Hi traders, I’m back with another weekly outlook! Lots of nice setups lining up for next week so even though the weekend has just started, I’m already looking forward to next week. Last week, I moved to a new place (in Brussels), so I was a little busier than usual, but it was an interesting week nonetheless.
Current market behaviour
A general observation is that the markets seem to be more skittish than usual, mainly fuelled by various fundamental factors in the world right now. Just yesterday (Friday), we could see the euro taking off on news about an early poll on the French election. Tuesday was focussed on the Trump speech to congress, which was the first time president Trump gave such a long speech since the inauguration. Markets were hoping for some details on the proposed tax cuts and infrastructure spending, but Trump was remarkably vague on details. In all, it was a rather uneventful speech and a rehash of the promises he made during his presidential campaign.
Let’s have a look at the overall market last week. The dollar initially surged on hints by Fed officials that a March rate hike would be likely. In the second part of the week, it made a market top and seems to have set in a downtrend. Even though almost every Fed official including Yellen indicated that a March rate hike was on the table and that the US economy had met Fed objectives, the DXY ended the week little changed. This could indicate that the rate hike was already largely priced in and the market was more focussed on other, mixed economic news.
Gold has ended the week quite a bit lower, continuing the downtrend initiated by the double top from last week. Even though the dollar was down for the second part of the week, the market seems to believe in dollar strength. This risk-on environment is the likely reason gold is selling off.
Finally, oil has moved down for the week. Better than expected crude oil inventories couldn’t prevent the commodity to sell off, but it rebounded near the second part of the week to around 53.20 a barrel.
Past week trade review
In this week’s trade review, I want to highlight a trade I took on NZDCHF.
Even at the beginning of last week, we could already make a couple of observations. The week before, the price had been in an uptrend, but you could clearly see that the steepness of the trend was getting less and less. At the top, there was a very strong RSI divergence visible and some back and forth fights between sellers and buyers. A very nice pin bar was also formed. This more or less initiated the further move down.
I was patiently waiting for a couple of things: first, I wanted to see the price break and close below the trend line. This happened at the end of last week, with a very strong momentum candle to the downside. Secondly, the trend was overextended. If you place a Fibonacci extension tool on the uptrend, you would be able to see that price had reached the 200% extension level. Another clue. As previously mentioned, there was RSI divergence and the pin bar, indicating strong rejection of higher price levels.
After price broke the trendline and horizontal support, I will usually wait for a retracement, especially if the move is so strong. I put my entry at the same horizontal support level that would now turn into resistance and waited. The price indeed reached this level and eventually moved down.
This is a classical pattern that is repeated in the markets over and over again, and as a reversal trader, it’s important to put all the clues together to form a complete picture of what is going on. This allows us to make informed, high-probability decisions.
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The upcoming week
Now for the upcoming week! It’s a relatively news-light week, with the exception of interest rate decisions for the Australian and European central banks and Friday, which has the US NFP release.
Noteworthy economic news for this week is:
- Monday: AUD retail sales
- Tuesday: AUD RBA interest rate decision, CAD Ivey PMI
- Wednesday: JPY GDP, US ADP non-farm employment change
- Thursday: EU ECB interest rate decision + ECB press conference
- Friday: UK manufacturing production + US NFP and employment numbers
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
EURGBP is at an interesting level at the moment. If you look on the daily, you can see that there is a descending trend that has been tested a couple of times before. At the same time, we can see that there is a similar upwards trendline at the bottom of the structure, so the price seems to be in a longer term wedge pattern.
Nevertheless, there are opportunities on smaller time frames. On the 60 minute chart, we can see that the price has been in an uptrend for quite a while. The trend is already overextended and now, the price has reached the top end of the downwards trendline. An initial reaction has already happened, but the price has made a move to the highs again.
What I’m looking for, is a strong push down, with a break and close below the trendline on the 1H chart. If we can make lower lows and see a clear shift in trend direction, I will be looking for a retracement of that move to get in a a good price level.
GBPCHF has been in something of a range on the daily, and this is also visible when we look at the 4H charts. There was a very nice reversal at the top of the range and now, the price has reached the lower end of that range again. An initial strong reaction could be seen, but it’s still too early to get in.
What I am hoping to see is another push to the lows, creating something of a double bottom or even a head and shoulders pattern. Then, when the price has reversed clearly, I’ll be looking for a retracement of new highs to get in.
Note that this is quite correlated with the EURGBP pair I described earlier. Both have the GBP as one of the currencies and the other currency is in both cases a correlated pair. It is also likely a pair that would see the influence of potential news about the French elections, so keep this in mind.
NZDUSD has given us really nice reversal opportunities recently. On the daily (left), we can see that the pair is in a larger timeframe uptrend, but currently moving to the lower end of this uptrend, which coincides with a support level of a previous swing low.
Price was moving down quite strongly for the past few days so if this pair reverses, it’s still in very early stages. The initial reaction is hopeful, though. A strong move up, which resulted in a nice pin bar on the daily chart. As the move down is so strong, I will need much more confirmation and will look for a momentum shift to the upside, but the confluence at this level is certainly interesting.
There currently is a general bullishness for the USD. Economic news has been good for the past time and there is a high likelihood that the Fed will raise rates soon. These are all indications that the USD might move higher, but this is a setup that favours a more bearish USD. It is therefore important to keep an eye on US economic news and the DXY to guage how likely a push further down would be.
As the last pair, I’m looking at USDCAD. It has some similarities with the NZDUSD setup I described above. The pair is in a longer-term downtrend and price is at the confluence level of a previous support zone and the upper end of the downwards trendline.
Even though the uptrend on the 4H is strong, we can already see some rounding behaviour, which is typical for a reversal. The price reacted strongly on the trendline and it will be interesting to see if the trend will hold or not. I need to see a further push down in order to become interested, but the area is interesting.
As with the NZDUSD setup, this is a setup that counts on the USD moving lower. Keep this in mind if you decide to make trades involving the USD.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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