Last week was the first week after the US presidential elections, and the markets are starting to settle in their old rhythm again. There were some big moves last week, and I’m happy to see that my weekly forex outlook of last week was right on AUDCAD and AUDNZD. The GBP pairs didn’t really go anywhere but sideways, but that’s the unpredictability of the market for you.
The upcoming week
Noteworthy economic news for this week is:
- Monday: ECB President Draghi’s Speech
- Tuesday: CAD retail sales / US existing home sales
- Wednesday: US durable goods / US new home sales / US FOMC minutes / EU manufacturing PMI
- Thursday: German GDP
- Friday: UK GDP
Keep in mind that the US markets are closed on Thursday and will close early on Friday. This is due to Thanksgiving day. A closed US market usually means that trading slows down a bit and might result in a bit more unpredictable price behaviour. Have a look here to find out more.
Also note that the US dollar has been quite bullish recently. This is party because of investors anticipating that the Trump presidency will stimulate the US economy, but also because the December Fed rate hike is now almost a sure thing. Some of the pairs below are reversal setups that imply a bearish US dollar, so I will be extra careful in picking my trades for those US pairs.
This week, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
As the first pair, we’re going to have a look at AUDUSD. After the reversal at the beginning of the month, we’ve seen the price move down for quite a while now. The trend structure is relatively nice, with multiple swings but a big push downward in the last week (due to bullish US dollar).
At the same time, we can see that the price has moved into the next big support zone. Last time price touched this support zone, the reaction was very immediate and strong towards the upside. It’s likely that there are still some buyers left in this demand zone. On the other hand, we just had a very bearish move down, so I’m looking for multiple signals (things like double bottom and close above the moving average) to get in.
There’s a good chance that price will shoot through the level as well, which could bring good opportunities to enter short on the retest of the current level. Multiple scenario’s can play out, so we have to wait and see the price action of the next week.
If you can remember the forex outlook of 2 weeks ago, I talked about CADJPY making a reversal to the upside. That analysis turned out pretty accurate, and price has since moved higher in a long uptrend. There was a spike in between, which was due to the expected volatility of the US election.
Right now, price is approaching the next resistance zone and we can already see the price slowing down a bit. There is a slight RSI divergence visible on the 4H chart, but nothing much yet.
Additionally, the resistance zone is at the 161.80% Fibonacci extension level of the previous swing. So there is some confluence available and as always, I’m awaiting price action to confirm a potential move down, but it’s an interesting setup anyway.
The CADNZD setup I have my eyes on is a classic potential reversal at the top of a downwards trend structure. There are a lot of confluence factors: downwards trend line, price approaching resistance level, RSI divergence and at the 61.80% Fibonacci retracement level.
Price is still testing the upper limits of the trend line though and we need to see a firm rejection of this level before we get in. Ideally, I see a strong push below the 1.0467 level. Remember, trying to call tops and bottoms is always a bad idea, so we’re looking for a confirmation that the direction of the trend is changing.
To be honest, EURUSD is trending down way to quickly for me to see reversal potential. I would’ve left this pair as is, if it weren’t for extreme reactions every time price reaches the support area it’s at right now.
If you look at the right part of the chart (D), you can see the violent moves to the upside every time the price touches this zone. There are bound to be some buyers left, so I will keep an eye on this level, but will take care to enter, because price might just take a dive to the downside again.
USDJPY shows a nice uptrend on the 4H chart and is nearing a resistance level. Classic setup. No RSI divergence yet, but it’s pretty likely that there will be once the price levels out. I’ll be waiting for price action around this level and once price makes a move to the downside, I’ll be ready to jump in.
Gold is the last pair we look at for this week. The price has reached a major support area and last time gold traded at this price, it shot up to make new highs.
We also have to consider the fundamental side here, since the dollar strength has pushed demand for gold lower. Traders and investors will move their money away from less riskier assets such as gold to currencies and stocks. This means that, as long as the US dollar keeps increasing in value, there’s a fair chance that gold will move lower.
If this is turns out to be a reversal though, we have quite some upside potential. It’s definitely a pair I will keep my eyes on.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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