Good morning traders! Another trading week has passed and now is the time to look at the opportunities for the upcoming week. My reversal system had a bit of a hard time this week, with a lot of really nice reversal setups without follow through. I’ve had 4 trades that I basically had to cut off around break-even because nothing was happening! Luckily, some of my other systems made more than up for it so it was a good week after all.
In the current market environment, I found this quote by Hedge Fund Market Wizard Larry Benedict very fitting and one of the best pieces of advice you can give any trader (it’s a coincidence that I’m just reading this book):
News-wise, the French election outcome was largely managed well by the market and the Euro sold off after the news in a classic “buy the rumour, sell the news” type of event. The Euro was being bought for a very long time already, so some pressure on the sell-side was to be expected, as I predicted before the election:
— Felix De Vliegher (@smartfxlearning) May 6, 2017
Last week’s market did set us up with quite some good opportunities for next week, so we’ll go over that in a minute. If you want to keep up to date on setups during the week, have a look at my TradingView page. During the week, I will often publish a chart setup over there as well if I think it’s worth looking at.
Current market behaviour
Other than the French election aftermath, we had a relatively quiet week with Thursday and Friday being the exception. Things stayed pretty quiet on the world news front, only with some events that knew to make the price move in a sustained way (the New Zealand RBNZ interest rate statement comes to mind), but nothing too serious.
As the dollar broke below a longer-term trendline at the end of last week, I kind of expected that trend to continue into this week with more dollar selling. Instead, the dollar bounced back up for the most part of last week on the good economic news, only to take a dive down on Friday on disappointing CPI and retail sales data.
Gold gapped lower at the beginning of the week but quickly recovered. However, that move up was short-lived as money was flowing to risk-on assets. In the second half of the week, gold seemed to put in a double bottom and is now moving back up. Gold is one of the commodities I’m keeping an eye on for this week since it has shown potential to make a reversal soon.
Finally, oil posted good inventory numbers, which made the price go up for most of the week. Same as with oil, I could see a reversal in oil coming up and will keep an eye on the USDWTI chart for next week.
Past week trade review
In this week’s trade review, I want to highlight a short trade I took on AUDCHF 1H.
AUDCHF 1H long
As we discussed last week, there was a long setup on the 1H AUDCHF charts. This is how it looked last week:
Price indeed reacted to the strong support level, but initially moved a bit lower again on Monday. I decided to wait until the price broke the previous local high convincingly but once it did, I got in a long position.
And it wasn’t a quiet ride up, to be honest! If not for the fact that I was away from my computer on Tuesday, I would have probably closed the trade for a small profit. But I stayed in and only noticed in the evening that the price retested the local high in a common break-and-retest pattern.
Half-way the week, I noticed that on the higher time-frame, there was a large downwards trend going on (see the downwards trendline below) so I modified my initial profit target to the first level where I could see some resistance, which in hindsight was pretty well timed as the price bounced off this level and the trend line!
This and a pin and drive short on EURNOK were pretty much my only reversal trades that worked out this week, which goes to show that it’s not always easy goings. As a trader, you’ll hit road bumps and periods with less profitable setups. It is what it is!
The upcoming week
News-wise, there’s nothing out of the ordinary this week. Here are the highlights:
- Monday: NZD retail sales, AUD RBA meeting minutes
- Tuesday: GBP CPI, EUR German ZEW economic sentiment, USD building permits
- Wednesday: GBP Average Earnings Index + bonus, GBP Claimant count change, EUR CPI, USD Crude oil inventories
- Thursday: JPY GDP, AUD employment change, GBP retail sales, USD Philadelphia Fed manufacturing index
- Friday: CAD Core CPI, CAD Core retail sales
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
We’re back with AUDCHF! Last week gave us a nice trade on the 1H and this week, we’re back for a short trade on the 4H. If you look at the chart shot below, you can see that the pair has been in a longer-term downtrend for a while now. The price reached a bottom last week and shot up, but slowed down and sharply reversed at the end of the week when it reached the downwards sloping trendline. This gave us a large engulfing candle on the daily.
The play I’m going to be waiting for is a retracement entry. You can see the thin horizontal rectangle, which used to be a support previously. Now price broke this level, but I wouldn’t be surprised if it will do a retest on Monday. It is when we have a confirmed retest that I’ll start to be interested.
For now, I have a price alert at around 0.74100. If that triggers, I’ll wait until the price moves lower, which would make this a confirmed retest. This way, I’ll be riding the overall trend down. As they say: always go with the trend. Even as reversal traders, we can do this!
EURJPY, on the other hand, is a classic reversal play. The pair has reached a trend top last week and is now hovering around a resistance-turned-support level. We can see that we have been trending up for a while now, with the trend being in the overextended territory. Other tell-tale signs of a reversal are RSI divergence and stronger bearish bars with smaller bullish bars in between.
We need a push lower, however. This would be an excellent candidate for a pin and drive entry, but we can never know this in advance. At the very least, I’d like to see a momentum push down, preferably below the 123.000 level. Plenty of downside potential if it manages to break this level.
We have another JPY pair, this time featuring the British pound. In the second part of last week, we could see a strong sell-off in the pound on disappointing economic numbers. This might be the trigger for this pair to move lower in the next week.
As always, we can see a long uptrend that just touched the 261.80% Fibonacci extension level, which means a reversal might be due soon. Additionally, we could see a double top at a resistance level that is a very strong previous swing high.
Two plays are possible: a retest of previous resistance and move down, or an immediate break lower. I’d keep my eye out on how London opens on Monday to see if the sell-off will continue or not. Price alerts are set at 145.600, now we wait.
I’ve been looking at XAGUSD for weeks now. It’s one of those pairs that tests your patience, but at the same time keeps getting prettier and prettier. It seems that a reversal has finally been set in motion last week, but there wasn’t a lot of momentum yet that gave me the confidence to take a position in this setup yet. This might, however, change in the upcoming week.
Technically, this is a textbook setup. Prolonged downtrend where price respected the moving average beautifully. It found support at the combination of an upsloping trendline (easier to see on the daily chart) and a previous swing low. I’d prefer to see a strong break above 16.500, which is where I have my alert set.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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