Last week set us back a bit, with the previous week’s gains of 266 pips reduced by a loss of a net 81 pips this time around. We took losses on our GBPUSD, USDCAD and USDJPY positions but a well-timed NZDUSD short trade booked 200 pips in profit and offset most of the negative impact on our bottom line. Looking ahead, a number of promising set-ups offer opportunities to advance our equity with ripening Euro and Pound retracements poised to create openings for short positions. Meanwhile, the Canadian dollar nears another range entry point and an Australian dollar pull-back promises a good place to get established long.
[B]EUR/USD
Correction ahead[/B]
Last week, we saw the EURUSD decline stall at 1.5400. This had acted as a significant support/resistance level in the past and we suspected it would be a plausible place for a retracement upward. We got our confirmation with a Bullish Engulfing once the week’s first candle closed, prompting us to look for a short on a retracement to resistance.
The Euro closed the week showing a Morning Star pattern, pointing to the likelihood of upside momentum in the near term. The first clear layer of resistance is found just below 1.5560, a frequent price swing point. While this may well cap a relief rally in the EURUSD, the size of the Morning Star and the extended sell-off in the Euro with little pull-back threatens a deeper correction. We will monitor price action carefully as the pair trades near 1.5560 and go short on a confirmed reversal to the downside.
[B]EUR/USD Trading Strategy[/B]
We remain flat, waiting for entry point. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
[B]GBP/USD
Channel guiding prices lower[/B]
Last week, we saw an Inverted Hammer candlestick at trend line support suggesting a reversal higher. We approached cautiously, waiting for a next-day bullish candle to validate the upward bias before entering. However, GBPUSD saw limited upside before a wick lower hit out stop for a loss of 102 pips.
We took a step back to re-evaluate the pair and found GBPUSD to be trading along a downward sloping channel. Price action is now at the lower boundary of this formation, with indecision shown by the presence of back-to-back Hammer candles (one inverted and one otherwise). Our overall bias is now short, with the next being to identify an entry point. From a risk-reward perspective, the most advantageous scenario is to wait to for GBPUSD to oscillate higher for a short below 1.9890 near the channel top. On balance, we stand ready to short GBPUSD should the pair decisively break below the channel bottom and close there.
[B]GBP/USD Strategy
[/B]
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Short GBPUSD below 1.9890.
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Set stop-loss below 1.9980 above recent wick highs.
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Set profit target near the channel bottom above 1.9470, risking 90 pips to gain 420.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
[B]USD/JPY
Looking for direction after trend line break[/B]
Last week we opted to continue buying USDJPY along an upward-sloping trend line established in mid-March, with the most recent entry at 104.00. This time, we missed the mark and the pair broke lower on a retest of resistance at 105.65 to hit our stop near 102.90 for a loss of 110 pips.
The USDJPY decline has stalled near 102.60, a multiple support/resistance level. With the overall direction of the trend still looking bullish, we will look for clear confirmation of a bearish reversal before committing to a short. On balance, a strong bullish signal is also lacking at the moment. We remain on the sidelines for the time being as things clear up.
[B]USD/JPY Strategy[/B]
We remain flat, waiting for confirmation. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.
[B]USD/CAD
Range contains price action[/B]
Last week, USDCAD was showing a large Doji candlestick following a Long White Candle. Considering the proximity of triple top resistance at 1.0250 above current price action, we thought there was a good chance the pair will retrace lower to trend line support before resuming upward momentum. The downside came indeed, triggering a long entry at trend line support near 1.0100. The second half of our preferred scenario did not materialize however as a stray wick low tripped the stop order for a loss of 69 pips.
With the upward trend line now effectively invalidated, we are left with the pair’s recent range to guide trading decisions. USDCAD has been oscillating between boundaries around 1.0240 and 1.0013 since March. Last week closed to show a Bearish Engulfing. While this is a bearish reversal signal, it can be argued that it is not entirely valid because the pair has been ranging rather than trending. As such, there is no trend to reverse. The proximity of current price action makes a long position most advantageous from a risk-reward perspective. As such, we will look to buy USDCAD above 1.0013 but keep our stop order close should the Engulfing bring with it a breakout to form a new bearish trend.
[B]
USD/CAD Strategy[/B]
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Long USDCAD above the range bottom at 1.0013.
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Set stop-loss above 0.9960 below recent wick lows
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Set profit target at 1.0198 just below the range top, risking 53 pips to gain 185.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
[B]AUD/USD
Down move offers long entry point[/B]
Without favorable risk-reward parameters, we continued to remain flat on AUDUSD last week. The pair went on to attempt a short-lived rally before being stopped short at the 0.9500 once again and easing lower.
We now see a Bearish Engulfing in place at the previous test of the 0.9500 triple top. This lends credence to a downside scenario. Substantial support has formed at the intersection of the upward-sloping trend line established in August of last year and a short-term level at 0.9285 that has contained downside tests since mid-April. We will look to go long here, betting with the substantial yield differential in favor of a return to Aussie strength.
[B]AUD/USD Strategy
[/B]
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Long AUDUSD above 0.9285.
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Set stop-loss just below 0.9200.
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Set profit target near 0.9500, risking 85 pips to gain 215.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
[B]NZD/USD
Decline accelerates[/B]
Last week we confirmed a Three Inside Up pattern, a strong bullish reversal signal. We retained our bearish bias, shorting the pair on a retrace toward 0.7950 to test trend line support-turned-resistance. This proved wise; the pair tumbled following just one wick high at the trend line to ram through our target at 0.7750 for 200 pips in profit.
Current positioning does not offer favorable risk reward to re-enter short, but we will continue to monitor the pair for any signs of pullback or stabilization to get back in. A heavy price congestion area lies close ahead above 0.7600, raising the chances that a support level will emerge in the coming days.
[B]NZD/USD Strategy[/B]
We remain flat, waiting for entry. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room.
[B]NOTE:[/B] Unless otherwise specified, all trades are closed at the end of the trading week.
[I]To contact Ilya regarding this or other articles he has authored, please email him at <[email protected]>[/I]