Another week has gone and we’re getting closer to the end of the year. Time flies!
The big item this week was the OPEC meeting on Wednesday. Many markets were in anticipation of a deal by the OPEC to cut oil production. The first couple of messages we got on Wednesday morning sounded hopeful, but it was still too early to tell. Later on the day, it was finally announced that an agreement was reached, and as expected the crude oil futures and CAD shot up (Canada, as one of the big oil producers of the world, benefits from an increase in the oil price).
As we speak, markets are preparing for the results of the Italian referendum on Sunday. A no vote for prime minister Matteo Renzi’s plans could potentially move the markets and bring further instability to Italy and the European markets in general. A bit of caution is therefore advised when you’re thinking of entering trades on Monday morning. Expect some volatility, gaps and sudden price moves.
The upcoming week
Noteworthy economic news for this week is:
- Sunday: Italian constitutional referendum
- Monday: UK Services PMI, US ISM Non-manufacturing PMI
- Tuesday: AUD Interest rate decision, CAD Ivey PMI, EU GDP
- Wednesday: AUD GDP, UK Manufacturing, CAD Interest rate decision, US Crude oil inventories, JPY GDP
- Thursday: EU Interest rate decision and ECB statement
- Friday: CHF Unemployment numbers, GBP consumer inflation expectation
Additionally, there is a UK government appeal against the high court ruling that MPs must vote on triggering Brexit. This will start on 5 December and will last 4 days. As with anything Brexit-related, a bit of caution is advised since the market can respond rather unexpectedly to some news (or even rumours).
I’ve also noticed that the DXY is finally starting to turn around. The 4H chart shows a head and shoulders chart pattern and RSI divergence. This means that the bullish run of the US dollar might be on its last legs and we could see a reversal soon. Of course, we might also see the USD push higher but for now, all signs are pointing to a move lower.
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
As the first pair, we’re going to have a look at AUDJPY. On the daily chart (first chart), we can see that the pair has been in an uptrend for a while now and is approaching a resistance zone. Have a good look at what price did last time it ran into that resistance: it sold off very aggressively! This is usually a good sign that this is a strong supply zone and that there are bound to be some sellers left. Price hasn’t reached the level just yet, but there’s a good chance it will during the next week.
On the 4H chart, we can see the same sustained uptrend, with the addition of a RSI divergence and a price starting to move a bit slower as it is approaching this resistance level. I’m anticipating a strong reaction once price reaches it, and will look for short opportunities as soon as the price action validates taking this setup.
However, if price were to sell off at this level, I’m probably not going to enter since a push higher might still happen and early sellers would be stopped out fairly quickly. If the price is this close to such an important level, it’s often worthwhile to just wait and let the price come to you.
EURUSD is a pair that I was already monitoring since last week. However, there hasn’t been a valid entry opportunity yet. Apart from that, this has all the signs of a classic reversal setup. Multi-wave downtrend, price reached a significant support level, RSI divergence on the last leg down, price crossing the moving average and slowly moving higher. I’m still waiting for a solid break and close of the intermediate resistance to get in.
Once this moves up, we could easily see a push to the 1.08500 level with potential second take profit levels around the previous swing high around 1.11000. Of course, we need to see the USD move further down to if this reversal is to continue and I will also see how the euro reacts to the Italian referendum on Monday.
USDCAD is a pair I’m eyeing for a while now. Partly because the technicals are interesting, but also because the fundamentals could work out very nicely as well. CAD has been bullish ever since the OPEC agreement and might continue for a while into next week. Additionally, I explained in the beginning of my weekly outlook that I can see USD finally moving lower. These two factors suggest that USDCAD might make a move to the downside.
However, the way I want to play this is to wait for a retracement to the 1.33500 level and then short, for a take profit target at the longer-term lower trend line. A safe take profit target would be around the 1.31100 level, as we’ve seen a strong reaction during the previous time price reached that level. Technically, this setup checks out as well: price was at a significant resistance level, RSI divergence, then price failed to make higher highs until we saw a breakout from the descending triangle. I could see this pair push further down, but let’s see the price action first.
USDSGD is actually a really nice example of a classic chart pattern: head and shoulders (H&S). Price is at a significant resistance level. Just as with AUDJPY, we can see a very big sell-off the last time price ran into this level. Price is also at the 200% Fibonacci extension level and as is usual with H&S, there is a very clear RSI divergence on the 4H chart.
On Friday, price just broke the neckline and there are basically two options to play this. The more aggressive way is to get in immediately and ride the trend down. A more conservative option is to wait for the retest of the neckline. This is a safer entry, but potentially price will never retrace that far and you risk missing the trade. As always, we need to look at the price action on Monday to see if it’s worth placing an order.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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