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FX Setups for the Week of October 29, 2018

- 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, join in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those sessions 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.

US Dollar Breakout Pulls Back Ahead a Busy Week of Data

This week was marked by a rather calm macroeconomic calendar as a number of markets continued to show volatility. Stocks dropped, again, and appear to be in the midst of a bounce off of the lows ahead of the weekly close. And in the FX space, the US Dollar finally broke-out of the 96.04 level that had previously given four different iterations of resistance already in Q4. That Dollar breakout ran in a rather clean matter as bulls continued to push beyond resistance. There was a brief pause at the 96.47 Fibonacci level, but even that was taken-out as buyers pushed ahead around the Thursday ECB meeting.

US Dollar Four-Hour Price Chart

us dollar four hour price chart usd

Chart prepared by James Stanley

For next week, the economic calendar picks up considerably, and there are high-impact events every day of the week. US equities will remain in focus as earnings season continues out of the United States, and given the pace of Q4 price action thus far, there will likely remain an element of fear in the air until the risk trade provides some convincing signs of support.

Below, I look into a series of setups designed for next week’s price action, and I’m using this week’s move in the US Dollar as a basis. The Dollar trend will likely either extend or bend, so I’m looking at a setup on either side of the matter, looking to use risk-reward ratios on either side of the trade to provide a backdrop of potential with even a 50/50 win ratio. I discussed this approach in the article, the US Dollar Hedge.

Bearish EUR/USD for USD Strength Continuation

A strong reversal has shown up in the pair ahead of this week’s close, and this follows an even stronger short-side breakout after the pair churned through a big level on the chart. I had looked at this support zone last week in a webinar, remarking that it had qualities of a bear trap. And for about four trading days, it did. But Wednesday morning finally brought the short-side breakout in the pair, and after a quick flicker up to resistance at prior support, around the 1.1430 level, sellers came back into the equation following yesterday’s ECB rate decision.

At this point, the bounce appears to be a short-covering rally, and this can keep the door open for bearish strategies in the pair. A break back-above the 1.1550 swing high from last week could negate that potential; but until then, there are a series of prior support levels that can be utilized for fresh resistance, starting at 1.1448 and extending up to the 1.1500 psychological level.

EUR/USD Four-Hour Price Chart: Resistance Potential Around Prior Support Zone 1.1448-1.1500

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

Bearish GBP/USD for USD Strength Continuation

Cable put in an equally impressive bearish breakout this week, and similar to EUR/USD, prices are catching a bounce after setting a fresh low on the chart. I had looked into this setup on Monday of this week, plotting bearish strategies after the support side of a symmetrical wedge gave way, looking to use resistance at prior confluent support around the 1.3000 handle.

That led into a fairly decisive move that continued to push lower-lows and lower-highs until the September swing low could come into play, which has finally helped the pair to find some element of support on the chart. Prices are now making a move towards the 61.8% Fibonacci retracement of the 2017-2018 bullish move in the pair, and this could be looked to as potential lower-high resistance given the illustration of support that showed earlier this week. A second zone could be utilized as well, and that runs around the 1.2936-1.2954 area of prior support.

Alternatively, traders looking to treat the move aggressively can look to bearish breakouts on prints to fresh lows, similar to how I had approached GBP/JPY with similar themes earlier this week.

GBP/USD Four-Hour Price Chart: September Swing Holds the Lows, For Now

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

AUD/USD Comes Back to Life: Potential Capitulation for USD-Reversal/Weakness Strategies

I had looked into AUD/USD in this Thursday’s webinar, remarking on the differences between that chart and what was being seen in USD, EUR/USD and GBP/USD. While each of those three markets were in full bloom with a recent trend, AUD/USD had held support above the .7000 big figure, indicating that a reversal in the US Dollar could provide some topside interest in AUD/USD. The pair did push down to a fresh low shortly after that webinar, but the corresponding move has been interesting as prices soon firmed back-up to fresh two day highs.

This isn’t quite a hammer formation as there’s been a bit of pullback from the two-day high, but there is similar potential as this setup does have the potential to show a bottoming-out effect after this morning’s false breakout. Hammers can be useful for trying to trade bullish reversals, as the extended wick may be showing an element of capitulation as fresh lows were tested during that period; and this was followed by a very strong response that saw buyers push above the prior bar’s high. Also of interest is the possibility of lodging stops below the .7000 big figure on the chart.

AUD/USD Daily Price Chart: Surprisingly Stable During Two-Week Run of USD Strength

audusd aud/usd daily 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