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FX Technical Weekly: Was the EUR/USD Drop a Trap?

FX Technical Weekly: Was the EUR/USD Drop a Trap?

2016-11-04 21:17:00
Jamie Saettele, CMT, Sr. Technical Strategist
Share:
  • EUR/USD time of range nears 2x trend length
  • USD/CHF follows through on reversal
  • Copper’s big behavior change

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--Quarterly charts and comments

EUR/USD

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

High Frequency Trading Tools

-Recent weekly analysis noted that “the near term EUR/USD breakdown could certainly ‘launch’ a more important move but there are several levels to pay attention to in the event that this move is a trap. The notable level to watch is the 30 year trendline near 1.0880. The other spot to watch is 1.0820; the May and July 2015 lows…there is a history of near term capitulation and even bigger reversals towards the end of October. Examples include 2013, 2011, 2009, 2008, 2004 and the all-time low in 2000…watch 1.1040 for resistance. A settle above would indicate a change in behavior, especially since the 30 year trendline held again.” EUR/USD took out 1.1040 and closed near the high of the week. As such, it’s certainly possible that the drop into October was another false breakdown (short term) that could launch a major advance. The next hurdle is the late September high at 1.1280. I’ll note that it will be 88 weeks since the March 2015 low in 2 weeks. This is interesting because the trend from May 2014 to March 2015 consumed 44 weeks. In other words, the current range contraction has exceeded the prior range expansion by a factor of 2 with respect to time. It seems natural that the next expansion (trend) should begin soon.

As always, define your risk points (read more about traits of successful traders here).

-For forecasts and 2016 opportunities, check out the DailyFX Trading Guides.

GBP/USD

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-A re-test of the trendline that extends off of the 1993 and 2001 lows would result in a move back near 1.2800-1.2900. Price action since the 10/7 crash could be forming a base to initiate a move towards there but it’s still early. On a longer term basis, “there may be no real support until early 2017 based on the 96 month (8 year) cycle low count. That cycle count is shown on this chart. A price level of interest is where the decline from the 2014 high (1.7191) would be equal to the 2007-2009 decline in percentage terms (36% declines). The math produces 1.0970.”

AUD/USD

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-AUD/USD continues to tap dance at the top of its year-long range. Since August, AUD/USD has failed just above .7700 6 different weeks. The market clearly has a vested interest in .7700. The outlook is murky until the level breaks. To review, “AUD/USD remains capped by major slope resistance after finding low earlier in the year at ‘macro’ slope support (see the link to the quarterly charts at the beginning of the report). The bullish breakout level (weekly closing basis) is .7719. Strength through there would signal that a basing process is complete for a move to the mid-.80s.”

NZD/USD

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-NZD/USD is back at the ‘magnetic’ 1985-1993 trendline, which has been resistance since June. In fact, Kiwi was never able close above the line on a weekly basis (plenty of wicks above). Ideally, the next few weeks clarify whether or not trade since July is a topping pattern (possible head and shoulders) or simply consolidation within a bullish channel towards higher levels.

USD/JPY

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-FXTW has suggested for some time that USD/JPY trade since Brexit is a triangle. This interpretation gains traction with each passing week. This week’s drop followed through on the 10/28 reversal from the well-defined 105.50 (May low…near the October 2014 low and January 2014 high). The implication is that price trades lower to sideways for the next few weeks before thrusting to the downside.

USD/CAD

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-Parallels to the trendline that originates in 2012 have identified some big turns; the May 2015 low, May low and high, and the July high. The May and July high were actually identified by the parallel from the 2011 high (former channel top). USD/CAD is back at the parallel again so pay attention! Failure here could be a big deal and lead to the previously suggested wedge breakdown. A push higher would expose a cluster of technical levels in the 1.3800s. Extremely narrow ranges sometimes indicate the proverbial ‘calm before the storm’. This week’s range is the smallest non-holiday range since the week that ended August 2014.

USD/CHF

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-FXTW wrote last week that “the pop and drop on the November 2015-January trendline may signal a bull trap and allow the downside to win out. Recent comments remain valid. “USD/CHF remains subdued but its time will come (perhaps this quarter given the time symmetry described here). The shape of trade since 2011 is a wedge. Wedge support has held throughout 2016, thwarting the bear camp time and again.” The next test may not hold.

Bonus Chart

Copper

Weekly

FX Technical Weekly: Was the EUR/USD Drop a Trap?

Chart Prepared by Jamie Saettele, CMT

See REAL TIME trader positioning

-Copper is trading near range highs but an important behavioral shift has taken place with the break above a parallel that has provided support and resistance since 2012. For more on copper, please check out this video.

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