Hello traders, happy Sunday! Last week was again an excellent week for reversal traders and there were many interesting setups in the market. I’ll review one trade I took in USDJPY and a sell in XAUUSD. Next week will be a little busier with non-farm payrolls on Friday and other economic news spread out over the week, but there are again many setups developing, so plenty to look at!
Current market behaviour
The dollar turned around this week. As you can see on the DXY chart, the dollar rallied for pretty much the entire week. Fuelled by positive economic news releases and a slew of FOMC member speeches, the dollar ended the week quite a bit higher.
Although, we can see that the overall daily sentiment is still bearish, with the dollar index still making lower lows and lower highs. It wouldn’t be surprising if the rally of the past week was just a retracement in the larger timeframe picture, with the dollar continuing its path down soon again. On the other hand, if the dollar bulls can keep the momentum going, we might see more bullishness next week.
Gold is inversely correlated to the dollar and so sold off for a major part of the week. However, Friday painted a different picture. Some FOMC member speeches were rather cautious, saying that the current positive market sentiment hasn’t yet resulted in improved economic figures. The market took this as dovish news and moved money to risk-off assets, such as gold. The result was a strong Friday rally on XAUUSD.
Finally, crude oil finally saw some improvement in trend structure. For the first time in a long time, we could see a clear trending market instead of the usual, skittish market behaviour we’ve been seeing in the past couple of weeks. Oil ended the week strongly higher.
Past week trade review
In this week’s trade review, I want to highlight a trade I took on USDJPY.
USDJPY 4H long
USDJPY was part of the weekly forex outlook for last week. I argued that since the pair formed a triple bottom, there could be a fair chance that a reversal was imminent. However, I also indicated that the USDJPY wasn’t yet in the best place for a reversal, since it just broke a support level and there was some downside potential as well.
What happened was exactly that: price moved a bit lower so our reversal didn’t get triggered immediately. After the move lower, we could the price see bottoming out and slowly making higher highs. Suddenly, there was a strong bullish bar, crossing the moving average. I waited for a retracement to get in with a super tight stop after I saw that the support-turned-resistance level held again as support. As a take profit level, I took a previous swing low point (which isn’t visible on the chart below, but scroll to the left on your chart to see it).
In hindsight, I could’ve taken a bit more profit off the table, but then again you never know for sure how far a move will go. This trade netted me a very decent 4R, so I’m happy with it.
XAUUSD 4H short
Gold was again part of my weekly watchlist of last week. Similarly to USDJPY, it decided to not reverse just yet and move a bit higher first. Eventually, the price reversed after it touched the resistance level of the previous swing high. From then on, it started to sell off, making lower lows and lower highs.
An inner trendline could be drawn and as soon as price convincingly broke this trendline, I got in. The stop was again quite small and the profit level was close to the origin of the last strong bullish move. The price initially seemed to go my way, but then suddenly reversed on Friday. I closed this trade for close to break-even, taking just a small loss. Not all trades can be winners 🙂
The upcoming week
This week will be quite busy: NFP, Australia releasing the interest rate decision and retail sales numbers and a whole slew of other news. Here are the highlights:
- Monday: JPY Manufacturers index, AUD retail sales, CHF retail sales, DE manufacturing PMI, GBP manufacturing PMI, USD ISM manufacturing PMI
- Tuesday: AUD RBA interest rate decision and statement, GBP construction PMI
- Wednesday: GBP services PMI, US ADP non-farm employment change, ISM non-manufacturing PMI, crude oil inventories and FOMC meeting minutes
- Thursday: CHF CPI, US initial jobless claims
- Friday: CHF unemployment rate, GBP manufacturing production, US NFP and unemployment rate, CAD unemployment rate and Ivey PMI
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
This chart has been a favourite of mine for a couple of weeks now. I talked about this setup in the weekly outlook of 2 weeks ago already, even though it still was a very premature setup then. By now, things have changed. On the daily chart, we can see the reversal clearly underway. Price has stopped making higher highs and is now testing the lower boundaries of the previous trend waves.
On Friday, the price broke a local trend line strongly and moved below the local support created by the previous swing. It now has completed a head and shoulders chart pattern as well, which only increases the likelihood of this setup to continue on its downwards path.
Much will depend on the price action on the Monday open. If the price jumps up, this might indicate that the pair isn’t yet ready to break lower. Another thing to keep in mind is that gold has rallied strongly on Friday and the Aussie is usually correlated positively with gold. However, if it moves down and can close below the 1.01300 level, I will look for an entry.
This is a shorter term setup, playing out on the hourly charts. The price was in a decent uptrend for the past week but has since hit a resistance level and strongly reacted with this level. There were already multiple trend waves and the last trend wave showed an RSI divergence as well.
We’re looking at a very bearish reaction from the resistance level, a bounce from a resistance-turned-support level, a retest of the moving average and then on Friday a strong move down again. This is a classical reversal pattern, and I will be waiting for the price to break the previous low at 83.500 again, to get in.
I’ve been watching EURNZD for a while now, and after a very clean and strong uptrend, the price was basically hovering in a range. Recently, the price has again found some selling momentum and even closed below the bottom of the range!
That gets me interested. A lot depends on how the pair opens on Monday morning, but if the selling pressure continues, there’s a lot of room for EURNZD to move lower. This is a reversal setup which plays out over a bit of a longer time frame, which isn’t unusual. We’ll see what happens on Monday.
And finally, let’s have a look at USDCAD. This is a reversal setup that is a little bit more complex, having had a first leg down already a while ago. The price then found support around the 1.32880 level and kind of went up and down in this range.
Recently, however, the price started to make more swings to the downside, putting in lower highs and lower lows. The price hasn’t yet broken the support level, but if it does, there’s plenty of downside potential. As always, I’ll be waiting for a break and close of the support level before stepping in. Until then, we just wait and exert patience.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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