And another month has passed! This was a month with low volatility due to summer holidays, not too much economic data releases but many surprising central bank-related events. Nevertheless, there were still plenty of good trades to be made. How did you do this month?
Last week also had quite a few interesting opportunities and the trade setups from our l watchlist got some good follow-through. I’m going to discuss one of these trade setups in a moment: the EURNZD 4H long. It’s worth noting that while two of the setups of last week never got triggered (so no money lost either), the AUDNZD 1H long was another nice opportunity to make some pips!
This is the power of setups like this: there is always a level that should be broken before I consider entering a trade. In my weekly outlooks, not all of the setups will always break this level and materialise, but that’s not necessary either. When two of the four setups actually work out (like last week), it’s already plenty to have a successful trading week. Of course, patience is the name of the game and most of the time, we just wait until the price does what we want it to do!
Current market behaviour
This week, we could see some consistent behaviour in the dollar. The DXY sold off pretty much for the entire week due to other currencies rising in value and mixed but overall disappointing data. It’s surprising how Yellen still upholds a strong view of the economy while data is giving us a different point of view. About two months ago, I published a longer-term view on the dollar index on TradingView. It turned out to be pretty accurate as we continue to see a weaker dollar:
Gold, on the other hand, was just unpredictable this week. It started off on Monday with a “flash crash”, potentially caused by a fat finger and/or algos. The result was a strong sell-off in the bullion, which only partially saw a rebound.
It continued the week with relatively erratic price movements, which were largely caused by investors trying to gauge what the central bankers at the ECB Forum On Central Banking were up to. Apparently, the markets were misjudging the EBC’s statements a bit and some central bankers change from dovish to hawkish in an instant.
Oil, on the other hand, finally found a bottom and started to move up again. Crude moved up for the entire week after finding support around the $42 level. After weeks of selling off, this is the rally many traders were looking for and the black gold ended the week strongly up.
This week, I’m going to have a look at a trade on the EURNZD 4H chart, which was one of the setups I discussed in last week’s outlook. Here’s a chart shot:
Without a doubt, this was the trade of the week for me. There was a lot going for this setup: first, we could see a long downtrend with pretty clean price action. That downtrend was flattening out, though, and it happened right at a pretty strong trendline, which is easier to see on the daily charts:
First, we could see a spike down, followed by a strong move upwards. People reading my site will recognise this as a very strong pin and drive entry trigger. However, I was close to going to bed before that drive candle was fully formed, so I entered a bit early. The big spike gave me the confidence that this move up would be sustained. Of course, you never know, but this setup had all the signs of a very strong reversal.
The stop loss was a bit below the moving average and I had put the profit target just below the blue rectangle. On the daily chart, you can see that this level coincided with a previous swing low, so I expected some sellers to step in around this area. The move up was swift, without too many resistance on the way and the profit target was hit pretty quickly for a close to 4R profit.
Not every week, setups like this will happen. This is pretty much the ideal scenario and often, we will have setups with less follow-through or setups that simply don’t work out yet. It’s our task as traders to protect our capital during those times in order to fully profit from the times like this when everything lines up perfectly.
To everyone who took this setup and got some profit: well done! 🙂
The upcoming week
As the volatility picked up at the end of last week, we go into the upcoming week with a few holidays. There’s Canada day on Monday and the 4th of July is Independence day in the USA, which means that the markets will close early on Monday at 13:00h and are closed throughout Tuesday.
But the news is still picking up this week, with many countries releasing PMI data and the US has NFP on Friday. It’ll be a moderately busy week, so keep an eye on the economic calendar as you trade! Here is the overview of next week:
- Monday: USD early close and CAD holiday, JPY Tankan Large (Non-)Manufacturers Index, EUR German Manufacturing PMI, GBP Manufacturing PMI, USD ISM Manufacturing PMI
- Tuesday: USD Independence Day, AUD Retail Sales, AUD RBA Interest Rate Decision, GBP Construction PMI
- Wednesday: GBP Services PMI, USD FOMC Meeting Minutes
- Thursday: USD ADP Nonfarm Employment Change, USD ISM Non-Manufacturing PMI, USD Crude Oil Inventories
- Friday: CHF Unemployment Rate, GBP Manufacturing Production, USD Nonfarm Payrolls + Unemployment Rate, CAD Unemployment Change, CAD Ivey PMI
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
To start this week off with, we have a short-term setup for AUDUSD on the 1H charts. What I like about this setup is the trend structure near the top: small bullish candles crawling up and then – BAM – a large red candle to push things down again. If the pair moves down next week, a nice head and shoulders pattern will also have formed.
With a rounding top reversal like this in the making (see the curve on the moving average), it’s obvious that we also have RSI divergence and if you measure the Fibonacci extension levels from the base of this uptrend, you’ll see that the high of last week exactly matches up with the 200.0% extension level.
So, there’s a riskier entry and a safer but later entry on this setup. The riskier setup is to enter after we see a strong momentum candle to the downside that manages to break the blue zone, at least around the 0.76700 area. A safer entry would be to wait until an obvious local support has also been broken around the 0.76550 level. A good approach here might be to stack the trades and start out with a partial position, increasing it when the price manages to break the local support.
This is probably my favourite setup for next week! And it has been on my radar for quite a while now, but a lot of patience was required to get to the setup I like. We have the EURGBP on the daily charts and this pair has been in an uptrend since mid-April.
The confluence on this setup is something to be aware of. We are at a very strong resistance level: not only was it a major high at the beginning of the year, but at the beginning of last month, we’ve tested this level as well. This resulted in a beautiful double top structure.
Now, the price is starting to move down. For the first time, we are crossing the 20 moving average on what is a very strong Friday close. Obviously, we also have RSI divergence. For this setup, I want to see how it opens on Monday. On a strong Monday opening, I might take a position immediately, but if it gaps up, I might take a more cautious approach. But right now, this setup is looking good and while we can never predict, everything lines up for this one to go down.
Another daily setup! This pair has an even better trend structure than the EURGBP setup but again, patience was required to let this develop. Right now, the price is at an obvious resistance zone formed by the previous swing high. There have been attempts to push the price down, but none so far have succeeded.
So som more patience is required 🙂 There is a local support (the small blue rectangle) that I want to see broken to the downside, with my price alert set at 0.72600. It might not all be plain sailing from there on since the up-and-down price action of the past weeks has resulted in plenty of structure that can hinder a smooth way down. I would especially keep a close eye on the 0.72100 level but if it manages to break that, there’s plenty of downside possible.
The last setup is not our traditional reversal setup, but I found it very interesting nonetheless. On the daily chart (left), we can see that the price is in a large converging triangle, with the price action of last week touching the upper boundary of that triangle and selling off like there’s no tomorrow!
That caught my eye. The downwards move did find support at an intermediate level (marked in blue on the right chart) and has since moved up a bit again. However, Friday closed with a pin bar and if we see that the sellers can regain control early next week and break the support level, I think there’s a pretty good chance that it will try to make a run at the lows of the triangle again. My price alert for this setup is at 111.850.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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