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Markets Stuck in Ranges
This week, the markets mainly held to their ranges, and if not, those markets did not sustain the direction of the breakout. At the end of the week, we got poor US employment data (10.2% unemployment) which dealt a bout of risk aversion to a market, which looked to be gearing up risk appetite throughout the week. Let’s take a look at this week’s price action, and the outlook for coming weeks in the forex market.
EUR/USD 1.4800 Supported after US Jobs Report
- 4H and 1H: This week’s price action in the EUR/USD shows the both strength it its bulls and bears. This is reflected by the “whipsawing” action of the market following 2 major economic releases, the FOMC announcement on Wednesday, and the US Non-Farm Employment Payroll data on Friday.
- As you can see in the 4H chart, the market pushed above the 1.4850 resistance and signaled a breakout during the FOMC announcement. But by the completion of the reaction, we saw the inability to break above 1.4900 without the market rejecting it.
- You can see in the 1H chart that throughout the Thursday session, the market did edge up to test 1.4900 again, and established the 1.4850 area as support. The poor jobs data on Friday brought a risk averse reaction, bringing the pair down to 1.4810. But as you can see, the bulls protected this support and the pair rebounded. So now, we have a new narrow channel between roughly 1.4800 and 1.4910.
- There is a slight bullish bias, but the price action this week of breaking above the 1.4850 resistance is not a convincing one.
- Meanwhile, there are no bearish signals neither, so we need to continue stalking this pair for more clear information as to which camp wins out.
GBP/USD Testing Range Resistance
- 4H and 1H: The GBP/USD pair is ranging between 1.6200 and 1.6700. At the moment the pair is nearing the resistance level. There is a bearish divergence with the stochastic reading in the 4H timeframe.
- In the 1H timeframe, we see that the pair has already paused this week’s upswing. The faster speedline (support) was broken, but a second slower speedline held.
- With the 1.6640 area holding, we have an ascending triangle developing and we may see a breakout to start next week as the support and resistance converges. A break of support is not convincing unless the 1.6450 area is also broken. Then the market may push the pair down to at least 1.6300.
- A break above also is not convincing, as we can see from the 4H timeframe higher peaks with the 1.6750.
- With a ranging perspective, we see that the break above brings the pair closer to more significant resistance, while a break below does not. This is to say, there are more “room” for the downside, but more challenge for the upside. We will see next week, if the bears will be able to keep the pair in consolidation mode, or if bulls will find enough conviction to push the market above the 1.6750 area.
USD/CAD Support Holding
- Daily and 4H: The USD/CAD pair tested the 1.0600 support as well as a coincident upsloping trendline. The market rallied on Friday, temporarily confirming the uptrend. However, the market is having trouble passing the next powerline at 1.0700, which was the support from the previous top.
- With another week in consolidation, we should probably stay on the sidelines and continue stalking this pair for another week until important support or resistance is broken.
- Breaking below 1.0600 and holding it as resistance is a bearish signal.
- A break above 1.1000 and more importantly 1.1100 will be a bullish signal and an invalidation of the parity scenario in the medium-term.
- Everything else is just noise for now.
GBP/JPY Stays in Channel
- Daily and 4H: The GBP/JPY remains inside a slightly downward channel that was established a couple of weeks ago. Today the market tested the resistance, which held. This drop also broke an uptrending support.
- We see in the daily chart that we are at a 50% retracement, after the market broken an important support. This suggests bearish bias.
- In the 4H timeframe, we see that today’s decline is testing a short-term support at 148.50. If the market rallies from here, we are not ready for test for the channel support, but if it does break, we may anticipate further decline to test the 146-146.50 area and possibly the 144.50 powerline.
- We will watch the 146.50 short-term support area and the 153.50 medium-term resistance area. If the 153.50 breaks, then we may see the market re-test the highs at the 163.00 area. A break below 148.50 is bearish towards the 144.50 area.
- These are all short-/medium- term projections as the market needs to first get out of the current stupor. Once there is more volatility, more important powerlines will be tested and then we will get information for a more long-term outlook.
USD/JPY Rally Needs Risk Appetite
- Daily and 4H: After a dip to start the week, which brought the USD/JPY pair down to the 89.20 area, the market pushed the pair up past 91.00 but only temporarily.
- The push occurred during the FOMC announcement on Wednesday, but the market was rejected immediately after. Therefore we may have to adjust our trendlines to reflect a slower mode of decline.
- The decline on Friday which brought the pair to about the 89.60 area before pausing. Although this low is above the previous 89.20, it is not a good sign for the bullish case.
- We’ll see next week whether this Friday decline which is testing 78.6% retracement support, is just a correction, or if it will be the beginning of a decline back to retest the long-term support zone between 87.00 and 88.00.
- Our bullish case is weakened by the end of this week. A rally would have to sustain a break above 91.00 to give this scenario higher probability. At the moment, the probability for a retest of former bottom improves. There is not much room until this support, so a bearish scenario suggests we need to stay on the sideline until the market reverses or shows it can break this major bottom.
- For now, the market is ranging and no side, bulls or bears, has the dominance yet.
AUD/USD Resurgent Bullish Strength Tested
- Daily : The AUD/USD pair is in a wide consolidation channel that resulted from a decline from the top at 93.25. The market ranged between 89.0 and 92.00 since last week.
- We see in the daily stochastic reading that the market is no longer bearish in the medium-term and is back to neutral with slightly bullish momentum. However, the weekly chart, not shown here, has been overbought since May.
- The 4H stochastic reading is overbought. With the market at resistance, there is some short-term bearish bias. However, we will need to see the market push the pair below the upsloping trendline as well as below the short-term powerline at 91.00.
- If it does, we may have a retest of the 89.00 – 89.50 support zone.
- A break above 92.00 suggests a retest of 93.25. The very overbought conditions in the weekly suggests that there may not be much upside potential for the pair before a more significant retracement.
- This also suggests that a lot of bearish signals will be needed to convince market participants that the pair is in a longer-term bearish mode. For example the 89.00 needs to also break and hold as resistance.
- The result may be further consolidation, so we will have to continue stalking the pair for more significant market action to give us more information.
Commodity Trading Advisor