Happy Sunday, squad! How was your week? I recently decided to do some trading and travelling (’cause why not?) and have just spent my first week in Kyoto, Japan. The combination of a rich culture, beautiful weather and delicious food is really growing on me! For the next couple of months, I’ll continue to combine trading with travelling and Japan was the first on my list. If you happen to live in Kyoto or Tokyo and want to meet up for some drinks, get in touch!
Last week had some good opportunities for reversal traders but it wasn’t always as easy to trade. There are still a lot of uncertainties related to the North-Korea conflict and it was a news-heavy week with FOMC speak and an NFP release. This made some markets less predictable than usual but as traders, we have to take the market as it makes information available to us.
The most important upcoming event is the second round of the French elections on Sunday (7 May). If you remember two weeks ago, we had a big post-French election gap after the first election round that was almost ubiquitous across many Euro-related markets.
By now, Macron seems to be comfortably in the lead over Le Pen, so most of the Euro bullishness should be already priced in. I wouldn’t be surprised to see the euro sell off after the election results since a correction is long overdue and this could be a “buy the rumour, sell the news” kind of reaction.
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
The first French election round was won by Macron and Le Pen. Macron seems to be in the lead and this reassured the euro bulls that the European union wouldn’t be going away anytime soon. On the contrary, a vote for the pro-Europe Macron would mean strengthened ties with Germany and a defeat for the current populist movement.
The results set in motion a strong risk-on feeling among investors and traders, with money flowing into the euro and away from gold and the Japanese yen. Softer economic US news releases in the beginning of the week gave us some mixed signals but eventually, the dollar index sold off at end the week to end a fair bit lower.
Risk-on money flows meant that gold ended the week mainly lower. Oil was on a similar trajectory, with a spectacular 6.3% “crash” on Friday and a quick rebound afterwards. The reason for this down move is unclear, with some parties indicating technicals and others saying that demand miscalculations were at the cause.
Past week trade review
In this week’s trade review, I want to highlight a short trade I took on EURNZD 4H.
EURNZD 4H short
At the time of this trade I was basically still jetlagged, which doesn’t make for the best conditions to open a trade. However, I wanted to include it in favour of one of my winning trades anyway since it highlights the importance of cutting losers quickly.
Technically, this setup is good. We’re having a nice uptrend that had reached a longer-term support-turned-resistance level. 200% Fibonacci extension level, RSI divergence and the price action started to look nice. We could see some (but not much) momentum on this setup once price crossed the moving average and there was some decent downside potential without too many intermediate support levels, so I decided to take a small position.
Afterwards, the pair started moving lower a bit so it looked decent enough. As I was exhausted, I went to bed and got up in the morning to find my trade being stopped out for a 1R loss. Bummer! This is one of these cases when I would’ve definitely cut the trade sooner if I were awake. Alas, it happens and it’s part of the game. Not every trade, however good the setup, will always turn out to be a winner. On to the next week!
The upcoming week
It’ll be an average week, relatively quiet until Wednesday. On Thursday, we have NZD and GBP interest rate decisions and USD retail sales on Friday.
Here are the highlights:
- Tuesday: AUD retail sales, CHF unemployment rate, USD JOLTs job openings
- Wednesday: USD crude oil inventories
- Thursday: NZD RBNZ interest rates, GBP manufacturing production, GBP BoE inflation report, GBP BoE interest rates, USD PPI
- Friday: EUR German GDP, USD core CPI, USD core retail sales, USD retail sales
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
The first pair I’m looking at is AUDCHF. We first need to take a step back and look at the weekly (yes, weekly!) chart on the left. There’s a massive support level that has seen a very strong reaction from the price, every time the price moved into it. Now, this pair is testing that support level again.
Back to the 1H charts. We can see a very clean downtrend, with again a strong reaction at the support level. The trend is more than overextended and I could see the price go up from here, at least to a first resistance level about half-way. If it manages to break that, we could easily see a run to the previous highs.
The pair was taking a breather on Friday as there was a local resistance level (indicated by the blue rectangle) that it first needs to break. I have my alert a little above those highs, so if the price manages to break through it on a strong momentum push, I won’t doubt to take a position.
Next up is CHFJPY. Again, we need to take a step back to the daily chart to see the strong support where price is currently hovering at. On the 4H chart, we see a nice overextended trend up (let’s just think away that French election gap, shall we), with an initial reaction at the resistance level.
This has created a local resistance-turned-support level (blue rectangle) that I feel we need to break first, before taking a position. If it does, we could see a good move down so for now, I’m playing the patience game and wait until something happens.
The award for the most textbook setup this week goes to… <drumroll>… EURAUD! We have everything I’m usually looking for in a setup: nice trend up, reversal pattern (that nice head and shoulders pattern) at a significant resistance level (a massive spike that happened in November last year). The only thing that is still missing is a break of the neckline of the H&S, so that’s what we’re waiting for.
Of course, this is a setup that kind of counts on the euro selling off. Depending on the French election result, we might see a move up first, but somehow I have a feeling that most of the euro bulls have played their game and we could see a move down.
Finally, I’d like to take a look at GBPJPY. This is a 4H setup that is starting to show all the signs of a rounding top reversal. The RSI indicator is slowly moving down while the price is still slowly moving up, although much of the momentum of the initial trend has gone.
When we take a peek at the daily chart, we can see that the price is again approaching a very strong resistance level that has not yet been tested before. The price still has to make a little move up, but I reckon that we might see a good move down afterwards. For now, I’ve indicated a local resistance-turned-support level that I want to see broken, but depending on Monday’s price action, I might adjust this upwards.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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