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Near-term Trade Setups in EUR/USD and USD/JPY

Near-term Trade Setups in EUR/USD and USD/JPY

2018-10-19 18:49:00
Michael Boutros, Strategist
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EURUSD Daily Price Chart

EUR/USD Daily Price Chart

Heading into the start of the week, our latest EUR/USD technical outlook highlighted a key resistance range in price with our ‘Bottom Line’ noting that, “From a trading standpoint, look for possible price exhaustion on a rally into 1.1617/27 – the trade remains constructive while above 1.15.” Price registered a high at 1.1621 before reversing sharply early in the week with the decline taking out all our support targets before briefly breaking below our bullish invalidation level to test the monthly range low. Friday’s reversal is now poised to mark and outside-day reversal off slope support- so was that it?

The reversal does bode well near-term and heading into next week, we’ll want to see price stabilize above the 1.15-handle to suggest the ‘washout’ is over. Topside resistance objectives at the weekly open at 1.1540 and back again by 1.1617/27 – a region defined by the monthly open & opening-range highs, the 50% retracement of the late-September decline and the 100-day moving average. Weakness beyond the monthly low-day close at 1.1490 would leave the pair vulnerable with such a scenario exposing 1.1411 and the yearly low-day close at 1.1345.

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EUR/USD Trader Sentiment

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  • A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at +1.27 (55.9% of traders are long) – weak bearishreading
  • Traders have remained net-long since October 1st; price has moved 0.8% lower since then
  • Long positions are13.4% lower than yesterday and 2.8% higher from last week
  • Short positions are 8.2% lower than yesterday and 8.5% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet, traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed EUR/USD trading bias from a sentiment standpoint.

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

USD/JPY Daily Price Chart

USD/JPY Daily Price Chart

Earlier this week we highlighted a key support barrier in USD/JPY at the lower parallel of a pitchfork formation extending off the yearly lows. The region in focus was 111.60/76 and is defined by the, “September opening-range highs and the 61.8% retracement of the August advance.” The low this week registered at 111.63 with the subsequent rebound taking price back into yearly open resistance at 112.65.

The focus heading into next week is on a break of this range just above slope support with a topside breach targeting 113.08/27- an area of interest for price exhaustion and a good place to reduce / close long-exposure and look for possible short-entries. Intraday trading levels are unchanged from this week’s USD/JPY Technical Outlook. Review this week’s Strategy Webinar for an in-depth breakdown of these setup and more.

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-Written by Michael Boutros, Currency Strategist with DailyFX

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

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

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