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FX Setups for the Week of October 8, 2018

FX Setups for the Week of October 8, 2018

James Stanley, Senior Strategist

Forex Talking Points:

- DailyFX Quarterly Forecasts have been updated for Q4, and are available directly from the following link: DailyFX Trading Guides, Q4 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.

Q4 Has Begun, What Might the End of 2018 Bring?

It’s been a strange if not riveting start to Q4 across the FX landscape; and this highlights the peculiarity of 2018 in general, as we started off with a continuation of pulse-pounding trends in Q1 but, have since seen matters get quite a bit messier. Much of the past five months indecisive price action can be drawn back to Europe and EUR/USD. After striking a bullish trend that lasted for most of last year and well into Q1, that strength came into question in Q2. We then spent the bulk of Q3 sputtering between pre-defined support and resistance levels, save for a two-week run in early-August that turned out to be a false breakout in EUR/USD.

As we trade into Q4, a number of setups remain of interest. The US Dollar is in an interesting spot as the past two weeks have produced a notable spate of strength. On a short-term basis, we’ve even seen a re-establishment of support at those prior higher-lows around 95.00 and 95.53, both of which showed support during this first week of the fresh quarter.

Below, we look at three price action setups based around these themes. It’s important to note, these setups are designed for next week, as a gap through support or resistance can vastly alter the nature of the setup; thereby nullifying its potential before it ever has a chance to get started.

EUR/JPY Bearish to 128.00 – Bullish on Topside Break of 132.05

The most interesting setup on my charts at the moment is EUR/JPY, as we have valid formations to could support both bullish and bearish plays.

This was the pair that we picked on for Yen-weakness last month, with the first entry catching support around 130.35 before the pair jumped up to a fresh high at 133.00; and the second area of support that we looked at around 131.50 helped to hold the lows in the pair until this week, when bears broke through that support.

At this stage, we have a longer-term bull flag formation with the bearish channel that’s developed over the past week. This will often be approached for strategies of bullish continuation, particularly when prices pose a topside break of the descending trend-line.

But inside of that bearish channel is a shorter-term descending triangle formation – which will often be approached in a bearish fashion. Horizontal support around 130.77 continues to help to hold the lows; while each corresponding bounce grows weaker as indicated by the bearish trend-line (which also happens to make up resistance of the bull flag).

For next week I want to initially default to bearish strategies, looking for a down-side break of horizontal support to the 130.00 psychological level. At that point, stops can be moved to break-even and secondary targets could be sought out at 129.00 and then 128.00. But if/when prices break above Fibonacci resistance at 132.05, we would have that bull flag beginning to fill-in, and the bearish stance should be abandoned as bullish strategies become favored. This could then target a re-test of the highs at 133.00, followed by secondary targets at the 134.41 Fibonacci resistance.

EUR/JPY Four-Hour Price Chart: Descending Triangle Builds Within Bull Flag Formation

eurjpy eur/jpy four hour price chart

Chart prepared by James Stanley

EUR/USD: Bearish Strategies Favored on Break of 1.1480

There was a quick flash of excitement in EUR/USD this week when the pair broke below the 1.1530 support level. This price has been helping to set support in the pair for most of the summer, save for that two-week break in August when fears around Turkey had taken-over. But even after that – prices came back to find support at 1.1530 in late-August and again twice in September.

Q4, however, hasn’t been so kind to Euro bulls as fears around Italy have re-emerged. This has helped both US Dollar strength and Euro weakness, and as we trade deeper into Q3, that potential remains.

EUR/USD Four-Hour Price Chart: Bulls Lose Support at a Key Level to Open Q4

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

For next week, I want to see a break of the short-term higher-lows that developed on Thursday and Friday to be taken-out before looking for a deeper bearish break in the pair. This opens the door for re-tests at 1.1400 and 1.1300.

EUR/USD Hourly Price Chart: Break of Higher-Low Support to Re-Open Door for Bears

eurusd eur/ud hourly price chart

Chart prepared by James Stanley

GBP/USD: Cable Bulls Grow Less Bashful as Strength Persists into Friday Close

At this stage, we have to at least entertain the possibility of a return of USD-weakness. Despite the Dollar’s recent strength, we’re largely looking at a two-week trend that runs against the prior seven weeks of weakness, and on a short-term basis, we can even see where a descending triangle formation has begun to build in DXY.

US Dollar Hourly Price Chart: Short-Term Descending Triangle Begins to Show

us dollar usd hourly price chart

Chart prepared by James Stanley

On that theme of USD-weakness, few pairs have shown the attractiveness as what we saw this week in GBP/USD, and this comes amid a backdrop that remains pensive around Brexit negotiations.

Earlier in the week, we looked at support at a key zone that we’ve been following now for a few months that runs from 1.2918-1.2956. That helped to mark this week’s low, set on Wednesday; and since then a rather decisive topside move has shown, and prices have broken above a couple of key areas of resistance as taken from a descending trend-line as well as a Fibonacci level at 1.3117.

A topside break of 1.3117 opens the door for bullish strategies in GBP/USD. The conservative manner of approaching the setup would be to let the breakout run, after which this resistance at 1.3117 could be re-utilized as higher-low support. More aggressively, traders could look to take the breakout itself, combined with nearby a profit target at 1.3193, at which point stops could be moved to break-even and additional targets could be held at 1.3250 and 1.3300.

GBP/USD Four-Hour Price Chart: Testing a Key Resistance Level at 1.3117

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

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.