’s high at 1.1018, the pair has pulled back and consolidated. But the way in which buyers have held price above 1.0765 suggests a healthy form of consolidation that could lead to the next leg up.
Furthermore, Friday’s retest of 1.0765 carved out a bullish pin bar. The candlestick pattern suggests that a move higher is on the way, perhaps back to trend line resistance near 1.0900/20.
As for a potential entry point, the 1.0790 area looks promising. This is the March 27th low and is also very near the 50% retracement of Friday’s range.
Alternatively, a daily close back below 1.0765 would negate the bullish outlook.
Last week the EURUSD crashed through several layers of support in epic fashion. And unless you were quick enough to enter on the March 29th retest of 1.0825, there weren’t many opportunities to get short, at least not without sacrificing a favorable risk to reward.
But the mad dash lower came to a halt yesterday at a support level I mentioned over the weekend. The 1.0635 handle has helped direct price action since November of last year and more recently served as resistance in late February and early March.
In fact, yesterday’s low was 1.0635 to the pip. And the bullish pin bar that resulted from the bounce hints at a move toward 1.0712 resistance.
But I’m not interested in buying the Euro. The velocity of last week’s decline and weekly bearish engulfing pattern are enough to keep me solely focused on selling opportunities for now.
With this in mind, I’ll be keeping an eye out for a sell signal should buyers manage a retest of 1.0712 over the coming sessions. If they breach this level on a daily closing basis, we could see the EURUSD return to the next resistance area between 1.0800 and 1.0825.
For now, though, the outlook remains bearish as long as the 1.0712 handle holds as resistance. Key support comes in at yesterday’s low of 1.0635 followed by recent lows at 1.0520.
For the better part of March, the EURUSD looked relatively bullish, particularly the March 27th close above the 1.0825 handle. The level dates back to 1999 and was responsible for the February 2nd bearish pin bar earlier this year.
Moreover, 1.0825 is the 38.2% Fibonacci retracement when measuring from the 2016 high at 1.1615 to the current 2017 low at 1.0340.
All of this means that the March 28th close at 1.0814 was a significant development. It signaled that the earlier bullish break of 1.0825 was false and that a move lower was likely.
Note that the high of the very next session (March 29th) was 1.0826. Sellers have been in control ever since.
From here any retest of the 1.0712 handle could present an opportunity to get short. Key support comes in at 1.0635. A daily close below that would pave the way for a retest of recent lows near 1.0520.
Adding to the likelihood of further losses is the large 260 pip bearish engulfing pattern from last week. The move is more than enough to keep my bearish bias for the single currency intact.
The GBPUSD ended last week on a bullish note. Friday’s 85 pip gain puts the pair just below minor resistance at 1.2570 to start the new trading week.
A review of the last few weeks suggests that this bullish momentum may continue. On March 21st, the pair broke free from a confluence of resistance at 1.2410. The break established a trade idea that I mentioned the very same day.
Last week’s low at 1.2376 was a spot on retest of former channel resistance as new support. The 1.2410 handle assisted with the bounce. It’s a level that has played a crucial role since late November of last year.
For the week ahead, resistance remains just above current prices at 1.2570. Above that, we have a level that’s been a factor since November 11th of last year at 1.2673. Support comes in at 1.2410.
One currency pair with perhaps more potential than any other this week is the AUDUSD. I commented on the chart you see below on Friday as a top trade idea for the month of April.
Although the uptrend that began this year is intact, buyers appear to be tiring. The way the pair rolled over last week unable to break the 0.7670 resistance area doesn’t offer much confidence if you’re bullish the Australian dollar.
But just because there are hints of a bearish scenario playing out doesn’t mean we have a confirmed setup. As long as the confluence of support at 0.7608 holds on a daily closing basis, the bulls have a fighting chance.
So what could trigger a break of the 0.7608 handle?
One potential catalyst is this Tuesday’s RBA rate decision at 12:30 am EST. There’s quite a bit of discrepancy surrounding what the central bank may do which could cause a big stir regardless of what they do or say this week.
No matter how the AUDUSD reacts, I’m only interested in a downside break. The long-term trend is bearish, and the weekly wedge pattern suggests an eventual continuation of the current trend.
Below 0.7608 the next key support comes in at 0.7500 followed by 0.7330. Alternatively, a move higher would likely encounter selling pressure at 0.7670 followed by wedge resistance near 0.7730.
The contrast in Euro weakness and perceived strength of the British pound could be the beginnings of a substantial move from the EURGBP.
I’ve commented on the potential 840 pip head and shoulders pattern several times in recent weeks. The last mention of the structure came in the March 13th commentary.
For now, though, this is merely a watch list item. While I could trade the cross with the anticipation of a completion of this weekly structure, recent price action has been too choppy for my liking.
Also, with a measured move of 840 pips should things play out, I’m in no hurry to trade the EURGBP.
A daily close below the neckline at 0.8300 would confirm the bearish reversal pattern. It would also set the pair on a course toward the measured objective at 0.7460.
We looked at the AUDJPY on Thursday of last week. At the time the pair was trading just below the 85.35 handle, a level that’s served as a pivot since the new year began.
The idea was to watch for a sell signal from new resistance. However, Thursday closed at 85.51, which canceled out any notion of shorting the cross. I wasn’t interested in buying the pair on the break given the velocity of the 300 pip decline the week before.
By the close of Friday’s session, the AUDJPY had fallen back below 85.35. The drop was so severe that sellers nearly carved out a bearish engulfing candle. But Thursday’s apparent false break of 85.35 serves as a bearish signal just the same.
From here any retest of the 85.35 area is likely to encounter an influx of selling pressure. The next key support comes in at recent lows at 83.80. A daily close below that would expose the 82.50 handle.
Keep in mind that the AUDJPY will also be at the mercy of Tuesday’s RBA decision.
We discussed the AUDJPY exactly one week ago. At the time the pair had just broken support at 85.35 and looked determined to test the next key support at 83.73. With this in mind, we were watching for a selling opportunity on a rotation back to new resistance.
Unfortunately, that retest never came. But the pair did reach a low of 83.81 this past Tuesday, just 8 pips above the December 2016 low of 83.73.
Although we didn’t get an immediate retest, the past few sessions have produced something even more appealing. Since bottoming earlier in the week, the AUDJPY has carved out a rounded retest – something that is often more effective than an immediate retest of a broken level.
Now, because Tuesday’s low triggered a bullish engulfing candle, I’m inclined to wait for a sell signal from 85.35. More specifically, I need to see a long upper wick on the daily time frame. This would indicate that sellers are willing to make a stand at 85.35, which is now resistance.
Otherwise, a daily close back above the level would negate the somewhat bearish outlook. And I certainly don’t want to step in front of this market if buyers intend to reclaim the 85.35 handle.
Should we get a favorable sell signal from the 85.35 region, the next key support comes in at 83.80. A daily close below that would expose the mid-November highs from last year at 82.50.
For now, the jury is still out on whether the AUDJPY is likely to turn lower after Tuesday’s bounce or continue higher.
EURUSD bulls have lost the 1.0825 handle. It started with yesterday’s close at 1.0812 and continued with today’s high of 1.0825 which was met immediately by selling pressure.
Here’s how the daily chart looks at the moment:
The 1.0825 area is one I mentioned over the weekend. It’s a level that dates back to 1999 and was also responsible for the February 2nd bearish pin bar earlier this year. That sell signal triggered a 330 pip selloff.
Moreover, 1.0825 is the 38.2% Fibonacci retracement when measuring from the 2016 high at 1.1615 to the current 2017 low at 1.0340.
So yesterday’s close back below this area seems to be a significant development. But it wasn’t shocking considering the U.S. Dollar Index (DXY) slammed into a confluence of support at 99.00 to start the week.
From here I’ll be watching for selling opportunities while the pair trades below 1.0825 on a daily closing basis. The former 4-hour channel support you see below could also offer an opportunity to get short.
The next key support comes in at 1.0712. A daily close below that would expose the 1.0635 handle, a level we’ve discussed several times over the past few weeks.
Yesterday I mentioned the 0.7040/5 area on the NZDUSD. The idea was to watch for a session close (5 pm EST) below the area to confirm it’s holding as resistance.
After jockeying back and forth for several hours, sellers made a final push that gave us a 0.7041 close. This is enough to keep the bearish pressure intact for now.
For those still searching for a favorable selling opportunity, the 4-hour chart may offer a chance. The trend line that extends from the March 14th low is once again under pressure but appears to be holding on a 4-hour closing basis.
We don’t have a confirmed setup just yet, but a close below the trend line followed by a retest as resistance could give us one. The next key support would come in at 0.6970 followed by the current 2017 low near 0.6890.
At the moment buyers are having trouble getting any traction below the 0.7040 area. Also, the price action since the March 24th retest looks quite “heavy,” which is a concept I’ve written about previously.
However, it’s important to stay patient and wait for a 4-hour close below the trend line. Until that happens, buyers still have a fighting chance, which is enough to keep me on the sideline.
All traders who have been in the market for any significant time have experienced a trade stop out despite extensive and seemingly robust analysis. In the aftermath of a single or series of losing trades, there can be strong emotions that push us to either to label ourselves incapable traders or to assign responsibility to influences outside our control. Neither projection is helpful to our long-term success in the market and certainly not good for our emotional well-being. Placing the blame on a market that has thwarted our strategy is as common and unproductive a response as simply giving up on strategy altogether. We as traders must reconcile with the practicalities of operating in an uncertain market and make an effort to consistently learn and adapt for better performance.
As with everything else in life, extremes are not particularly conducive to our success in the market. An all-or-nothing mentality represents the kind of rigidity that breaks rather than bends to changing conditions. Yet, how many times have you attached your sense of self-worth to a single trade, felt you had little control over your ability to identify profitable trades or labeled the market confused and impenetrable? I've experienced all of these multiple times over my trading career - even recently. Appreciation for what we are dealing with is critical to setting the proper trading mindset. All trades placed are a probability - never a certainty. There are very high probability returns (like buying a short-term Treasury bill) and extremely risky positions (an out of the money call on VXX), but never certainty. Therefore, we should not expect every trade to be profitable nor any strategy to be flawless. Appreciating that, we can put our trading into reasonable perspective and adapt in a measured way to improve our performance in the future.
When our feeling of success or failure is placed upon one event, it is easy to understand that we would readily scrap an well-thought out plan or to grow overly confident in it. The former happens all too often when a frustrated trader - particularly a new one - throws in the towel and enters the wild west of discretionary trading with little experience. It is the latter view however were it is more difficult to identify the crutch that we may find support in and a barrier to progress. When we are overly confident in a strategy (or ourselves), the assumption is something is wrong with the market itself. That belief is immediately at odds with successful navigation of the market. We see this often in interpretation of fundamental themes, simplistic reads on event risk or dependence on complicated technical techniques.
Gold prices rose for a sixth consecutive day, extending the longest winning streak since mid-January. The US Dollar edged lower against most of its major counterparts and Treasury bond yields declined as the priced-in Fed rate hike path continued to flatten. Not surprisingly, this offered a lift to non-interest-bearing and anti-fiat assets including the yellow metal.
Significant follow-through seems unlikely in the near term however, with traders probably leery of overcommitting ahead of an upcoming speech from Fed Chair Janet Yellen. Remarks from Minneapolis Fed President Neel Kashkari – the sole dissenting vote against the rate hike announced last week – are also on tap. Yellen’s usually measured remarks and Kashkari’s dovish leanings may see gold continue upward.
Crude oil prices touched a four-month low but swiftly erased intraday losses after EIA inventory data crossed the wires. Stockpiles added 4.95 million barrels, echoing API data foreshadowing a larger gain than the 1.77 million barrels projected by economists. Refining capacity utilization jumped by 2.3 percent however, the most since November 2015 and well in excess of the 0.38 percent expected. That seems to suggest that crude oversupply is being absorbed far faster than previously thought.
GOLD TECHNICAL ANALYSIS – Gold prices built on recent gains but momentum has slowed somewhat, with buyers unable to secure a sustained break above the 38.2% Fibonacci expansionat 1248.58. A daily close above this barrier would expose the 50% level at 1265.23. Alternatively, a reversal lower that sees prices slip back below the 23.6% Fib at 1227.99 opens the door for a retest of the 14.6% expansion at 1215.29.
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices probed below but ultimately failed to break key support at 47.22 (50% Fibonacci retracement, rising trend line). A breach of this barrier confirmed on a daily closing basis sees the next downside barrier at 45.33, the 61.8% level. Alternatively, a turn back above the 38.2% Fib at 49.11 paves the way for a retest of the 23.6% retracementat 51.44.
• The S&P 500 posted its biggest daily drop since October and in turn broke the longest stretch of quiet in 22 years
• After an extended period of quiet, the first signs of volatility can stoke dormant appetite for trade opportunity
• It is when we are anxious for trades that we should be most diligent about evaluating opportunities
One who is starving doesn't care about the quality or quantity of the meal that is offered to them. They are just happy to have whatever scraps are thrown their way. When markets go through a drought of low volatility and fundamentally divergent conditions, traders longing for more significant opportunities are ready to jump at any sign that the years-long build up in risk exposure is starting to collapse. But, unlike the person dying of starvation; anxious traders can - and should - practice greater patience and control over their appetites. The risk is being drawn into yet another false start - of which there have been many over the past 8 years. If it only happened once, there would be limited fallout; however, desperation doesn't abate easily and discipline will increasingly fade with times as the losses mount.
This past session, sleepy traders were spurred to action. A 1.2 percent drop for the benchmark S&P 500 was the biggest single-day loss for the index since October. More prominently, the move broke the steady rising trend that has evolved following the US election and it ended the longest stretch of market quiet (no daily declines of 1 percent or more) in over two decades. Traders were therefore particularly covetous and there were clean technicals to bolster their conviction. Yet, alone, these statistics and chart patterns carry limited weight. A remarkable persistence in speculative complacency and discount of the fundamentals behind value have cut off reversals numerous times in the near past.
If and when risk trends do change direction for a substantial run, the fuel to power the move will be plentiful. Years of build up and a slowly eroding backdrop through this drive can usher the markets to a deep and pervasive move. Given the scale of the opportunity, traders should de-emphasize the importance of getting in at the very start and instead spend greater effort in confirming convictions. For many, that confidence can come with further technical breaks or percentage retracement from the S&P 500 or some other 'risk' benchmark. My preferred measure will be a combination of intense correlation across otherwise dissimilar asset classes (equities, carry, high yield, emerging market, etc) and a degree of momentum. Why is patience far more important now compared to any other time over the past year?
Compared to the high profile event risk of the previous few weeks (FOMC decision, NFPs, etc), this was looking to be a period of relative quiet. Yet, we have started the week off with a strong fundamental charge - though clear technical drive has yet to be established. Over the weekend and into Monday's session, we revived a theme that has recently taken a backseat to monetary policy - which has struggled with motivation - in trade policy. The G-20 meeting of finance ministers and central bank governors is traditionally a symbolic meeting with little tangible relevance, but that wasn't the case this go around. The new US Treasury Secretary was reportedly behind the omission of the seemingly ubiquitous vow to avoid protectionist agendas at all costs. The the world's largest economy seems to be at the center of many growing trade disputes with the likes of Germany, China and even NATO. This can be a driver in itself or the catalyst for something more systemic: like risk trends.
Progress on Brexit with a clear time frame for invoking Article 50 (March 29 according to the UK Prime Minister's spokesperson) did little to drive the Sterling one way or the other. That isn't to suggest that the focus will shift back to the Bank of England and conveniently leverage the upcoming UK inflation statistics. We just need more definitive progress on the country's planned divorce from the EU. As for the monetary policy motivation, the hold over of tepid FOMC momentum wouldn't carry through to the new week. Driving a strong sell off on event risk that merely failed to live up to expectations - rather than flip them - is not a progressive driver. That said, a long list of Fed speakers this week will work on the outlook for the curve (the number and timing of further hikes in 2017). Both Presidents Evans and Harker conformed to the hawkish view, with the former giving more drive for a faster clip. Dissenter Kashkari, however, draws the attention to the crux of the next true progression of monetary policy as a particular currency driver and thematic motivation for entire markets: balance sheet plans.
While competitive trade and monetary policies is where most of the immediate activity is still arising in the FX and capital markets, the greatest potential remains with risk trends. Equities merely wavered to start the week - not a surprise given the state of the G20 communique, Fed tightening and growing consistency of skeptical market headlines. The true risk lies not in the catalysts however, but rather the structure. Shifted exposure, concentration in market risk, leverage and a dramatic decline in hedges creates a troubled backdrop. That miss-aligned appreciation of risk was evidenced by the fully deflated volatility measures (VIX and its equivalents) alongside a record high SKEW index which gauges extreme conditions. We haven't seen anything dramatic transpire just yet, but the potential is there. If risk appetite prevails, range for EUR/USD, USD/JPY and USD/MXN look well positioned. Alternatively, a true turn towards risk aversion is likely to motivate momentum and thereby forge critical moves from the likes of GBP/JPY, AUD/USD and perhaps even EUR/USD.
There will be a much lesser amount of high-impact news scheduled this week, compared to last week which was very heavy. The only central bank input expected this week will come from the Reserve Banks of New Zealand and Australia, although the Chair of the Federal Reserve will be speaking at a conference also.
The market will probably be most active on Thursday.
Monday will be a public holiday in Japan.
It will be a moderate week for the greenback, beginning on Wednesday with Crude Oil Inventories, and continuing Thursday with a release of Unemployment Claims data and a speech by Janet Yellen, the Chair of the Federal Reserve. Finally, on Friday, we will get Core Durable Goods Orders numbers.
It will be an important week for the Kiwi, with GDT Price Index data on Tuesday, followed by the RBNZ Rate Statement and Official Cash Rate on Wednesday.
It will be a reasonably important week for the Aussie, with nothing due except a release of the RBA’s Monetary Policy Meeting Minutes on Tuesday.
It will be a moderately light week for the Pound, starting on Tuesday with a release of CPI data. On Thursday, there will be a release of Retail Sales numbers.
It will be a moderately light week for the Loonie, starting on Tuesday with a release of Core Retail Sales data. On Friday, there will be a release of CPI numbers.
The EURJPY has given us a bullish pin bar following yesterday’s bounce from 121.20 support. I mentioned this area over the weekend as one to watch. More specifically, we were waiting for a pullback after last week’s 140 pip gain.
Here’s how the daily chart looks after yesterday’s rally.
On the surface, the pair seems ready to buy. The past 24 hours have no doubt favored the bulls, and the pair is sitting on critical support.
However, if we dig a little deeper, we can see that the 122.00 handle is a key factor here. Buyers need to break this area to sustain the bullish momentum.
A look at the 1-hour chart below shows the confluence of resistance at 122.00. It’s the March 10th low as well as two intraday highs from March 15th. Additionally, it’s the intersection of trend line resistance from March 13th as well as the 50% retracement from the March 13th high at 121.87 to yesterday’s low at 121.11.
All of these factors mean that if buyers intend to push prices higher, a close above this resistance area is needed. As such, I won’t entertain an entry until I see the pair climb above the 122.00 area followed by a retest as new support.
Those looking for a bit more conviction can wait for a 4-hour close above this region. Either way, a break of 122.00 would expose 122.87 followed by the current 2017 high at 123.70.
Note that there is also a trend line that extends from the December 2016 high that could give buyers problems on the way up. That level would come in near 122.40/50.
The Australian Dollar declined against its major counterparts, though trimmed some of its losses shortly afterwards, following a worse than expected employment report. In February, Australia ended up losing 6,400 positions against an expectation that the nation would gain 16,000. This was also the first time the country saw a net contraction in jobs since September 2016. Last month, the nation added 13,700 employees (revised higher from 13,500).
The bulk of the losses can be found from the part-time sector which lost 33.5k employees. On a positive note, the full-time sector gained 27.1k positions. Looking at the unemployment rate, it ticked up to 5.9 percent against expectations of it holding steady at 5.7 percent. This was the highest unemployment rate since January 2016. All the while, the participation rate stayed unchanged as expected at 64.6%.
The Reserve Bank of Australia is unlikely to adjust its monetary policy stance on a single piece of salty data. Just last week, the central bank maintained rates at a record low and the view that current policy will deliver sustainable growth and a return to the inflation target overtime. However, they may bring up a thing or two about the jobs report during April’s interest rate decision.
The recent EURUSD breakout is being put to the test as I write this. Friday’s NFP-inspired close above 1.0635 was no doubt bullish, but I needed to see more from buyers to convince me that it was sustainable.
In fact, three things are preventing me from taking a bullish stance at the moment.
The pair is currently retesting the 1.0635 handle as new support. This is a level we’ve discussed for quite some time. It even served as a selling opportunity on the February 20th retest.
Although today’s session is far from over, there’s been an interesting development on the intraday charts. The latest 4-hour close put the single currency back below 1.0635.
Now, I’ll be the first to say that a daily close (5 pm EST) trumps a 4-hour close any day of the week. But if Friday’s breakout has any merit at all, we should see buyers flock to the 1.0635 area.
I don’t see a flurry of bids, at least not yet. Instead, I see a pair at risk of slipping back below the level. If this continues and the pair does indeed close today below 1.0635, we can label Friday’s move as a false break.
But as noted above, Wednesday’s Fed rate decision at 2 pm EST is more than enough to keep me sidelined. I certainly don’t want to take on USD exposure in front of such a heavy-hitting event.
Key resistance at the moment remains the 1.0680 area. A daily close below 1.0635 would re-expose support at 1.0520.
I haven’t commented on the EURAUD for quite some time. It isn’t a cross I usually trade, and toward the end of last year, the price action had become far too choppy for my liking.
However, the past 48 hours of activity have caught my attention. On Friday, buyers managed to close the week above the 1.4090 handle. This level has been a key factor for the Euro cross since November of last year.
The level is also the 50% retracement when measuring from the 2012 low at 1.1605 to the 2015 high near 1.6590.
But a failure to find a bid at this level during yesterday’s retest has raised concern over the validity of Friday’s breakout. On top of that, yesterday’s move carved out a bearish engulfing day.
There is a chance the key level is a bit lower than 1.4090 based on some of the lower wicks from November and January. As such, I want to see how the pair responds to a retest of the area as resistance before considering an entry.
If we move down to the 4-hour time frame, we can see what triggered the recent decline. It appears we have an ascending channel developing off the current 2017 low. The resistance level that capped yesterday’s advance extends from the February 17th high.
From here any retest of 1.4090 will likely encounter selling pressure. There is some support at 1.4050, but a close below that would expose channel support near 1.3900.
The EURUSD bulls finally did it. After several failed attempts to breach the 1.0635 area, Friday’s late session surge put the single currency well above the mark.
Yes, there was some profit taking into the close, but that isn’t abnormal especially given Friday’s 130 pip rally. At the end of the day, the pair still managed a close above the 1.0635 handle, which turns our attention higher this week.
With that said, there was a minor resistance level that came into play just before the weekend. The 1.0680 area has acted as a pivot of sorts since January 26th. It also played a role in capping the January 12th advance.
The tight range between 1.0635 and 1.0680 makes playing Friday’s break more difficult. Sure, you could buy on a retest of 1.0635 as new support, but a target of just 45 pips isn’t very appealing.
As such, I’ll stand aside for now and see what comes of last week’s breakout. The close above 1.0635 leaves me cautiously bullish for now, but I need to see more from buyers before I’m willing to consider an entry.
This Wednesday is the highly anticipated Fed rate decision and statement. The events kick off at 2 pm EST and are sure to stir things up for the U.S. dollar, so tread carefully if you plan to take on USD exposure. Also, Draghi speaks on Monday at 9:30 am EST.
After carving out what appeared to be a bullish rejection candle on March 3rd, GBPUSD buyers failed to follow through. The pair slipped below the 1.2200 support area early last week and never managed to recover.
From here a retest of 1.2200 is likely to attract offers. The region formerly served as support between December 28th of last year and January 3rd. It then forced buyers to retreat between the 11th and 13th of January.
While there is some support in the 1.2130 area, the next key level doesn’t come in until 1.2000. The region has been a key factor for the pair, first attracting bids on the October 7th (2016) crash and later as the (current) 2017 low.
Just like the EURUSD above, Wednesday’s FOMC is bound to have an impact on the GBPUSD. With this in mind, I’ll stay on the sideline and wait for the dust to settle.
I mentioned the USDJPY on Friday following the non-farm payroll report. Despite a positive initial response to the numbers, the selling pressure was too much for buyers to handle.
By the time I got around to commenting on the pair, buyers were already struggling to maintain the 115.10 handle. This is an area I mentioned on Wednesday as a reason to stay on the sideline despite some recent bullish developments.
Given Friday’s bearish rejection from 115.10, a return to former trend line resistance near 114.20/30 seems likely. Whether the area can now hold up as new support is yet to be seen, but if it doesn’t all eyes will turn toward the 113.25 region.
The only thing that will turn me bullish here is a daily close above 115.10. Such a break would expose the next resistance level at 117.00.
However, I’d be surprised if we see a meaningful move from the USDJPY before the middle of the week. On Wednesday we have the FOMC at 2 pm EST followed by the BoJ decision during the Tokyo session.
I’ll wait to see how things play out later this week. The current range is too narrow, and the upcoming parade of central banks is sure to cause unfavorable conditions.
The EURJPY found its footing last week. In fact, the past two weeks have been quite impressive, tallying over 400 pips since the low at 118.23.
I first mentioned the pattern you see below on March 2nd. At the time the pair was trading at 120.30 and was fast approaching the confluence of resistance at 121.20. The area is the intersection of two key levels (shown below) and is also the 50% retracement from the December 2016 high to the current 2017 low.
With prices now well above 121.20 on both a daily and weekly closing basis, the area will likely act as support if tested. While a 120 pip rotation lower may seem unlikely, the pair is also a bit overstretched as it’s currently trading 180 pips above the mean.
Support for the week comes in at 121.20 while key resistance lies at 123.85. There is also a minor resistance near 122.70 that could become a factor.
The AUDJPY broke free from a rising wedge pattern last week. I mentioned the Wednesday breakdown which left us watching for a retest of the 86.50 area as new resistance.
Friday’s bearish rejection of support turned resistance might have given us just that.
But there was also another level at work on Friday. The trend line that extends from the February high is what capped the post-NFP advance. So much so that I decided to enter short at 86.99.
There were a few reasons for my decision, all of which were outlined in the member’s area as things unfolded. To be succinct, the retest of the February trend line combined with a move that exceeded the average daily range meant my risk was limited.
My one requirement to hold the position was a daily close below 86.50. Sure enough, sellers held their ground and managed to drive the pair below this level before the close. Whether or not I add to the short position will depend on how things look in the first 24 hours of the new week.
If former wedge support continues to hold as resistance, we could see a move toward the 85.35 handle. This area stands out via the price action between early January and mid-February. A close below 85.35 would pave the way for a run at the wedge bottom at 83.74.
The Japanese Yen was steady on Friday despite news of some weakening in business confidence.
The Business Sentiment Index for all industries came in at 1.3 for this year’s first quarter, according to the Ministry of Finance. That was well below 3.0 level from the quarter before. The score for large manufacturers alone was 1.1, hugely below the 7.5 level chalked up in the last three months of 2016.
One bright spot was that both surveys remain in positive territory (that indicates that businesses see conditions improving, just not to the extent they did when last asked) Another is that service sector confidence appears to be holding up.
These numbers can provide a steer as to the official Tankan snapshot of major manufacturers, which usually comes about a week later. USD/JPY barely moved however, continuing to hover around the 115.50 area.
Perhaps we shouldn’t be surprised. Global markets are looking toward official US labor market statistics due later in the global session. A rise of 200,000 nonfarm jobs is expected for February. That or anything like it would probably set the seal on a March interest rate rise in market minds, as recent Federal Reserve commentary has pointed that way.
With those US data as the main event, Japanese business sentiment was only every going to be a warm up act, and so it proved.
On Monday I mentioned how the AUDUSD was testing support turned resistance at 0.7608. Following a print of 0.76082, the pair dropped 30 pips into the close, proving the level is worth keeping an eye on.
The problem I had with taking a short from this area was the RBA rate decision and statement. Both events took place within the past 24 hours, and due to the impending volatility, I decided to stay on the sideline.
The pair had also become a bit overstretched to the downside, making an entry unfavorable at the time.
However, as part of Monday’s commentary, I mentioned the idea of watching for a sell signal once the dust had settled from the RBA-induced volatility. It looks like that time has come.
Yesterday’s bearish pin bar from the 0.7608 area suggests that sellers remain in control. The signal comes after the pair tumbled last Thursday for a single session loss of more than 100 pips.
From here traders can watch for selling opportunities so long as the AUDUSD trades below 0.7608 on a daily closing basis. Key support comes in at 0.7520 followed by 0.7450.
Due to the size of Tuesday’s candle, it may be necessary to wait for a 50% retrace before considering an entry. Of course, that all depends on your risk to reward requirements and preferred entry method.
For about a month, the AUDUSD appeared unstoppable. In one of the most aggressive rallies since February of last year, the Australian dollar advanced nearly 600 pips against the greenback in just seven weeks.
But last week’s drop put an end to the rally. While some will argue that Thursday’s selloff is just part of a correction, the single session plunge of 107 pips was the most ambitious for sellers since December 14th of last year.
In addition to losing 107 pips, Thursday’s decline put the pair below the 0.7608 handle on a daily closing basis. We’ve had our eye on this level since it attracted buyers in early February.
So far today’s high is right on the money at 0.7608. So we can see that this area is now acting as resistance following Thursday’s breakdown.
But entering short now would be a risky endeavor. At 10:30 pm EST, the RBA will announce its rate decision and release its monetary policy statement. The events are sure to create unfavorable trading conditions as spreads widen and volatility ramps up.
As such, I’ll remain on the sideline until the two events are behind us and the dust has settled. Any bearish price action from the 0.7608 area could offer an opportunity to get short.
If a sell signal doesn’t materialize near current levels, I’ll look to the next level of support at 0.7520. A close below that would expose the September 2016 low near 0.7450.
Alternatively, a daily close back above 0.7608 would re-expose the trend line from the April 2016 high.
Despite making no real progress last week, the EURUSD certainly wasn’t idle, particularly in the final 24 hours of trade.
On Wednesday I shorted the pair at 1.0588 on a retest of a level that extends from the February 16th high. I had mentioned the 4-hour wedge pattern on February 27th, and the subsequent false break to the upside had me watching for a selling opportunity.
The pair lost ground over the next 24 hours and even closed below the 1.0520 handle. This level has been on our radar for several weeks. It’s served as a pivot since November 24th of last year and is also very near the 2016 close.
Seeing this, I decided to add to my short position just below 1.0520. But Friday’s rally proved Thursday’s breakout to be false. Luckily, I had trailed my stop, so the result of both positions was a breakeven trade.
Typically I would consider the possibility that a more accurate location for the level is 1.0500. And that may very well be the case.
However, the fact that 1.0520 is four pips above the 2016 close and is also the 61.8% Fibonacci retracement from the current 2017 low at 1.0340 to the current 2017 high at 1.0823 leaves me convinced that Thursday was a false break of support.
For the week ahead our attention turns back to the 1.0635 resistance area. The region has been directing price action since mid-November and also boasts several factors that make it one to watch going forward.
The GBPUSD started last week with a close below 1.2400. This is a critical area we’ve been tracking for several weeks now. Per last weekend’s forecast, Tuesday’s close suggested that a move toward the 1.2200 area was likely.
Sure enough, the pair continued lower over the next three sessions and eventually found a bid just above 1.2200. In fact, Friday’s session low was just 13 pips above 1.2200.
By the end of the day, buyers had pushed the pair into positive territory. The afternoon rally carved out a bullish rejection candle, hinting at the idea of further gains this week.
An early week decline toward the 1.2250 area could provide an attractive buying opportunity. However, keep in mind that Friday afternoon moves can sometimes be deceptive due to thin trading conditions ahead of the weekend.
Key resistance comes in at the 1.2400 area while a move lower would likely find a bid in the 1.2200 region.
I mentioned the NZDUSD on Wednesday of last week. At the time we were watching the pair punch a hole in the 0.7133 handle on an intraday basis. But to open up downside objectives, sellers needed a session close below the level.
While they weren’t able to get the job done on Wednesday, the next 24 hours put the NZDUSD 73 pips below the level on a daily closing basis.
There was no setup here, at least not for me, as the pair has yet to retest former support as new resistance. With that said, we may not have to wait long to see buyers make a run at 0.7133.
Although Friday closed in the red, the long lower wick suggests that we may see a move higher to start the new week. On top of that, buyers managed a session close back above the 0.7040 level, which is the key support level I mentioned on Wednesday.
For the new week, the range between 0.7040 and 0.7133 will likely be a factor. Buying from current levels may be profitable, but given the bearish pressure lately, the safer play may be to wait for a sell signal from resistance.
Last week’s sprint higher on the EURJPY wasn’t too surprising. Sure, the pair closed below the key 119.50 handle the previous week, but the trend line from the January 17th low triggered Monday’s surge.
On Thursday I commented on a few levels that could prove significant over the coming sessions. The most important one, in my opinion, is the confluence of resistance around the 121.25 handle. This is the intersection of a key horizontal level and a channel extension from the level that attracted bids on February 27th.
It’s going to take a daily close above the 121.25 area to secure a push higher this week. Not only is it the intersection of the two levels I just mentioned, but it’s also the 50% retracement from the December 2016 high to the current 2017 low.
A close above 121.25 would expose the 123.80 area. However, there is also a minor level at 121.80 that traders should keep an eye on should the pair advance higher this week.
Alternatively, a move lower from current levels would likely encounter buyers near 119.50. This area served as a pivot between the 7th and 24th of February.
Unlike the EURJPY, the AUDJPY isn’t looking quite so healthy. Sure, the pair carved out a small bullish pin bar on Friday, but the two-month rising wedge pattern suggests bids may be drying up.
But as I pointed out on February 27th, nothing is confirmed until we get a close below wedge support. Until that time, the bulls are in the driver’s seat.
A daily close below support would expose the 85.35 handle. This area served as resistance back in early January before flipping to support between January 23rd and February 9th. A close below 85.35 would pave the way for a retest of the wedge low at 83.73.
Alternatively, a push higher would likely encounter sellers near last week’s high of 87.40. A close above that and we could see another retest of wedge resistance in the 88.40 region.
The currency market seems determined to keep a lid on the range-bound price action of late. However, just now we’re starting to see some of those ranges begin to breakdown, namely on the AUDUSD and NZDUSD.
But the same can’t be said for the yen crosses. All are trading within relatively tight ranges that have persisted for several weeks now, including the EURJPY.
That isn’t necessarily a bad thing, though. These market conditions call for short-term swing trades that last a few days or perhaps a week at most. And until the yen crosses can prove otherwise, that’s how I’ll continue to approach any setups that materialize.
Despite falling below the 119.50 handle last Thursday, the EURJPY has returned with a vengeance this week. And with yesterday’s close, we find ourselves once again focused on 119.50, only this time as support.
In case you’re wondering why last week’s close didn’t prompt a selling opportunity this week, the chart below offers an explanation. The trend line that extends from the January 17th low is what triggered Monday’s bounce.
If we use this trend line to draw a parallel level from the January 27th high, we get what appears to be the beginnings of a descending channel. Although the upper boundary has yet to be confirmed, it does intersect with a key horizontal area at 121.25. This region has served as a key pivot so far in 2017.
A rotation back to 119.50 could present a buying opportunity. However, I’m going to play this one rather cautiously given some of the mixed signals we’ve seen from the yen crosses lately.
With that said, the bigger play here, in my opinion, will materialize once the EURJPY breaks free from this range. A close above the confluence of resistance at 121.25 would expose the December 2016 highs near 123.85.
Alternatively, a daily close back below 119.50 would pave the way for the third retest of channel support. But for now, I’ll remain on the sideline and wait for the market to make the first move.
As I write this, the NZDUSD is trading at its lowest level since mid-January. What’s more significant, however, is the fact that sellers have overcome key support at 0.7133. This area has kept the pair afloat since the first retest on February 14th.
But let’s not get ahead of ourselves. Yes, sellers have broken 0.7133 on a 4-hour closing basis. And although this looks like a clean break, the range bound and somewhat sporadic conditions of late leave me waiting for a daily close at 5 pm EST.
When deciding whether to enter on an intraday break or wait for the session to close, it’s important to put things into perspective.
Over the last few weeks, the NZDUSD has moved on average about 60 to 70 pips (at most) in any given session. Today’s range is already just 6 pips shy of 100. So the odds of missing out on a move lower today are pretty slim.
Also, today’s drop leaves the pair 70 pips below the mean as measured by the 10 and 20 exponential moving averages. With this in mind, there’s a good chance we’ll see some consolidation in the 0.7133 region before the next leg materializes.
So, for now, I’ll wait to see what price we get at 5 pm EST. A close below the 0.7133 handle would have me watching for a sell signal on a retest of the area as new resistance. The next key support level doesn’t come in until the 0.7040 area.
On the flip side, a close back above 0.7133 would keep the 100 pip range intact. Key resistance from there would come in at 0.7240, a level we’ve had on our radar for several weeks.
But as mentioned in recent days, I won’t consider buying the NZDUSD while below the 2016 trend line. That level is now several hundred pips above today’s price.
GBPJPY sellers are continuing their efforts to push the pair lower today. Last Friday I commented on the 1,200 pip wedge pattern that developed after coming off the December 2016 high at 148.44. Just hours after that commentary was released, the yen cross tumbled below key support.
The next level of interest is 138.90. This area is the September 2016 high and has also served as a key pivot in recent months. Yesterday’s bounce from 139.00 was no coincidence.
From here it’s going to take a daily close below the 138.90/139.00 area to secure the next downside target at 136.45. This level is the bottom of the 1,200 pip wedge and is also the current 2017 low.
The longer-term measured objective for this wedge pattern comes in at 128.60. It’s 1,200 pips (the height of the structure) below last Friday’s breakout point. It also happens to be very close the July and August 2016 lows.
In the world of Trumponomics, the markets seem to be obsessing over President Trump’s upcoming speech at 9 pm EST. And with market participants hanging on his every word, I suspect volatility will increase during and after the event, particularly in a risk-sensitive pair like the GBPJPY.