Hi traders, hope you had a good week! There were definitely some nice setups in the market last week. Especially the EURAUD and AUDUSD reversals gave us some good opportunities to get into the market. News-wise, last week was relatively quiet. As it is the weekend again, I’m going through my routine of analysing the markets and selecting the best setups for the upcoming week.
But first, a short overview of what happened last week. The dollar sold off a bit more and it seems that a reversal of some sorts has finally set in (although it’s quite early to tell, it might still reverse to the upside again!). As the USD and Gold are inversely correlated, we could see a push higher for gold. Oil moved a bit lower.
The upcoming week
The upcoming week has two special events that should be on your radar. The first one is the world economic forum in Davos, on January 17-20. It’s basically a 4-day long Swiss Alps retreat for the “who’s who” of world leaders. At Davos, topics such as economic growth, global warming and world instability are discussed. It’s good to keep an eye on since special announcements are sometimes made during this event.
The second event to mark in your calendars is the presidential inauguration of president-elect Trump, which happens on the 20th. Trump will give a speech at the inauguration, which is always a risky event these days!
Other than these two, there are the usual economic news events. Noteworthy economic news for this week is:
- Monday: UK BoE gov. Carney speech
- Tuesday: Start of the Davos party, AU home loans, UK CPI
- Wednesday: EU CPI, US CPI, BoC interest rates, US Fed Yellen speech
- Thursday: AU unemployment, EU ECB interest rates, US housing and jobless claims, EU ECB monetary policy statement
- Friday: US Fed Yellen speech (again!), CNY GDP
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
Let’s start off with the aussie! As you can see on the daily chart (left), the price has just reached a major area of resistance. The interesting thing is that last time price was in this area, it sold off very strongly, so there must still be quite some supply left in this area. The first signs of this are already visible from the long wicks we can see in the last two daily candles. It seems that they’re testing the level but for now, buyers remain in control.
If we move to the 4H chart, we can see that this pair has been in an uptrend for quite some time and is close to being overextended. On Friday, we could already see a strong move down, but buyers pushed price back up. Even though this was a failed attempt, it’s a signal that the balance between buyers and sellers is shifting.
It’s still too early to enter, though. What I would like to see before thinking about entering this setup is firstly a break of the upwards trend line. Secondly, I would like to see price break and close below the green zone. If that happens, there is relatively little in the way of price moving down further, with a potential split of first and second take profit levels as indicated on the 4H chart. As this move expects strength of the USD, keep an eye on the DXY too.
The reversal in CHFJPY is already in progress. I took a trade on this pair last week, but there’s still plenty of downside potential left. If we look at the daily chart, the triple top pattern jumps out immediately. Trend structure is quite nice and after a long uptrend, it has broken our moving average, which signals the reversal.
On the 4 hour chart, we can see that price has started making lower lows and lower highs. It met with some resistance around the 113 round number level, but the reversal still seems intact. I’m going to wait until the price closes below the 113 level before entering again, but from there on, we can see plenty of downside potential.
The EURGBP setup is a trend line play. On the daily (left), we can see that price is approaching the downwards pointing trend line. At the same time, this level is a resistance level of a previous swing high. Around this area, we can see two pin bars, signalling some resistance because the sellers are stepping in. The current uptrend has been going for some time, so it’s interesting enough to look in some more detail.
When we move to the 4H chart, we see a clear decrease of trend strength. This is visible in the price action, but as expected we can also see strong RSI divergence. Even on the 4H, the pin bars are clearly noticeable, testing the resistance level. If we draw a Fibonacci retracement from the last swing high to the last swing low, the current level exactly matches the 61.80% level! That’s a whole lot of confluence for a single setup, so let’s see what price will actually do on Monday.
The current setup in gold indicates to me that a break and retest scenario might unfold. As you can see on the daily, price broke a swing low support level a while ago, moved lower and is now back at this level. Since the break, price hasn’t touched the support-turned-resistance level, which is always a good sign.
Zooming in on the 4H, we can see that, while the uptrend is still intact, the pair has tried to move lower on two separate occasions. This resulted in pin bars with long wicks, which might be a first indication that a reversal is in the making. This setup is too early to call right now, though. I would first want to see price move lower and close below the 1189 level (indicated with a black horizontal line).
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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