USDSEK

Weekly Forex Outlook: August 21

After a week in beautiful Paris, I’m back in Belgium. It was an interesting week, both in Paris and in the markets! Whereas last week featured very easy to manage and straightforward setups, this week was a little more challenging!

 

The theme of the past week was clearly a lack of follow-through.

 


 

Let’s go over the setups of last week! I talked about USDWTI and expected it to go down after it broke a significant local support. It did actually go down, but unfortunately, on Friday it shot back up. This could partially be because of the news that Bannon was let go from the Trump administration, but could also be related to signs that supplies are tightening. In any case, crude made a run for it on Friday and ended the week only slightly lower than it opened:

 

USDWTI review

 

 

Next up is our AUDUSD setup on the daily charts. In a similar theme, it did exactly as I expected for the first two days of the week and then shot up on better than expected Australian employment data:

 

AUDUSD review

 

 

How To Deal With News Events

 

This is an interesting example to show how you should keep in mind certain high-impact fundamental events. I’ve long been an advocate for the following strategy when dealing with high-impact news events such as employment data, NFP and central bank events:

  • If your position is in loss, close it completely before the news event
  • If your position is in profit, take partial profits (e.g. 50%) and move the stop-loss to breakeven (for as much as this makes sense; if your trade is only marginally in profit, you might be better off closing the position entirely)

 

This way, you give yourself a good chance of both taking some profits off the table and at the same time, allowing your trade the potential to run in your direction on the market-moving news. Of course, you should always look at your trading journal and use the data to give you insights on what is the best strategy in your case, but this works for me.

 

 

Next on the list is EURJPY, which is also a daily setup. I feel like this is a setup that is still very much developing. So even though the break to the downside hasn’t happened yet, I feel like it can definitely do so in the next week. The reason I feel this is because of how the price action has been in the past week. Let’s have a look:

 

EURJPY review

 

What happened for the entirety of last week is a near-perfect looking retest of the moving average! With near-perfect, I mean that it has the following characteristics: it moves up slowly while retracing, shows some sort of rejection (see the pin bar) and afterwards features a strong move down. This means that the bulls tried to make something happen but obviously failed. The power of the bears at this point is much larger, which is shown by the large red candle on Thursday.

 

I’m not even that worried about the slight pause on Friday. It’s not uncommon for this to happen and I’ll probably be looking to take a position early next week on any signal that the bears can keep up the downwards momentum.

 

Finally, let’s take a look at USDCAD on the 4H charts. Remember that I expected it to go down after a very nice top structure was developing? It did indeed go down, but not before it first makes another run at the highs.

 

As you can see in the example below, I’ve also marked an important trading pattern that doesn’t happen too often, but is quite powerful if it happens: the triple tap. With this pattern, we can see up sloping (or down sloping for a bullish reversal) price swings with the highs being increasingly higher. After tree “taps”, the price caves in and finally breaks down, as you can see here:

 

USDCAD review

 

We can see the price breakdown, followed by a support-turned-resistance retest, after which the price continues down.

 

 

Current market behaviour

 

The past week was characterized by the ebbing away of some of the geopolitical fears. These news items were replaced by other events, such as what happened in Charlottesville. The week ended on the news that White House chief strategist Bannon was let go.

 

Even in the US dollar index, the lack of direction and follow through was noticeable. It started the week with a rally, but couldn’t really keep the gains during the second part of the week. While it did end the week higher, it was only marginally and marked with many ups and downs.

 

Forex weekly outlook

 

The tensions between the US and North-Korea cooled down a little bit, which made gold go down again. However, in the middle of last week, it shot back up to levels that were pretty much the same as where it started. As with the DXY, we could see gold ranging without any clear direction.

 

As I’ve already talked about crude oil before, let’s skip this here and instead refer to the beginning of this outlook.

 

 

The upcoming week

 

The big-ticket items for the upcoming week are the US home sales data and a few central bank speeches. Additionally, we have the Jackson Hole Symposium from Thursday to Saturday. While there are no official speeches planned, it’s not unusual to get some information about central bank policy or other economic news from it so it’s definitely something to keep in mind. Other than that, we have a number of usual news releases, most of which are in the second half of the week. Here is the overview of next week:

 

  • Monday: nothing of importance
  • Tuesday: EUR German ZEW Economic Sentiment, CAD (Core) Retail Sales
  • Wednesday: EUR ECB Draghi speaks, EUR German Manufacturing PMI, USD FOMC Kaplan speaks, USD New Home Sales, USD Crude Oil Inventories
  • Thursday: GBP GDP, USD Existing Home Sales
  • Friday: EUR German GDP, EUR German Ifo Business Climate, USD Core Durable Goods Orders, USD Fed Chair Yellen speaks, EUR ECB Draghi speaks

 

For this weekly forex outlook, I’m keeping an eye on the following pairs:

 

Follow my published ideas on TradingView.

 

 

EURAUD

 

The first pair I have on my list is the EURAUD on the daily charts. It’s an interesting and a bit unusual setup. This pair has been in a downwards channel, but popped out of it last week before a strong bearish move to keep the pair back into the channel. Right now, it’s battling a bit with a local support level (indicated by the blue rectangle on the charts) and making a run at the upper boundary of that channel.

 

That large, bearish bar means something, though. It could go the other way, but what I’m looking for is for the price to move below that blue zone. If it can break that to the downside convincingly, I bet we might see further downside action as the price will move towards the lower boundary again. Of course, if the price breaks out to the upside, there’s no trade for me.

 

My price alert is set at 1.48000. Once that level is hit, I will reevaluate this setup for a potential trade.

 

EURAUD

 

 

EURGBP

 

The next one is EURGBP on the 4H. This one has been rallying in some form or another for a long, long time now. They say that the price will rally longer than you can stay solvent, but I can stay patient and wait until it turns! We’ve been seeing some slow down in the way the price moves up and while the current price action shows another push into the highs, I’d be interested to see if it can keep up the pace.

 

We can see the RSI diverging slowly in the past week. This pair is so overextended that it’s not pretty anymore. And the measure here isn’t the moving average, but a trend line that fits nicely along some of the previous swing lows.

 

So my plan of action is as follows: I want to first see the price break the trend line. Additionally, I want to see the price break horizontal support-turned-resistance, with the price alert set at 0.91000. If and when both actually occur, magic might happen.

 

EURGBP

 

 

GBPUSD

 

The third setup is a classic multi-bottom reversal setup. GBPUSD on the 4H charts shows everything we need to see in a reversal: a long downtrend that is overextended, RSI divergence in the ranging phase and a triple (or even quadruple?) bottom with a nice pin bar rejection that happened only recently. This is a strong support level and the price might definitely make a move to the highs again.

 

The local resistance level is also relatively clean, I’ve indicated it using the blue rectangle above the current price action. The plan is simple: if the price breaks and closes above that level convincingly, then I take a position. The price alert is set at 1.29200.

 

GBPUSD

 

 

USDSEK

 

Finally, we have a nice play on the USDSEK daily charts. After a very clean and well-paced downtrend, we can see that the pair is bottoming out at a previous support level. The price is still making lower highs, but the lows are staying horizontal right now. This is the first sign that a reversal might be happening.

 

Of course, the price might break down and go lower too, but then we do nothing. However, if the price manages to break above 8.18000, there might be a trade waiting for us!

 

USDSEK

 

 

Good luck trading!

 

What setups are you looking at? Share your thoughts in the comments!

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Felix

I'm a full-time, independent forex trader. I've been trading for over 10 years and specialise in reversal trading, trading psychology, algorithmic trading and coaching others. When I'm not trading, I'll either be travelling the world or rock climbing (likely both). Read my story here.