Following the passing of last week’s dollar event risk, the majors present conflicting scenarios on further price action. While the Euro and Australian Dollar bullish trends remains intact, the Greenback looks decidedly strong against the Sterling and leaning to be so against the Yen. USD/CAD and NZD/USD lack strong directional conviction, as it seems each pair is determined to set out its own path going forward.
Candlestick forum.
EUR/USD
Dollar tries to build momentum, but bullish trend still intact
The beginning of last week saw EURUSD price action has consolidated in a tight 130-pip range. The up-trend had not been violated, so we advocated continuing to buy the pair, adding a cautionary note that the lack of a strong signal meant we will keep a close eye on price action and cut losses quickly. Our hesitation was warranted – EURUSD responded sharply to the marginally better ISM Manufacturing report, dropping out of the range to hit our stop for a loss of 100 pips.
Friday’s NFP report disappointed hopeful dollar bulls, showing losses 30k greater than expected and revising the previous month’s result to the downside. EURUSD has once again found itself at the familiar trend line stretching from 02/07. With last week’s event risk behind us, we continue to hold the view that EURUSD is poised to test the 1.6000 mark. A Hammer at the trend line confirmed by a bullish candle seen last week adds credence to the up-side bias.
EUR/USD Trading Strategy
1. Long EURUSD above trend line support at 1.5660.
2. Set stop near 1.5490, below the wick low of the Hammer candle.
3. Set profit target near 1.6000, risking 170 pips to gain 400.
GBP/USD
Tone shifts to favor the downside
Last week, we saw no compelling evidence to change our bullish bias on GBPUSD. The market saw otherwise as the pair fell in step with dollar strength following Tuesday’s ISM report, taking out our stop at 1.9850 for a loss of 150 pips.
Recent price action has provided a third point to establish a downward-sloping resistance trend line (see chart below). We have also noted a Shooting Star bearish reversal signal. This has warranted us to change our bias on GBPUSD to bearish in the near term, looking for the pair to move back to triple bottom support near 1.9730. It is important to note that a Shooting Star is typically considered to be a weaker bearish signal, with most trading waiting for the next candle to close bearish for confirmation.
GBP/USD Strategy
1. Short GBPUSD near 1.9970, below trend line resistance and the psychologically important 2.00 level.
2. Set stop-loss above shooting star wick near 2.0060.
3. Set profit target near triple bottom support at 1.9730, risking about 90 pips to gain 240.
USD/JPY
A mixed message
Last week we opted to remain on the sidelines in USDJPY having identified a range between 98.90 and 100.70 and waiting for a breakout to show directional bias. As we had suspected, the range broke to the upside, setting a bullish tone for the pair.
Current USDJPY price action is showing mixed message. Last week ended showing an Evening Star formation, though today’s candle looks poised to invalidate that signal with a Bullish Engulfing. The latter scenario is in keeping with the range break we identified, though we can’t treat it as a valid signal until the candle closes. Should last week’s bearish reversal signal be invalidated, we will look for additional upside momentum.
USD/JPY Strategy
1. If the Bullish Engulfing is confirmed, long USDJPY above 102.40.
2. If entry conditions are met, set stop-loss near 101.05 below recent wick lows.
3. Following confirmation, set profit target near 105.61, risking 135 pips to gain 321.
USD/CAD
Range Top Holds
Last week, we favored a short below the top of the established range below 1.0252. The range top held up to erratic swings in sentiment towards the Greenback as USDCAD continued to dance to its own beat, seemingly oblivious to the other majors. Our short bias yielded over 150 pips in profit as the pair dropped back in the middle of the range towards the parity level.
Currently, we see an upward-sloping trend line connecting the lows since the end of February. Previous oscillations inside the range have led to periods of congestion as price action works itself lower. There are no candlestick formations that stand out at the moment. We will opt to take profit on our USDCAD short trade here, holding off taking additional positions until the pair breaks past the trend line. That said our bias remains bearish.
USD/CAD Strategy
1. Short USDCAD on a daily close below trend line support (currently near 1.0026).
2. If entry conditions are met, a viable stop-loss level would lie near 1.0103, just above last week’s close.
3. Following the trend line break, we are targeting the bottom of the range.
AUD/USD
More upside ahead
We had initially entered AUDUSD long following a Morning Star formation above trend line support two weeks ago near 0.9030. This trend line had been established in August of last year. The pair rallied to reach a high of 0.9252 that week (222 pips), but failed to rally as high as our target below 0.9360. Last week, we moved up our stop to the break-even, taking risk off the table and looking for upside momentum to continue following a retracement. The pull-back proved deeper than we expected, with the lowest tick on 04/01 right at 0.9030.
Whether the break-even stop was triggered on the tick to 0.9030 depends on the level of initial entry. Most importantly, the trend line that we based our analysis around was not violated, as the candle did not close below. Since 04/01, AUDUSD rallied back above the 0.9200 level. We saw a Bullish Engulfing pattern on the 04/02 close that has now been confirmed and is showing a Three White Soldiers formation.
Those traders that were not stopped out last week may hold the position for further upside. We were stopped out at break-even, and will now look to re-enter long aiming for the 0.9500 top. Though we will opt to set our stop-loss inside the trend line for favorable risk-reward, we will monitor closely for a repeat of last week’s events. Should a stray wick take out the stop-loss but fail to close below the trend line, we will look for confirmation on the next candle and then re-establish the long trade.
AUD/USD Strategy
1. Long AUDUSD above 0.9200.
2. Set stop at 0.9080, below recent lows.
3. Set profit target just below 0.9470 near the top preceding the most recent major retracement.
NZD/USD
Consolidation delays bearish reversal
Last week, we opted to remain on the sidelines in NZDUSD. Our suspicion of a bearish tone proved valid, as the pair broke out of its range between 0.7880 and 0.8100 to settle at the long term upward sloping support line established in September of last year. The test produced a Morning Star candlestick pattern, but bullish momentum failed to build – the candlestick following the Morning Star proved bearish, engulfing the body of the bullish one that preceded it.
Price action now looks to be coiling into a triangle formation. This is typically a continuation pattern, though it is far too soon to be certain on the timing of breakout. So far, it seems the bears retain the upper hand with the pair consolidating prior to a reversal lower. However, we do not have a confirmed signal to enter a trade.
NZD/USD Strategy
We remain flat as we wait for confirmation of a directional bias.
To contact Ilya regarding this or other articles he has authored, please email him at [email protected]
