Last week proved lucrative as we reversed surpassed the preceding 81-pip net loss with a gain of 162 pips. A stray wick on USDCAD took out our stop loss for a loss of 53 pips, a set back easily made up for by a precise long entry on AUDUSD yielding 215 pips in profit. This week the majors offer a variety of opportunities, with ripening entry points for Pound, Canadian Dollar and New Zealand Dollar. Meanwhile, the Australian Dollar has broken 24-year highs and the Euro has retraced higher for a better shorting opportunity in the days ahead.
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[/B]Candlestick forum.
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EUR/USD
Correction underway[/B]
Last week, we saw the EURUSD 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. We opted to remain on the sidelines, noting that 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. Patience proved a wise decision – EURUSD rallied to close the week at 1.5592.
Friday brought a Long White Candle that broke resistance. The next possible site of a bearish reversal lies near 1.5650, the upper boundary of a congestion area that offered brief consolidation for EURUSD price action on the way down from 1.60. Our overall bias remains bearish and we will continue to monitor price action for the best possible short entry.
[B]EUR/USD Trading Strategy[/B]
We remain flat, waiting for an 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
Reversing from channel bottom[/B]
Last week, found GBPUSD to be trading along a downward sloping channel. Price action was at the lower boundary of this formation, with indecision shown by the presence of back-to-back Hammer candles (one inverted and one otherwise). We pointed out that given our overall bearish bias and relevant risk-reward considerations, the best scenario is to wait for GBPUSD to oscillate higher for a short near the channel top.
An Extended Morning Star pattern has now formed at the channel bottom, suggesting GBPUSD is headed higher in the near term. This bodes well for our scenario, as we need the pair to rally to create our short entry point. Our strategy will remain largely unchanged, though we have adjusted entry, stop-loss, and limit levels from last week to reflect the pair’s movement among the channel.
[B]GBP/USD Strategy[/B]
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Short GBPUSD below 1.9830
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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 1.9420, risking 150 pips to gain 410.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
[B]USD/JPY
Trading sideways, looking for direction[/B]
Having broken through upward-sloping trend line support, USDJPY stalled near a multiple support/resistance level near 102.60. We saw no clear signals last week and opted to remain on the sidelines as things cleared up. The pair would rally higher for a retest of trend line support-turned-resistance only to turn downward again.
Currently, USDJPY is showing an Extended Evening Star pattern following a test of resistance, suggesting the next move is downward. That said, the overall bias remains bullish until the pair breaks and closes below 102.60. Should this happen, USDJPY could decline to test 100.00 once again. On balance, current trading may well prove to be a ranging period before further advances to the upside. In any case, current positioning does not offer favorable risk-reward parameters, so we will continue to monitor the pair as we wait for a bias to materialize.
[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 trading persists[/B]
Last week, we looked to the recent range in USDCAD to guide trading decisions. With the pair near the range bottom, risk-reward considerations moved us to take a long position. A wick low took out our stop order at the week’s end, incurring loses of 53 pips.
Revisiting the pair this week, we see that conclusive directional momentum has not materialized. We will continue to treat the pair as range, albeit with a slight revision of the key boundary levels to help prevent spike lows from taking out our stop-loss. USDCAD has now shown a Hammer at support. We will wait for confirmation with the close of today’s candle. Should it prove bullish, we will go long USDCAD near the range bottom aiming for an oscillation upward.
[B]USD/CAD Strategy
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Long USDCAD above the range bottom at 0.9990 on Hammer confirmation.
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Set stop-loss near 0.9930 below recent wick low.
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Set profit target at 1.0198 just below the range top.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
[B]AUD/USD
Trading above a 24-year high[/B]
Last week we spotted a Bearish Engulfing in place following a test of triple top resistance at 0.95. We expected a down move to a major support 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 suggested going long here, betting with the substantial yield differential in favor of a return to Aussie strength. AUDUSD price action validated our approach as the pair dipped to support to trigger entry and then rallied past our target at 0.95 to close the week at 0.9543. The trade yielded 215 pips in profit.
Current AUDUSD levels have not been seen since the 1984. The chart shows a Long White Candle, suggesting further upside ahead. We will look for a pullback to 0.95 (a mere 33 pips from current prices) to re-enter long. Our aim will initially target just below 0.9650, the wick high of the last time prices extended past 0.95 on 03/31/1984. We will not set a hard “take profit” order here though (shown on the chart in yellow rather than the usual green), as we do not want to limit ourselves out prematurely of a potentially momentous rally. Our stop-loss will be tight to make sure we do not give away too much of last week’s gains should AUDUSD get top-heavy at such dizzying levels.
[B]AUD/USD Strategy[/B]
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Long AUDUSD above 0.9500.
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Set stop-loss near 0.9436.
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Look for a move to 0.9650, risking 64 pips to gain 150. Do not set a hard order to take profit, but monitor price action here for evidence of further upside or a reversal.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
[B]NZD/USD[/B]
[B]Channel sets up new entry point[/B]
We remained flat last week as we waited for the down move to stabilize and offer a reference point for further analysis following a profitable short. As we suspected last week, the NZDUSD decline has found support in the price congestion area above 0.7600.
Current positioning suggests a downward sloping channel guiding NZDUSD lower. The end of last week saw a Hammer that was subsequently confirmed by a Long White Candle. We expect retracement to the channel boundary in the near term. We will look to short the pair here looking for the downtrend to continue.
[B]NZD/USD Strategy
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Short NZDUSD below 0.7860.
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Set stop loss just below 0.7970.
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Set profit target above 0.7560, risking 110 pips to gain 300.
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]