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Classic Technicals: The Week Ahead, June 17 - 22, 2012

Last updated 6/17/2012 12:01 PM EST (GMT -5) 0 Comments - Add your comment

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Matthew Weller

Technical Analyst, GFT

Follow @MWellerFX

Technical Developments to Watch:

EUR/USD testing 1.2650 resistance

GBP/USD rallying, room up to 1.5800 resistance next

USD/JPY rangebound between 78.00 and 80.00

USD/CHF at .9500 support

USD/CAD to turn bearish on break through 1.0200

* Bias determined by the relationship between price and various EMAs.  The following hierarchy determines bias (numbers represent how many EMAs the price closed the week above): 0 – Strongly Bearish, 1 – Mildly Bearish, 2 – Neutral, 3 – Mildly Bullish, 4 – Strongly Bullish.

EUR/USD

EUR/USD falls sharply Monday, but recovers to close near weekly highs

The EUR/USD had a volatile week, with rates gapping higher before tanking on Monday, then taking the entire week to recover back to the post-gap highs. As the week drew to a close, the pair was testing key previous-support-turned-resistance from the August 2010 lows. From a technical perspective, a break and daily close above this level would open the door for further rallies to the next level of resistance at 1.2800, a view bolstered by the rising MACD (bullish momentum). However, this week’s trade is likely to heavily driven by fundamental developments, including the highly anticipated Greece election results and the FOMC meeting on Wednesday, so technical traders should be wary of the potential for sudden reversals.

GBP/USD

GBP/USD consolidates for most of the week before surging on Friday

The GBP/USD was very quiet for most of last week before volatility finally picked up on Friday, pushing the pair above its 20-day EMA to test resistance 1.5650. This level represents a significant previous floor from February and March, and with rates currently above this barrier, a move up to the next level of resistance at 1.5800 is likely. As with the EUR/USD, it will be crucial to keep an eye on the major fundamental developments this week, especially if the Greek election results disappoint – with rates overbought at this point, any pullbacks that emerge could be substantial.

USD/JPY

USD/JPY hibernates through early part of week before dropping on Friday

Trade in the USD/JPY was absolutely anemic for the first 4 days of last week, but the pair finally woke from its stupor with a quick drop on Friday. At this point, the pair is in the middle of the recent range from previous support at 78.00 up to key psychological resistance at 80.00. The secondary indicators are not providing much additional insight, with the MACD moving sideways near its single like and the Slow Stochastics showing rates are far from overbought or oversold levels. For this week, traders should keep an eye on the 78.00-80.00, with buying opportunities favored near the low end and sells favored on bounces toward 80.00.

USD/CHF

USD/CHF pulls back to .9500 round handle

The USD/CHF gapped lower to begin the week, and after a big surge Monday, eventually closed the week near where it opened at the round .9500 handle. With rates inching below the 20-day EMA, a confirmed break below the .9500 floor would be very bearish. The momentum (MACD) has turned lower, confirming the bearish bias but trade early this week will depend on the market’s reaction to the Greek elections. Beyond that, USD/CHF traders should watch the technical and fundamental developments affect the EUR/USD, because as we noted last week, trading the USD/CHF is pointless right now.

USD/CAD

USD/CAD consolidates between 1.0200 and 1.0300

Like a number of other currencies, the Canadian dollar gapped higher against the greenback to start last week and ended up closing the week near the same level as it started. The secondary indicators are fairly bearish, with the MACD in bearish territory, and the Slow Stochastics not yet oversold. For this week, the round 1.0200 handle will be the proverbial “line in the sand”: a drop through this floor would suggest more weakness toward the next potential floor at 1.0050 whereas the bias will remain neutral above this level.

AUD/USD

After unsuccessful tests of the key parity (1.00) resistance level on Monday and Wednesday, the AUD/USD finally broke through on Friday. Currently, the MACD is trending higher above its signal line, suggesting strong bullish momentum on the breakout. Rates are currently overbought, with the Slow Stochastics above 80, but as we often note, currency pairs can stay overbought for a long period of time in a strongly trending environment, so a move up to the next level resistance would not be surprising this week. Meanwhile, parity could put a floor under any near-term pullbacks that emerge this week.

NZD/USD

The Kiwi followed a developing bullish trend line higher last week, breaking to new 1-month highs above .7800. Other than that, the picture is similar to that of the Aussie: the MACD is showing strong bullish momentum, and though the Slow Stochastics are currently overbought, there is scope for further rallies up to the next level of resistance before a pullback. In the NZD/USD& #8217;s case, that next level of resistance sits at the key psychological level at .8000, which may make a logical target for intermediate-term buy trades this week.

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About The Author

Matthew Weller has been actively trading the various financial instruments including stocks, options, and forex since 2005. From his first exposure to forex, Matt was fascinated by the vast liquidity and volatility offered 24 hours a day in the forex market. He has specialised in currency trading ever since.

Matthew focuses on candlestick patterns and pivot points to identify logical trade entries and exits. In addition, he has discovered a passion for teaching others about trading and has conducted over 400 educational webinars on different aspects of trading the forex market. His analysis has been quoted in Reuters, MarketWatch, and on the NASDAQ newswires.