The dollar suffered across the majors last week, and a number of notable breaks were produced. In fact, a messy break below parity for the USDCAD marked are only losing trade for the week. However we were fully compensated for the tight stop set on the loonie-based pair when follow through momentum in the AUDUSD’s push through 0.95 left us with a 90 point profit balance on the week. We are now looking at two new trades in GBPUSD and NZDUSD which are both finding technical support in candlesticks and falling trend channels. For the rest of the majors, setups are not far; and a doji or a kicking pattern may be all that’s need to establish another strong trade.
EUR/USD
A Head-And-Shoulders formation in the making?
Just as it had back on March 24th, the Morning Start formation has proven itself to be a strong reversal pattern for the EURUSD. Since the May 5th doji was set in place (at the 1.5450 level that the previous doji had marked its turning point), the pair has climbed over 400 points. Last week we decided to remain on the sidelines to see how the fresh break above 1.5600 would play out. Now, we can see that there was certainly follow through, but that continuation wasn’t very momentous.
Looking at the technical setup now, there is certainly a sense of congestion for EURUSD. Last week ended off with a series of inside candles that could easily develop into a reversal (Three Inside Down) or continuation pattern. Either way, the outlook is limited. If we see highs give way and EURUSD rally beyond 1.5800, we have significant resistance at 1.59 and then 1.60 to curb momentum and sap the strength a breakout move could produce. On the other hand, a reversal could build speed in a move back to 1.53. Altogether, with the low liquidity through the holiday weekend, it is more prudent to wait for a more prominent candle formation to develop. Considering how price action over the past two and a half months is shaping up, we may be looking at a large heads-and-shoulders formation with a neckline around 1.53. A reversal at or below 1.59 would validate the chart pattern and then we will consider a short on the break of the neckline.
EUR/USD Trading Strategy
We remain flat, waiting for a neckline break to the downside or continuation into new highs. Updates will be posted throughout the week at the Candlestick forum.
EUR/USD Daily Chart
GBP/USD
Pound traverses its channel
The Morning Star reversal set with the May 14th hammer developed into a strong advance over this past week. After a short period of congestion, the bulls finally generated enough buy-side interest to charge the pound higher and overtake 1.98 on a more than 400-point drive from trough to peak. Looking at the chart-pattern in the aftermath of this move, there are conflicting readings for future direction in price action.
On the one hand, the drive through the end of the week came on an Advancing Three White Soldiers formation which denotes strong continuation. However, when Friday arrived, liquidity quickly evaporated into the beginning of the holiday weekend. The session ended with a doji candle that was capped just below resistance of the same channel that led price action to rally from 1.94. With this still evolving setup, we are following our short setup that happens to coincide closely to Friday’s highs.
GBP/USD Strategy
1. Short GBPUSD at 1.9830
2. Set stop-loss around 1.9980 above recent wick highs.
3. Set profit target near the channel bottom above 1.9420, risking 150 pips to gain 410.
USD/JPY
Yen’s steady trend gives way to congestion
A two-month old rising trend channel was broken this past week; and yet there was no opportunity to jump into a breakout. In fact, after the USDJPY cleared support, the pair immediately put in for consolidation pattern with a Bullish Engulfing candle quickly cutting off downside potential and then Friday’s Harami stepping in to insure the outlook was murky enough to keep traders on the sidelines. Indeed, when the channel gave way, another congestion pattern stepped in defined as a range with resistance at 105.50 and support around 102.75.
Considering this congestive nature of the USDJPY’s chart pattern, there seems to be few trading opportunities with anything resembling notable profit potential. Considering the average daily range of this yen-based pair, the consolidation band is very tight at only 275 points. This suggests that there is considerable breakout potential (be it to the downside or upside), though candle formations will be of little help forecasting such a dramatic move until the break is actually seen. Any reversal candles (hammers, dojis, etc.) should be ignored in this holding pattern. We will be waiting for momentum to build in a Three Black Crows or Three White Soldiers formation to bring the market to a tradable breakout.
USD/JPY Strategy
We remain flat, waiting for confirmation of a break from the 105.50 – 102.75 range. Updates will be posted throughout the week at the Candlestick forum.
USD/CHF
Momentum will decide USDCHF pattern
Much like its yen-denominated counterpart, USDCHF broke through the floor of its rising trend channel. However unlike its close cousin, the franc hasn’t necessarily fallen into another congestion formation. Following two wide-range bear candles, USDCHF price action fell back into the same congestion that most of the other majors found themselves in. In the two months, 1.0225 stood as significant resistance to an ascending wedge pattern; yet until recently, it hadn’t proven itself as an equally weighted support level.
Until price action develops a notable direction, we will remain flat on USDCHF. We can garner little from last week’s chart pattern. The period opened up to momentum, yet the last two bars lost its drive and scrubbed direction with narrow body candles and modest wicks. Should a long candle break through 1.0225 support and confirm an extended downtrend, we will look for entry to the short-side. Alternatively, a reversal pattern will not generate the same desire to enter the market. With 1.06 standing as range resistance above, there isn’t reasonable profit potential.
USD/CHF Strategy
We remain flat, waiting for confirmation on a break of either 1.0225 or 1.0600. Updates will be posted throughout the week at the Candlestick forum.
USD/CHF Daily Chart
USD/CAD
Loonie congestion dominate even after a breakout
USDCAD has traded one range for another. This past week, our long setup based on the series of dojis that had formed just above parity was wiped out on a slow but steady decline through once revered parity. In fact, price action over the past week reveals the frustrating nature of this pair. Candle formations, Fibonacci levels, moving averages and virtually all other forms of technical analysis are often rendered impotent by this pair’s choppy and often directionless trading. In its move through parity, USDCAD exhibited few signs of momentum as daily candles in fact altered between Wide-Range bars and dojis.
There is little profit potential in trying to fall into line with the developing downside momentum now as resistance stands not far below and short-term charts may already be pointing to a developing reversal. On an intraday basis, we can see that the two-week long falling trend channel was broken with Friday’s close. However, this pair is notorious for failing for faltering on a sharp reversal – which is a particular problem with this development considering the market is dealing with holiday trade.
USD/CAD Strategy
We remain flat, waiting for confirmation on a break of either 1.0225 or 1.0600. Updates will be posted throughout the week at the Candlestick forum.
AUD/USD
Trading above a 24-year high
A bullish trade based on momentum generated by a break of 1.9500 played out well. Wednesday’s intraday high just tagged our target to book 150 points before AUDUSD settled back into congestion. This congestion is not unusual in the Aussie dollar’s long march towards fresh record highs. A breakout was confirmed two Fridays ago on a wide-range bar, yet the steady decline in liquidity through last week would ultimately curb strong follow through. On the other hand, support still exists in the reversed role of the previous resistance level seen at 0.95.
Despite the disappointing turn to consolidation after the news-worthy break above 0.95, there is still a strong probability that the Aussie dollar will reach parity against its US counterpart. In fact, the recent congestion presents a good opportunity to enter a relatively high probability follow through move. We will look for a move back towards 0.95 before AUDUSD can make another attempt at finally reaching parity.
AUD/USD Strategy
1. Long AUDUSD near 0.9500.
2. Set stop-loss near 0.9425.
3. Look for a move to 0.9750, risking 75 pips to make 250. Once again our objective will not be a hard target as AUSUSD could easily find enough momentum to take it to the 1.0000 milestone.
NZD/USD
Channel sets up new entry point
The market lit a fire underneath the kiwi dollar this past week. Since May 15th's hammer marked a sharp reversal from a steady selloff, NZDUSD steadily advanced nearly 400 points before falling just short of 0.79. This move corresponded with the short-strategy we had set out last week. Taking advantage of the falling trend channel from March highs, we found entry near the pattern’s resistance levels.
Looking ahead, the success of our position will depend on the technical sway of the trend channel we have drawn below. The upside momentum in NZDUSD through the end of last week is certainly working against us – especially considering the last four daily bars were green. On the other hand, those same daily advances came with significant end of day retracements. In fact, Thursday and Friday’s upper wicks both topped out at the same level; and the latter was actually a doji. Will technicals curb momentum? Only time will tell.
NZD/USD Strategy
1. Short NZDUSD below 0.7860.
2. Set stop loss just below 0.7970.
3. Set profit target above 0.7560, risking 110 pips to gain 300.
