Analyst Picks

James Stanley , Currency Strategist

James Stanley
My Picks:  EUR/USD, AUD/USD, EUR/JPY, GBP/USD
Expertise:  price action - macro
Average Time Frame of Trades:  few days - few weeks

FX Setups for the Week of August 20, 2018: EUR/USD, AUD/USD, EUR/JPY, GBP/USD

- DailyFX Quarterly Forecasts have been updated for Q3, and are available directly from the following link: DailyFX Trading Guides, Q3 Forecasts.

- For trading ideas, please check out our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

- If you’d like more color around any of the setups below, we discuss these in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those session from the below link:

Tuesday: Tuesday, 1PM ET

Thursday: Thursday 1PM ET

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Risk Aversion Slows as Attention Moves Towards Jackson Hole, Wyoming

It was a brisk week across global markets as the US Dollar continued its topside advance early in the week, only to pullback on Thursday and Friday. While risk aversion remained a very real threat, US equities spent most of the week rallying and appear set to continue-higher. This shrugs off a bit of the global contagion fear that started to populate last week, although it would be unlikely for currencies such as the Euro to escape completely unscathed should the situation in Turkey continue to develop.

Next week sees an even quieter economic calendar, particularly in the early portion of the week as no high-impact items are on the docket until Wednesday’s release of FOMC meeting minutes from the July rate decision. The big item of interest is on the docket for the end of next week with the Jackson Hole Economic Symposium. This is where a veritable ‘who’s who’ of global Central Banking will descend upon Jackson Hole, Wyoming to discuss various topics around Central Banking.

DailyFX Economic Calendar: A Quiet Outlay Early, Picking Up in the Second Half

DailyFX Economic Calendar High-Impact Events Week of August 20, 2018

Chart prepared by James Stanley

While its very likely that these folks will do everything in their power to avoid creating controversy, some element of volatility appears inevitable as there are a series of burgeoning themes sitting at the forefront of global markets at the moment. Below, we look at four FX setups for next week, and it’s important to note that these are designed for after next week’s open, as a gap through support or resistance can vastly alter the nature of the setup.

EUR/USD Bounces From 1.1300 – More Pain in Store?

Last week we had looked at short-side setups in EUR/USD, largely driven by the anticipation for trends in the Euro and US Dollar to continue. And while that did take place, bears remained so active that prices didn’t quite pullback far enough to allow for bearish entry.

But over the past couple of days and since tagging the 1.1300 psychological level, Euro bears and USD bulls have been taking a break. Prices in EUR/USD are pulling back closer to these reference points, and the prospect of bearish continuation remains, allowing for use the of same zones from last week that have yet to come into play for lower-high resistance. The first of these zones begins at the 50% marker of the 2017 bullish trend at 1.1448, and runs up to 1.1475. A bit higher we have the May and June swing low of 1.1509 running up to the 1.1528 swing. And the last area to look for resistance before the bearish trend is negated takes place at the confluent area of prior resistance we looked at earlier in the month, straddling the 1.1600 level.

The key here is waiting for resistance to show as indicated by top-side wicks on candlesticks on the four-hour price chart, using the wicks as evidence of seller reaction to the respective zone of resistance.

EUR/USD Four-Hour Price Chart: Lower High Resistance Potential

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

AUD/USD Runs into Big Support, but Can Bulls Take Control?

A big area of long-term confluent support came into play this week for AUD/USD. The area around .7200 has a couple of big picture Fibonacci levels, with the 61.8% retracement of the 2001-2011 major move at .7185, while the 76.4% retracement of the 2008-2011 move resides at .7205. Perhaps more importantly, this zone of support has a track record for reversing bearish trends, as this happened twice in 2016. This level came into play briefly on Tuesday/Wednesday of this week, and buyers responding by pushing prices off of the lows.

AUD/USD Daily Price Chart: Welcome Back to Support

audusd aud/usd daily price chart

Chart prepared by James Stanley

At this stage, it’s difficult to hypothesize how this support interaction could end up being as robust as the one we saw in late-2016/early-2017, as that run lasted for more than 900 pips. As such, we’re going to keep expectations here to a moderate level, looking for prices to rise back into the bearish trend-line that’s held resistance in the pair for the bulk of 2018 price action. This projects to the approximate area around .7400 for next week; and should resistance begin to show off of another test of this trend-line, bullish exposure should be eliminated and bearish setups could be sought-out, looking for a continuation of lower-lows and lower-highs.

AUD/USD Four-Hour Price Chart: Support Bounce into Trend-Line Resistance

audusd aud/usd four hour price chart

Chart prepared by James Stanley

EUR/JPY: Bearish Continuation Potential on Continued Risk Aversion

This week saw EUR/JPY finally dig into some support after last week’s aggressive bottom-side breakout. Last week saw prices catch support at a Fibonacci level around 128.52, and when prices broke-thru, the bottom really fell out of the market. Bears remained in control all the way down to the 125.00 level, at which point support began to set-in. This is the same area that had provided a bounce in late-May, and at this point, sellers have continued to push despite the fact that a big long-term level of support has just come into play.

At this stage, bearish positions could be attractive, but only if a more defined area of potential resistance can be used to manage risk. I’ve plotted two such zones in EUR/JPY off of prior price action: The first running from 127.24 up to 127.50; and the second drives right back to that price we had previously used for short-side breakouts at 128.52. Resistance in either of these areas keeps the door open for bearish setups in the pair.

EUR/JPY Eight-Hour Price Chart: Lower-High Resistance Potential

eur/jpy eurjpy eight hour price chart

Chart prepared by James Stanley

GBP/USD with Reversal Potential

There is very little by way of positivity around the British Pound at the moment. As a matter of fact, the most positive thing around the currency right now might be just how negative matters have been; bringing to light the potential for prices having overshot as a series of bearish variables re-entered the equation. As we get closer to the EU-UK showdown for Brexit negotiations, very little is clear as to what we might be able to actually expect. The one thing that we do know is that the Bank of England remains pessimistic, as they have through much of the post-Brexit period.

This theme caught another shot-in-the-arm earlier in August when the bank hiked rates for only the second time in the past decade, yet were so incredibly dovish while doing so that the currency has spent much of the past two weeks in some form of collapse.

We hit another low-point this week when prices ran into the 23.6% retracement of the ‘Brexit move’ in the pair; and it was only four months ago that we were tagging resistance at the 78.6% marker. But – quite a bit has changed since then, and GBP/USD has went into a hard oversold move as can be seen via RSI on both the Daily and Weekly charts of the pair.

GBP/USD Weekly Price Chart: Oversold RSI as Support Shows from 23.6% Marker of Brexit Move

gbpusd gbp/usd weekly price chart

Chart prepared by James Stanley

Going along with this week’s support test in the pair was a decrease in net long exposure via IG Client Sentiment. While this indicator is contrarian, with net-long readings opening up short ideas, changes in the indicator can be helpful as well. When retail positioning quickly changes in response to a technical level, that can often show retracement potential, much as we looked at last month with a counter-trend setup in GBP/USD.

Do you want to see how retail traders are currently trading the British Pound? Check out our IG Client Sentiment Indicator.

At this stage, expectations behind a bullish advance in the pair should be kept at a minimum. I’m looking for prices to move back into the prior zone of resistance that we had looked at for short-side continuation earlier this week. That zone starts at 1.2817 and runs up to 1.2846. There’s a second zone of interest that runs from 1.2918 up to 1.2856, and if prices are able to break-above that, the bearish longer-term theme will soon begin to come into question.

GBP/USD Four-Hour Price Chart: Deeper Retracement Potential After Long-Term Support

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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David Song , Currency Analyst

David Song
My Picks:  Bullish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

The recent selloff in EUR/USD appears to have stalled ahead of the June 2017-low (1.1119) as it snaps the series of lower highs & lows from earlier this month, and fresh developments in the Relative Strength Index (RSI) warn of a larger recovery in the exchange rate as the oscillator bounces back from oversold territory.

Keep in mind, the euro-area’s exposure to Turkey may continue to produce headwinds for the single-currency as the U.S. alters it trade policy, with President Donald Trump tweeting that ‘Tariffs are now leading us to great new Trade Deals,’ and the ongoing adjustment may push the European Central Bank (ECB) to further support the monetary union as ‘uncertainties related to global factors, including the threat of increased protectionism, have become more prominent.

With that said, the diverging paths for monetary policy may continue to foster a longer-term bearish outlook for EUR/USD as President Mario Draghi & Co. remain in no rush to move away from its easing-cycle while the Federal Reserve appears to be on track to deliver four rate-hikes in 2018. Fed

Image of Fed Fund Futures

Fund Futures still show market participants gearing up for a move in September and December as Chairman Jerome Powell & Co. largely achieve the dual mandate for full-employment and price stability, and bets for higher borrowing-costs may keep EUR/USD under pressure throughout the remainder of the year as the ECB continues to carry out its quantitative easing (QE) program.

As a result, the broader outlook for EUR/USD remains tilted to the downside, with the exchange rate at risk of exhibiting a more bearish behavior as it finally snaps the range-bound price action from June. However, recent developments in the RSI warrants attention as it appears to be bouncing back from oversold territory, with a move above 30 raising the risk for a larger rebound in the exchange rate as the oscillator flashes a textbook buy-signal. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Image of eurusd daily chart

Broader outlook for EUR/USD remains tilted to the downside following the break of the June-low (1.1508), but the failed attempt to clear the 1.1290 (61.8% expansion) region raises the risk for a larger rebound especially as the exchange rate carves a fresh series of higher highs & lows. At the same time, the Relative Strength Index (RSI) has snapped from oversold territory, but the oscillator may continue to exhibit a bearish behavior as it extends the downward trend carried over from the previous month. In turn, a break/close above the 1.1390 (61.8% retracement) to 1.1400 (50% expansion) region may spur a move back towards the former-support zone around 1.1510 (38.2% expansion).

For more in-depth analysis, check out the Q3 Forecast for the Euro

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Setups in EUR/USD and USD/JPY
Expertise:  Technical
Average Time Frame of Trades:  1-3 Days

New to Forex? Get started with our Beginners Trading Guide!

EUR/USD Weekly Price Chart

EUR/USD Weekly Price Chart

We’ve been tracking this long-term slope in EUR/USD for months now with the break below 1.1605 shifting our focus lower in Euro. Yesterday we highlighted near-term down-trend support heading into the 1.13-handle with our focus on an exhaustion low in price.

Price registered a low at 1.1301 before reversing sharply- note that this region is defined by the confluence of former trendline resistance extending off the late-2015 swing high (red) and operative 50-line of the ascending pitchfork formation (blue). IF price is going to get a near-term recovery, this would be a good place to look- willing to play the long-side for now. Intraday trading levels remain unchanged from this week’s EUR/USD Scalp Report.

Learn the traits of a successful trader in our Free eBook!

USD/JPY Daily Price Chart

USD/JPY Daily Price Chart

In this week’s Scalp report on the Japanese Yen, we highlighted bearish invalidation at 111.37 with our outlook weighted to the downside in the pair. Price registered a high at 111.43 before reversing sharply yesterday with USD/JPY breaking back below the weekly open in early US trade.

Bearish invalidation now lowered to 111.07 with our focus still on a drive in to a critical support confluence at, “109.80/91 where the 100 & 200-day moving averages converge on the 38.2% retracement of the March advance and pitchfork support”. Look for a reaction there - intraday trading levels remain unchanged from this week’s USD/JPY Scalp Report.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Find yourself getting trigger shy or missing opportunities? Learn how to build Confidence in Your Trading

-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex or contact him at mboutros@dailyfx.com

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Martin Essex, MSTA , Analyst and Editor

Martin Essex, MSTA
My Picks:  AUDUSD Well-Placed to Rally
Expertise:  Fundamental and Technical Analysis
Average Time Frame of Trades:  Next Few Days

AUDUSD technical analysis:

  • AUDUSD has been in a downtrend for most of this year.
  • However, having reached trendline support, it could be ready to rally.

Our trading forecasts for Q3 have been published; you can find them here.

And check out the IG Client Sentiment data to help you trade profitably.

AUDUSD ready to tick higher

AUDUSD has traded in a well-defined downward channel since late January this year. Now, having hit the channel support line, which has already limited the downside several times, it looks ready to edge up again towards the middle of the channel and perhaps as far as the resistance line.

AUDUSD Price Chart, Daily Timeframe (January 12 – August 16, 2018)

Latest AUDUSD price chart.

Chart by IG

As the chart above shows, the support line sits currently at 0.7214 and the price has already this session bounced from it to 0.7275 at the time of writing. If that rally continues, there will be several near-term targets in sight: the 20-day moving average at 0.7362, the 50-day moving average at 0.7385 and then the trendline resistance at 0.7425.

While that will be hard to break through, a climb above it would bring the August 9 high at 0.7454 and the 100-day moving average at 0.7464 into view.

Note, though, that a drop below trendline support at 0.7214 could bring steep losses so from a trading perspective it would be wise to place a stop just below there, perhaps at the 0.72 “round number”.

AUDUSD fundamentals

From a fundamental perspective, any rally would reflect the latest improvement in market sentiment, which has prompted a rally in “risk on” assets like the Australian Dollar against “safe havens” like its US counterpart.

Note that AUD is seen sometimes as a proxy for China and has therefore been helped by news that US-China trade talks will resume later this month – a development that could lead eventually to a ceasefire.

Resources to help you trade the forex markets

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you: analytical and educational webinars hosted several times per day, trading guides to help you improve your trading performance, and one specifically for those who are new to forex. You can learn how to trade like an expert by reading our guide to the Traits of Successful Traders.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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Paul Robinson , Market Analyst

Paul Robinson
My Picks:  EUR/AUD & USD/CAD
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

Check out the DailyFX Q3 Euro Forecast for our intermediate-term fundamental and technical perspective.

EUR/AUD broken range retest, bear-flag forming

EUR/AUD underwent brutal range trading conditions from late June into the early-part of this month. That was snapped with the big down day on 8/3, which has been recently followed up by a retest of the underside of the range. Old support becomes new resistance.

In addition to the bottom of the range, a trend-line from last month’s high is crossing over peaks from yesterday and today. This has the area over 15700 as firm resistance. Furthermore, a bear-flag is developing. A break of the underside parallel should bring in more selling.

Looking lower, there are trend-lines from July and September from last year as support in the vicinity of 15500/15430. They are a good distance lower from here, providing ample room for profit potential. Should we see sustained trade beyond yesterday’s high at 15726, then price will be back inside the range and invalidate the current set-up.

EUR/AUD 4-hr chart (Range retest/bear-flag)

euraud 4-hr chart with retest and bear-flag

Not to get ahead of ourselves here, but if momentum turns out to be strong on any push lower and the trend-lines were to break, a big-picture head-and-shoulders pattern could come into play as the neckline becomes the next level of support. This could end up being one of those opportunities where a short-term set-up with decent risk/reward morphs into a much larger opportunity. We’ll delve further into this at a later time should it become relevant.

See the IG Client Sentiment Index to view how other traders are positioned, and why this can act as a powerful contrarian indicator.

EUR/AUD Daily Chart (H&S Potential, not there yet of course)

euraud daily chart, head-and-shoulders potential

USD/CAD in the process of building a bull-flag

USD/CAD held trend-line support not long ago, and with that furthering along the possibility of a bull-flag to form. The sequence is still bearish off the June high, so there is still risk that it could develop into a stronger downtrend. But should we see a break above the top-side trend-line of the developing bull-flag and also above the 8/13 high, we could be in for another drive higher in-line with the broader upward bias since last year. At the very least in this scenario we’ll be looking for a higher-high above 13382.

USD/CAD Daily Chart (Bull-flag potential)

usdcad daily chart, bull-flag potential

***Updates will be provided on these ideas and others in the trading/technical outlook webinars held on Wednesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday’s for the Becoming a Better Trader webinar series.

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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Daniel Dubrovsky , Junior Analyst

Daniel Dubrovsky
My Picks:  Pending short AUD/USD
Expertise:  Event-driven macro and classic technical analysis
Average Time Frame of Trades:  A few days to a few weeks

AUD/USD Trading Strategy: Pending Short

  • A relatively hawkish Fed compared to the RBA offers bearish AUD/USD fundamentals
  • However, Australian Dollar prices are not at an optimal level for a short setup for now
  • A temporary rebound in AUD/USD on local jobs data may push prices to a better level

Build confidence in your own AUD/USD strategy with the help of our free guide!

AUD/USD Fundamental Bearish Argument

From a fundamental view, it is compelling to argue that we may expect Australian Dollar weakness against its US counterpart in the near-term. At its most recent monetary policy announcement in August, the Fed still upheld its case for two more rate hikes this year. However, those bets are not quite yet fully priced in when looking at Fed Funds Futures. USD could gain as those expectations align with the central bank’s outlook.

Meanwhile, at its most recent policy announcement, the Reserve Bank of Australiamaintained the status quo that rates are where they need to be for sustainable growth and achieving their inflation target over time. Overnight index swaps are only pricing in a 51.3% chance that the central bank will raise rates once by September 2019. As such, the Fed is poised to keep overtaking the RBA ahead.

While it may be tempting to enter short AUD/USD using this argument, there is an economic event that may offer temporary gains for the Aussie Dollar. That is Thursday’s Australian jobs report. Local economic news flow has been tending to outperform lately and this may open the door for an upside surprise. However, a lasting response in AUD/USD could be lacking since the data may not dramatically alter RBA policy views.

Join our Australian Jobs Report Webinar for live coverage of the event and its impact on AUD/USD and other Aussie crosses!

AUD/USD Technical Analysis

With that in mind, it would be best to stand aside at the moment to let this event pass. Furthermore, the technical side of things show that entering short at the moment is not favorable from a risk-reward perspective. AUD/USD has finally broken out of consolidation, and it was to the downside. Since then, the pair has been making remarkable progress lower.

An exit point for an AUD/USD short could be strategically placed around a daily close above the May 2017 lows at 0.73288. This could open the door for the pair to get stuck in its range from mid-June to early-August. Meanwhile, the December/May 2016 lows beginning at 0.71623 could be used as a target for this setup.

Given that prices are now more than halfway between the potential exit and target, we would need to see a pullback in Aussie Dollar to make this setup more favorable. We may even get this rebound if the Australian jobs data beats expectations. As such, we shall wait for this event risk to pass and reevaluate the setup after getting the reaction in AUD/USD on the data.

AUD/USD Daily Chart

Chart created in TradingView

FX Trading Resources:

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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James Stanley , Currency Strategist

James Stanley
My Picks:  EUR/USD, GBP/JPY
Expertise:  price action - macro
Average Time Frame of Trades:  few days - few weeks

- DailyFX Quarterly Forecasts have been updated for Q3, and are available directly from the following link: DailyFX Trading Guides, Q3 Forecasts.

- For trading ideas, please check out our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

- If you’d like more color around any of the setups below, we discuss these in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those session from the below link:

Tuesday: Tuesday, 1PM ET

Thursday: Thursday 1PM ET

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Digestion Breaks, Fear Follows

It’s been a big week in FX as we’ve finally seen resolution of the digested setups in the US Dollar and, perhaps more to the point, EUR/USD. As the US Dollar surged to fresh yearly highs, the Euro broke down on fears surrounding Turkey. In a move that appears to be unrelated, the British Pound has continued its descent throughout the week after last week’s dovish Bank of England rate decision. With the BoE having hiked rates while sharing a rather down-trodden view of future economic conditions, there were even fewer reasons for buyers to defend support this week, and in response we saw Sterling continue to fall.

Meanwhile, there’s been a lack of follow-thru in Japanese Yen weakness following the Bank of Japan rate decision last week, and we’ve seen some profound strength in the currency when matched up with Euros, British Pounds or the Australian Dollar. Below, we look at two price action setups for next week. It’s important to note that these setups are designed for next week, as weekend gaps can vastly alter the nature of the below setups, thereby nullifying their potential.

Bearish EUR/USD on Hold Below 1.1620

Trading breakouts is notoriously difficult, particularly if a sitting entry order didn’t trigger the trader into the position as the initial break was taking place. We can see a clean break in a market like AUD/JPY, which is now around 100 pips below the level we were looking at for short-side breaks a couple of weeks ago.

But in EUR/USD, support built-in over seven weeks and held through a number of bearish drivers, including a couple of different ECB meetings. Last week saw a short-term break of the symmetrical wedge that had been building since late-May; and Wednesday of this week saw lower-high resistance show up at prior support, as taken from the trend-line projection that had previously made up the bottom side of that formation. This has led to a clean and visible down-side run to fresh yearly lows, and given the context surrounding the move, it would appear that the door is open for more.

The complication at this point is one of entry, as the move is rather stretched at the moment. Below, we look at three different areas of potential resistance that could be used as entry points for short-side EUR/USD setups. The first of these zones, from around 1.1445 up to 1.1470 should only be utilized by those that are comfortable with aggressive stances. The area from 1.1509 up to 1.1528 could be a more comfortable point of establishing exposure as this is the same zone that helped to hold the lows in the pair for almost two months.

If we do see a sustained break above 1.1530, then we’re likely also going to be seeing calm around the current situation brewing around Turkey, and this would re-open the door for resistance to show at the same area where prices had turned this week. For that we have our ‘r3’ zone that runs from 1.1592 up to 1.1619.

EUR/USD Four-Hour Price Chart

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

Bearish GBP/JPY to 140.00 And Beyond

We have a similar setup in GBP/JPY price action, although it appears as though it is driven by a different rationale than what we’ve seen in EUR/USD. In GBP/JPY, the pair has remained bearish since last week’s BoE rate decision, and with the bank taking on a very dovish tone, there are even fewer reasons for bulls to defend support or to look at reversal plays. Brexit is a brute force of risk at this point, and it appears as though we’re at least a month away from any element of clarity on that front. This, collectively, makes for a fairly strong case for bearish continuation in the pair, particularly if we see the Japanese Yen continuing to hold gains from this week..

Much like EUR/USD, the danger around trend continuation is just how stretched the move has become during this recent sell-off. Rather than chase, we’ve identified two different areas of possible resistance that can open the door for bearish exposure in the pair.

Price action in GBP/JPY has spent the entirety of August riding underneath a bearish trend-line, and this keeps the door open for bearish continuation strategies. Below, we’re looking at two areas for potential resistance below the 143.50 swing high, each of which can re-open the door for bearish continuation plays in the pair.

GBP/JPY Four-Hour Price Chart: Bearish Continuation Potential

gbpjpy gbp/jpy hourly price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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David Song , Currency Analyst

David Song
My Picks:  Bearish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

EUR/USD tumbles to a fresh 2018-low (1.1432) after snapping the series of higher highs & lows from earlier this week, with the exchange rate at risk of exhibiting a more bearish behavior over the coming days as the

Concerns surrounding the European banking system appears to be rattling the Euro amid the region’s exposure to Turkey, and the geopolitical risks surrounding the euro-area may encourage the European Central Bank (ECB) to further support the monetary union as ‘uncertainties related to global factors, including the threat of increased protectionism, have become more prominent.

Even though the ECB pledges to wind down the quantitative easing (QE) program over the coming months, the Governing Council may merely attempt to buy more time at the next meeting on September 13, and President Mario Draghi & Co. may continue to endorse a dovish forward-guidance as ‘significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term.’

Image of fed fund futures

In contrast, the Federal Open Market Committee (FOMC) is widely expected to deliver a 25bp rate-hike next month, with Fed Fund Futures pricing a greater than 90% probability for n adjustment on September 26, and Chairman Jerome Powell & Co. may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘the Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.’

With that said, the diverging paths for monetary policy keeps the broader outlook tilted to the downside, with EUR/USD now at risk of extending the decline from earlier this year as it finally snaps the range-bound price action carried over from June. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Image of eurusd daily chart

The break of the June-low (1.1508) brings the downside targets back on the radar, with the move below the 1.1510 (38.2% expansion) region raising the risk for a run at the Fibonacci overlap around 1.1390 (61.8% retracement) to 1.1400 (50% expansion). A break/close below the stated region opens up the next downside region of interest around 1.1290 (61.8% expansion) followed by the 1.1220 (78.6% retracement) area.

For more in-depth analysis, check out the Q3 Forecast for the Euro

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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Justin McQueen , Analyst

Justin McQueen
My Picks:  GBPCAD Pending Short
Expertise:  Fundamental Analysis
Average Time Frame of Trades:  Few weeks

GBPCAD Trading Strategy: Short at 1.6820 to , target 1.6430, stop loss 1.7060

  • Trade Risk: NAFTA presents largest risk, alongside a relief rally in GBP.

See our Q3 FX forecast to learn what will drive major currencies throughout the quarter.

GBPCAD Fundamental Overview

GBP

The poor performance for the Pound has shown no signs of abating. After last weeks rate hike from the BoE failed to inspire any real support for GBP, it is clear that Brexit remains the key driver for the Pound. Uncertainty regarding Brexit has increased with the UK Trade Minister stating that a “no deal Brexit is the most likely scenario, while BoE Governor Carney has noted that the chance of a “no deal” is uncomfortably high. As such, markets have repriced the possibility of a “no deal” Brexit, prompting the Pound to fall to its lowest level since August 2017, while option markets have increased their demand for protection against deeper GBPUSD losses as risk reversals fall to levels seen in early 2017.

Elsewhere, in regard to data performance, the underlying economy continues to remain relatively weak, with growth subdued, wage growth failing to show any material signs of life, while inflation has eased slightly in recent months.

CAD

In recent weeks the Canadian Dollar has continued to enjoy a flurry of strong data points. The latest GDP figures had surpassed expectations, showing the fastest growth spurt in a year, led by oil prices, while inflation remains above the BoC’s target and is expected to push higher, consequently prompting calls for the central bank to raise rates. Rate differentials continue to move in favour of CAD buying against GBP with OIS markets pricing in 3 rate hikes by the time the BoE hike again. This has been reflected in 2yr UK/Canadian Bond spreads at the widest since September 2017. Consequently, implying that GBPCAD is vulnerable to further losses with the bearish momentum very much intact.

Risks for the Canadian Dollar is of course NAFTA, however, with the US and Mexico making progress this has subsequently lifted optimism that a deal could be on the horizon.

UK/Canadian 2yr Bond Spreads

GBPCAD Short: Rate Differentials Favour CAD, Brexit Weighs on GBP

GBPCAD Technical Overview

Resistance 1: 1.6800 (61.8% Fib Level)

Resistance 2: 1.6930 (Weekly Highs)

Resistance 3: 1.7050 (Psychological Level)

Support 1: 1.6750

Support 2: 1.6590 (November 2017 low)

Support 3: 1.6500 (Psychological level)

GBPCAD PRICE CHART: Daily Time Frame (July 4th-28th)

GBPCAD Short: Rate Differentials Favour CAD, Brexit Weighs on GBP

Chart by IG

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Setups in AUD/USD and NZD/USD
Expertise:  Technical
Average Time Frame of Trades:  1-3 Days

New to Forex? Get started with our Beginners Trading Guide!

AUD/USD Daily Price Chart

AUD/USD Daily Price Chart

In my Weekly Technical Perspective on the Australian Dollar we noted that, “From a trading standpoint, we’re looking for a break of the 7327-7505 range for further guidance. I’ll continue to favor the long-side while within this range but ultimately a breach above 7500 would be needed to suggest a more significant low is in place”

Aussie has continued to consolidate within this zone with price turning sharply from resistance today. As it stands, the pair is poised to post an outside-day reversal and leaves the immediate threat lower against today’s highs. That said, we’re still only playing within the broader range as price continues to coil- stay nimble. Intraday trading levels remain unchanged from this week’s AUD/USD Technical Outlook.

Learn the traits of a successful trader in our Free eBook!

NZD/USD 240min Price Chart

NZD/USD 240min Price Chart

Yesterday we highlighted a key weekly support zone in Kiwi at 6663 heading into the RBNZ interest rate decision – price has made a decisive break below this threshold and the break of a multi-week consolidation pattern leaves the pair vulnerable to further losses while below 6700. Look for a weekly close sub-6660 to offer further conviction here.

Price is testing interim support here at the 1.618% extension at 6616- could get a near-term rebound here but looking to fade strength sub-6675 targeting the 76.4% retracement / triangle measured move at 6515/71.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Find yourself getting trigger shy or missing opportunities? Learn how to build Confidence in Your Trading

-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex or contact him at mboutros@dailyfx.com

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