Hi traders, I’m back with a preview of what I’m looking at for the upcoming week. The past couple of weeks has been good for reversal traders! Plenty of reversals materialised, often with very classic rounding tops and bottoms and clean retests to well-defined levels. Additionally, the WhaM strategy has also produced a couple of nice setups, one of which I’ll highlight in our past week review.
Let’s have a look at the overall market last week. The US dollar pretty much ended where it started. It did so, but not without a big swing up and down! After better than expected PPI numbers and a speech from Fed chair Yellen, the dollar rallied strongly. However, it found a (double) top on the next day and sold off quite a bit, only to regain some of the losses on Friday.
Gold shows us the opposite picture, with the market initially in a risk-off mode, where gold took a dive. Those losses were quickly recovered though and gold closed the week for a small gain.
Finally, oil sends us mixed signals. This week showed us disappointing crude oil inventory numbers, but then again the oil producing nations seem to hold their end of the production cut quite well, so the price is bouncing around.
Past week trade review
In this week’s trade review, I want to highlight two trades. On one, I took a small loss and one was a win.
As mentioned in my weekly forex outlook, I was interested in AUDCAD once price would be able to break the 1.0000 psychological level. It did, so I put a pending order at a resistance-turned-support-turned-resistance (phew!) level where I thought there would be a high likelihood of a retest.
Price did indeed retest the level, but after an initial drive down, I noticed too much bullishness and after a larger green candle, I decided to close the trade for -0.3R. During a retest entry, I usually want to see a good momentum push in my direction. If this doesn’t happen, I will often get out of the trade quickly.
This eventually was the right decision, as price made a run at the highs again and this would’ve taken out my stop. Price action is a bit messier right now, so I’m staying out of this pair until I can see a clearer picture of the market direction. Losses are part of the game, though, and cutting them quickly makes sure that once one of my setups plays out, it will more than make up for the smaller loss.
This is a WhaM setup I didn’t put on my watchlist (as my weekly outlook is just a selection of the trades I’m looking at). However, on Friday I put the following on twitter:
— Felix De Vliegher (@smartfxlearning) February 17, 2017
After I spotted the W pattern, I put a pending buy around the nose of the W, with a stop loss just below the pattern and a take profit for a 1:1 R:R. Because of disappointing UK retail sales, my entry got triggered in the afternoon.
This was a bread and butter WhaM setup and it didn’t take long for this pattern to actually play out. My take profit was hit after a couple of hours:
The upcoming week
Now for the upcoming week! On Monday, markets will be closed in the US for Presidents’ day, so expect less (or more unpredictable) price movement. Other than that, there are the usual economic news items with some FOMC speeches and meeting minutes, RBA meeting minutes and more. Wednesday seems to be the busiest day of the week.
Noteworthy economic news for this week is:
- Monday: US holiday
- Tuesday: RBA meeting minutes, German manufacturing PMI, FOMC speeches
- Wednesday: UK GDP, EU CPI, CAD retail sales, US existing home sales and FOMC meeting minutes
- Thursday: German GDP, RBA’s Lowe speech
- Friday: CAD CPI, US new home sales
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
AUDCHF is the first pair I would like to discuss, mainly since it’s at such an interesting level. I had to use the weekly chart (left) to make the level visible, but the price has recently run up to a huge support-turned-resistance level that has not been tested for a long time.
The reaction didn’t take long. Price immediately sold off, which resulted in a nice engulfing candle on the daily. But the confluence doesn’t stop there. If we draw a trend line on the 4H, we can see that it has been broken on Friday. I’ve used the Fibonacci extension tool to find that price has reached the 161.8% level, with a spike to the 176.4% level. This indicates that the trend has been going for a while and is quite overextended. The 4H also shows a pin bar at the top.
Because this is such an obvious level, the price has made a strong reaction, but it’s also likely that it will try to make another run at the level too. On the retest (which is already happening), I’m going to look for clear clues that momentum has shifted and will continue to the downside, before getting in.
This is a classic double bottom at a support level, so makes for an excellent candidate in our WhaM system. The W-pattern has just been formed, but it’s likely that a retest will happen somewhere early next week. The nose of the pattern is a little less pronounced that what we have seen last week (with EURNZD), but is nevertheless a pattern worth taking since the “legs” of the pattern are quite strong.
EURAUD is one of those typical major support plays. Again, I had to look at the weekly chart (left) to find that price has just approached a very strong support level, which hasn’t been tested for a long time. Every time the price tested this level, there was always quite a strong reaction to the upside.
On the 4H, we can see that a double bottom was created (which was actually a perfect WhaM pattern – one of the other trades I took last week). Price quickly moved higher but has now found a bit of temporary resistance. I think it’s possible that the middle of the double bottom will be tested again, so I’m waiting for the price to approach this level.
As with AUDCHF, a major support level like this is likely to be tested multiple times. It is up to the trader to take care when taking a setup to see that momentum is on its side.
The last setup is one I’ve been eyeing for a couple of weeks now. On the daily, silver has been trading in a downwards channel for some months now. For the first time in quite a while, it is now approaching the top range of the channel and it has been trending for a long time now.
The classical signs of an early reversal are there: overextended trend and RSI divergence at the last couple of swings. We can also see more and more attempts to push the price down recently, with multiple “almost” breakouts to the downside and pin bars visible. However, the trend line is still intact. I will, therefore, wait for two things: a convincing break of the trend line and at the same time, a break of the support-turned-resistance level (indicated as the green zone).
When both have happened, the price will have made lower lows and have shown a clear push down. However, silver is one of the pairs that is driven as well by many fundamental factors, so patience is key here.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
Risk disclaimer: The information presented on Smart Forex Learning is for educational and entertainment purposes only. Nothing on this website serves as investment advice or recommendations. Trading is risky and you can lose more than your initial investment. Smart Forex Learning cannot be held responsible for any decisions visitors make. Please consult a financial advisor before making any investment decisions.