FX Setups for the Week of November 19, 2018
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Dollar Sets a Bull Trap and then Reverses Early-Week Gains
Markets have just passed the mid-point for Q4, and so far it’s been a busy quarter with a number of key themes still developing. A bit of caution has started to show at the Fed, as indicated by FOMC Chair Jerome Powell’s comments this week. While this may not be enough to create a hold at the bank’s December rate decision, it could play-in to a softer stance as markets roll in to 2019, and for emerging markets that could be a very welcome occurrence. In the UK, Brexit just seems to get messier and messier and for its part, the British Pound doesn’t appear to have much for directional biases as this week’s may-hem saw prices remain within the same range that’s been present for the past couple of months on the GBP/USD chart. And in Europe, a rift remains between Brussels and the Italian government after Italy re-submitted a very similar budget to the European Commission as what the EC had rejected in October. Will the EC move to punish Italy? That could create an even more acrimonious backdrop around discussions.
Also of issue for next week – Thursday is a market holiday in the United States, and Friday will probably bring low liquidity as well as the Thanksgiving holiday leads into Black Friday. This could make for an especially troubling backdrop in the latter-portion of next week as low liquidity is met with a couple of themes that could bring large drive into related markets. Below, I look at four price action setups designed for next week.
US Dollar Four-Hour Price Chart
Chart prepared by James Stanley
Bearish EUR/USD Below 1.1550 for USD-Strength Strategies
This has been my favored market for US Dollar strength for a while now, and this week started with another down-side breakout down to a fresh low. Sellers slowed the throttle as a big long-term Fibonacci level neared around 1.1212, and the last four days of this week were met with a retracement as buyers pushed back. But, there’s a major issue that could continue to bring bears into the mix, and given recent price action, EUR/USD remains as one of the more attractive candidates for long-USD strategies.
For next week, I want to re-incorporate the resistance zone that I had used earlier in the month that runs from 1.1448-1.1500. A lower-high inside of the 1.1500 swing that printed last week keeps the door open for bearish setups and stops above the psychological level, with initial targets set at 1.1355. Stops can go to break-even at the first target with secondary targets set to 1.1250 and, optionally, a third-scale left open to play for a down-side breakout to fresh lows.
EUR/USD Eight-Hour Price Chart
Chart prepared by James Stanley
Bearish USD/CHF Below 1.0090 for USD-Weakness Strategies
I had set this one up last week, essentially trying to call a top for a bearish reversal after the pair neared fresh two-year highs. The setup did not start out well as the initial move of USD strength this week saw prices push up to fresh highs; but the last four days of the week were a bit more positive for the bearish approach as a series of lower-highs led into a downside break on Friday. With prices now pushing back-below the parity level, the door remains open for bearish plays, and traders can look for a pullback to resistance at prior support for short-side setups (the zone below is indicated from 1.0031 up to 1.0050), which would open the door for stops above the swing high around 1.0090.
USD/CHF Two-Hour Price Chart
Chart prepared by James Stanley
NZD/USD Needs a Pullback, But Bulls Remain In-Charge
I’ve been following this one for almost a month now as October price action started to show a slowing of sellers at the lows. While the US Dollar was breaking out to fresh highs last month, NZD/USD put in a respectable hold of support combined with its own lower-highs. And when the US Dollar was finally able to display a bit of weakness, the Kiwi was set free to fly-higher on the charts.
The support zone that I was following for higher-low support came into play early this week. Bulls came in and have remained in control ever since. Buying at this point does not seem prudent as the pair is now at fresh five-month-highs, and a pullback can be in order for bullish strategies. A prior target level around .6819 could be helpful for such an approach. This can be connected down to the swing-low around .6795 to create a support zone to follow.
NZD/USD Four-Hour Price Chart: Pullback Potential From Fresh Four-Month Highs
Chart prepared by James Stanley
Bullish USD/CAD on Hold of Confluent Support
The past few weeks have brought an imbalance in short-side USD-setups as already in November I’ve looked at such in USD/CHF, USD/CNH, NZD/USD and AUD/USD. The more attractive long-USD setups was largely in the Euro as the British Pound started to get wild around Brexit-dynamics, but another long-USD setup may be brewing right now that’s worth keeping watch on, and that’s in USD/CAD.
The pair broke out to fresh four-month highs earlier this week, but seemed to encounter some turbulence around the 1.3250 psychological level. This led into a pullback on Thursday and Friday, and prices have moved down to a confluent support level around 1.3132, as a trend-line projection meshes up with a Fibonacci level.
This support would need to hold through Monday trade so as to not invalidate the setup, but if that support does hold the door re-opens for bullish setups with stops below either 1.3120 (for aggressive stances) or 1.3065 (for less aggressive approaches); and initial targets set to 1.3245 at which point stops can be moved to break-even. After that, the June swing-high is exposed around 1.3350, and that becomes a secondary target for a continued bullish move in the setup.
USD/CAD Four-Hour Price Chart: Confluent Support Test
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 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
