Hi traders, good morning and good weekend! How was your trading week? For me, the past week was relatively uneventful and with many setups lacking a bit of follow through. Most of the setup in last week’s outlook didn’t materialise, which means that I didn’t take any position in them. Instead, there were a couple of other opportunities that came along as the week went by, still good for some nice trades. We’ll go over one of them in a moment.
On a personal note: I decided to extend my stay in Tokyo for another month as I’m having a great time here. The Japanese culture and big city life agrees with me! It reminds me of my time in London. By the way: did I already tell you how crazy good the sushi is around here? 😉
Some interesting events were crude oil selling off, regardless of better than expected oil inventory data and the recent developments with the UK starting the Brexit negotiations. Not too much has happened otherwise, so let’s not linger too long and have a look at the big picture, before diving into the outlook for next week.
Current market behaviour
The peak in the DXY can be largely explained from the economic news releases. We had good current account and existing home sales data, which accounted for most of the uptrend in the dollar. However, things changed in the second part of the week with disappointing PMI data and new home sales data that was below expectations. It resulted in a sell-off for the index that lasted until the end of the week. The dollar index ended the week only slightly higher because of this.
For gold, the inverse was true. There was actually a very nice reversal trade possible on gold, since it printed a triple bottom, followed by a breakout, retest and further rally. This was combined with clean charts and good price action, which made for a nice trading opportunity, as you can see from the chart below:
Finally, oil just can’t seem to get a break. Even on good inventory numbers, the pair just kept on selling off. Of course, this has to do with Libya indicating that they’ll produce more oil and a number of other reasons, such as oil tankers in the North Sea that are used to store oil that won’t be sold for now.
Even though the bottom has been called multiple times and at $42, there’s also a technical argument for oil to go up, we could only see moderate gains in the second part of the week. Overall, crude still ended the week sharply lower, as it did for the past couple of weeks.
This week, I’m going to have a look at a trade I took on the AUDCHF 4H chart. Here’s a chart shot:
I closed this trade for around a 1R profit. I was planning for 2R but over the years, I’ve adopted a “rules-based discretionary” approach, which means that while my basic trade setups and exits are rule-based, I will definitely trust my gut feeling in certain situations. This was one of those situations.
First, let’s talk about the setup itself. This is a classic double top reversal after a reasonably long uptrend. As the two tops were formed, I was waiting for two things to happen: the price needed to break through the neckline support area and it needed to break through the trendline as well. When it did, I took a position with a stop loss around the moving average and the take profit at the base of the latest move, which was a demand zone as well. I also marked up an additional zone where I could see potential support before my profit target was hit.
This trade initially went without too many issues. It never had a strong break down (which was a theme for this week, even the best setups moved along relatively slowly), but it did move my way. When it reached the potential support zone, I let it discover the zone a bit but eventually decided to cut the trade because it couldn’t break through. Price afterwards shot up and partially came back down during Friday trading.
Trades like this show that it’s not always about the big winners and if you see that the momentum is fading, the best option might sometimes be to take your profits.
The upcoming week
We continue the trend of low-news weeks this week as well. Highlights are GDP data from the USD, GBP and Canada. Here is the overview of next week:
- Monday: EUR German Ifo Business Climate, USD Core Durable Goods Orders
- Tuesday: NZD Trade Balance, USD CB Consumer Confidence
- Wednesday: USD Pending Home Sales, USD Crude Oil Inventories
- Thursday: JPY Retail Sales, USD GDP, USD Initial Jobless Claims
- Friday: EUR German Unemployment data, GBP GDP, EUR CPI, CAD GDP
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
The first setup is a little 1H buy setup on the Aussie-kiwi. I hoped that this pair would’ve moved up last week but that didn’t happen and it tested the lows of the support zone again. What we can see, is that there’s a very distinct pattern around those lows: you can see one or two strong green bars up, with many small bearish bars in between. This indicates that the upwards momentum is much stronger than any forces pushing down.
And still, the price hasn’t been able to make any significant highs again. There is a resistance zone that I want to see broken before I get interested in taking a position. If it does so with enough momentum, then I believe that this setup might give us a nice rally until the next resistance zone (blue bar at the top). My price alert is at 1.0400.
This is a setup on a higher timeframe, being the 4H charts. How I interpret this pair is that it is currently bouncing up and down in a channel (see the upwards sloping lines above and below). When the price touched the top of that channel, it sold off pretty strongly. This could’ve already been a decent trade, but better than expected retail sales numbers for Canada made the price bounce up again.
Since then, it has slightly moved down again and after a nice uptrend with multiple clear price swings, you’d expect that the pair attempts to move back to the lower end of the channel. The trend has reached the 200.0% Fibonacci extension as well. There is a very nice resistance-turned-support zone that I’ve marked with the blue rectangle and that’s pretty much the key point I want to see broken. My price alert is at 83.350. Until then, we wait!
Next up is a bit of a different setup. We’re looking at the EURCHF on the daily chart and there are a couple of things I want to bring to your attention:
- the price has been making lower highs and lower lows for some time again
- the support zone I marked was broken on Thursday, but price shot back up on Friday
- there’s a huge gap (orange rectangle) and gaps often want to be filled
Given these observations, this setup interests me. We broke the support but the price action on Friday was a bit inconclusive. What I am waiting for, is another break of the lows and then, I think there’s a fair chance that the price will try to close that gap.
Pattern traders will also recognise a descending triangle here, with the breakout on Thursday. If the price moves down again, we can regard Friday as a retest of the base of the pattern, with more downside possible.
Finally, a nice setup on the 4H charts of EURNZD. This pair has been in a downtrend for as long as I can remember! Ok maybe not, but it has still gone down continuously since the high of mid-May. When you look at the RSI indicator, though, it doesn’t agree with the downtrend. There’s a very clear RSI divergence in the past couple of swings that indicate to me that the price might suddenly reverse course and that’s what we’re waiting for.
As price does in trending markets, we can see a nice support-turned-resistance level, marked in blue. This is the level I have my eyes on, with a price alert set at 1.54600. If it manages to break this level convincingly, I’ll be interested to take a position.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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