FX: some mean reversion starting? By Mary McNamara

Last week: the lack of movement with the US$ to start the week kept some pairs choppy and or range-bound for a while but AUD movement triggered a few trend line breakout trades last week. Taking a look at the weekly charts of a number of FX pairs makes me think that we could be in for some mean-reversion and there are a few significant weekly chart-based triangle breakouts worth tracking. US$ weakness kicked in on Friday and, if this continues, we could be in for some trending markets in what is supposed to be the quieter Summer months!

Trend line breakout tally: these trades were profiled mid-week here, here and here:

EUR/USD: 35 pips.
AUD/USD: 200 pips.
GBP/AUD: 200 pips.
EUR/NZD: 180 pips.
EUR/AUD: 320 pips.
USD/TRY: 750 pips.
USD/CNH: 320 pips.
NZD/USD: 80 pips.
GBP/JPY: 150 pips.
USD/JPY: 70 pips + 70 pips on Friday.
GBP/USD: 180 pips (detailed in today’s update)
AUD/JPY: 70 pips (detailed in today’s update)
Oil: 60 pips (detailed in today’s update)

This week:

US$: The US$ has broken through key support and looks like it could be on for some mean reversion of its own. Any continued weakness here could get some trends going across FX pairs so this is worth monitoring. A review of the FX Indices can be found through this link.
Central Banks: two Central Banks update interest rates next week: BoJ (JPY) and ECB (EUR).
Triangle breakouts: there are a number of weekly chart triangle breakouts in play:
- GBP/JPY: this has held out from a triangle breakout and has now also closed the week above the key 147 level. The weekly triangle could be worth up to 4,300 pips so this is worth watching for any bullish continuation.
- AUD/JPY: this has also held out from a weekly chart triangle breakout that could be worth up to 2,000 pips and so this is worth watching for any bullish continuation too.
- AUD/USD: the Aussie had a bullish week and made only the 3rd close above 0.77 in 18 months! I’ll be watching to see if the weekly triangle breakout continues here at all. This could be worth up to 1,700 pips.
- CAD/JPY: one worth around 1,600 pips.
EUR/USD: this pair is sitting just under the 1.15 S/R level and this has been effective resistance for the last 2 ¹/₂ years. Watch to see how this pair trades near this level in coming sessions.
Yen weakness: there has been a bit of Yen weakness of late but watch for any sentiment shift here with the BoJ rate update this week.
TC trading: a trade presented last week that gave a ‘text book’ style example of a TC trade, or what I refer to as an OPTIMAL TC Trade Signal. I have update my website to illustrate this example and the information can be found through the following link.
My charts: I use Profit Source software to chart FX & stocks etc from the daily time frame and higher and MT4 for charting 4hr and lower time frames. I use a demo account of MT4 for my extensive charting and only open a live MT4 account when trading. For some reason, my Profit Source is not updating FX for trade on Friday the 14^th though and this is impacting my weekly chart screen shots.
TC Trial Participants: TC signals in Asian session: there has been an increase in the number of TC signals triggering during the Asian session of late and I’m wondering if any continued US$ weakness will further develop this pattern. If so, keep an eye on the AUD, NZD, JPY and CNH pairs.

Calendar:

Mon 17^th: JPY Bank Holiday. CNY Industrial Production & GDP.
Tue 18^th: NZD CPI & GDT Price Index data. AUD Monetary Policy Meeting Minutes. EUR ZEW Economic Sentiment &CPI. GBP CPI & BoE Gov Carney speaks.
Wed 19^th: GBP Inflation Report Hearings. USD Building Permits & Crude Oil Inventories.
Thurs 20^th: AUD Employment data. JPY BoJ Rate update. GBP Retail Sales. EUR ECB Rate Update. USD Weekly Unemployment Claims.
Fri 21^st: CAD CPI & Retail Sales.

Forex: NB: Please note that for some reason, my Profit Source software is not updating FX for trade on Friday the 14^th though and this is impacting my Weekly chart screen shots.

EUR/USD: The EUR/USD chopped around under the key 1.15 level last week and this remains the level to watch as it hasn’t made a weekly close above this level in over 2 ½ years.

Watch the 1.15 level for any make or break in coming sessions:

Upper targets: any bullish breakout above 1.15 will bring the S/R level of 1.18, as the daily chart triangle breakout target, into focus.
Lower targets: any bearish retreat would have me looking for a test of the 4hr chart’s 61.8% fib followed by the 1.095 S/R.

Remember: The yield from the earlier triangle breakout is now up to 500 pips of a projected move that could be worth up to 800 pips. The target for the daily triangle breakout move is up near 1.18 and this is near the upper edge of the trading range for this pair since the start of 2015 (shown on the weekly chart below).

There is the ECB rate update next week as well as USD Building Permits, Crude Oil Inventory and Weekly Unemployment Claims to monitor.

EUR/JPY: This pair chopped around either side of the 130 S/R level last week.

Watch the 4hr chart’s Flag trend lines, the 130 level and monthly 200 EMA, for any new breakout:

Upper targets: any bullish continuation would have me looking for a test of the weekly chart’s 61.8% Fib, near 135.
Lower targets: any bearish pullback would have me looking for a test of the 4hr chart’s 61.8% Fib near 125.50.

AUD/USD: The Aussie has finally broken above the key 0.77 level and this is only the 3^rd time it has done so in the last 18 months! Recall that the Aussie is currently in a daily/weekly chart triangle breakout worth up to 1,700 pips.

I may have to refine my view of the Aussie with respect to TC trading. My experience over the last few years is that the Aussie hasn’t been the best of pairs to try with TC and I’ve said as much to my TC Trial participants. One look at the weekly chart may help to understand the reasons for this though as the pair has been in a sideways channel, essentially, since the start of 2015. However, there were signs of life last week with two TC signals in as many days as the 15 min chart below reveals. I’ll keep more of an open mind from here on just in case!

Watch the revised Flag trend lines and 0.77 level for any new make or break:

Upper targets: any bullish continuation above 0.77 would bring 0.80 and other whole numbers followed by the monthly chart’s bear trend line, near 0.90, into focus.
Lower targets: any pullback would have me looking for a test of 0.76, then 0.755 and then the daily chart’s 17-month support trend line and, after that, the monthly chart’s 61.8% fib which is near 0.72.

There is CNY GDP, Industrial Production & Retail Sales data to start the week on Monday, AUD Monetary Policy Meeting Minutes and Employment data as well as USD Building Permits, Crude Oil Inventory and Weekly Unemployment Claims to monitor.

AUD/JPY: The AUD/JPY chopped around either side of the 0.87 at the start of last week but closed above this key S/R level, as well as the 80 level, and is now only 90+ pips away from the key 89 S/R level.

Note that there is a weekly chart triangle breakout in progress here after the recent break of a 2 ½ year bear trend line and this could be worth up to 2,000 pips! This target is derived from the height of the triangle.

Watch for any continued bullish move from the 4hr chart’s wedge pattern and 88 level:

Upper targets: any bullish continuation would bring the 89 and 90 S/R levels into focus.
Lower targets: any bearish pullback would have me looking for a test of 88, 87, 86 and 85 S/R levels and then the bottom trend line of the daily chart triangle followed by 80 S/R and, after that, the daily chart’s 61.8% Fib near 79 S/R and then 75.

NZD/USD: The Kiwi again chopped around just under the key 0.73 level to start the week but ended up making a bullish weekly close above this level in continued defiance of those who are SHORTing at this level. This bullish move gave a 4 hr triangle breakout that has given just 80 pips so far.

Keep an eye out for any continued strength here though as, like with the AUD/USD and AUD/JPY, there has been a breakout from a weekly chart triangle that could deliver a lot of pips!

Watch for any continued run from the 4hr chart’s triangle breakout:

Upper targets: 0.74 as previous S/R followed by the weekly chart’s 61.8% fib up near 0.79.
Lower targets: 73, 0.72 and then 0.70, being the 4hr chart’s 61.8% fib and near the monthly pivot, and then 0.67 S/R.

There is NZD CPI as well as USD Building Permits, Crude Oil Inventory and Weekly Unemployment Claims to monitor next week.

GBP/USD: The Cable broke up and out from a bullish Flag pattern late last week and gave 180 pips in the process. There was also a TC 15 min chart trade that triggered along with this break as the cluster of charts below reveal.

I have used MT4 charts for the weekly chart in this instance. Note on this chart how there was a 4hr chart triangle breakout that triggered back in April. The height of this triangle is 1,600 pips and this would put the target up near 1.40.

Continue to watch the 1.30 level for any new make or break effort.

Upper targets: any sustained hold above 1.30 will bring 1.35, as previous S/R and which is near the 3-year bear trend line, followed by 1.40 into focus.
Lower targets: any bearish pullback below 1.30 will bring the 4hr chart’s 61.8% Fib near 1.275 into focus.

There is a bit of data to impact this pair next week from both the GBP and USD sides. There is GBP CPI, Inflation Report Hearings, a BoE Gov Carney speech and Retail Sales data as well as USD Building Permits, Crude Oil Inventory and Weekly Unemployment Claims.

USD/JPY: The USD/JPY was pegged by the recent S/R level of 114.5 last week and gave two separate moves lower worth 70 pips each.

Watch the revised 4hr chart’s triangle for any new breakout move:

Upper targets: any bullish breakout will bring the 114.50 and then the weekly chart’s upper triangle trend line into focus.
Lower targets: any bearish retreat will bring the 4hr chart’s 61.8% fib, near 111, into focus.

There is the BoJ rate update next week as well as USD Building Permits, Crude Oil Inventory and Weekly Unemployment Claims to monitor.

GBP/JPY: The GBP/JPY has chopped around either side of the 147 S/R level after breaking out above the weekly chart’s major 22-month bear trend line. Like with the AUD/JPY though, this trend line breakout is most significant as it represents a weekly triangle breakout that could be worth up to 4,300 pips. This target is derived from the height of the triangle.

Watch the revised 4hr chart’s triangle trend line and 147 level for any new make or break:

Upper targets: any bullish breakout above 147 would bring the weekly chart’s 61.8% Fib, which is up near 168, into focus.
Lower targets: any pullback would have me looking for a test of the 4hr chart’s 61.8% fib, near 142.

GBP/AUD: I’d previously mentioned this pair looked like it was setting up in a Bear Flag on the 4hr chart and we got a bearish breakdown move last week for 290 pips. Price has now pulled back to the recent low and the whole-number 1.66 level and this looks to be the area to watch for any new make or break.

Watch the revised 4hr chart’s trend lines and 1.66 for any new breakout:

Upper targets: The 4hr chart’s bear trend line, then the 1.75 level followed by 1.80, as previous S/R, and then the 20-month bear trend line.
Lower targets: any pullback below 1.66, would have me looking for a test of 1.601 S/R.

GBP/NZD: The GBP/NZD has been in a sideways channel, and very close to the key 1.77 level, for the last 2 ½ weeks.

Watch the key 1.77 level and 4hr chart Channel trend lines for any new make or break:

Upper targets: The 1.80 level followed by the monthly charts bear trend line, that intersects near the 4hr chart’s 61.8% fib, and then 1.90 as previous S/R and, after that, the weekly chart’s 61.8% Fib near 2.20 S/R.
Lower targets: any deeper pullback would have me looking for a test of the previous low, near 1.74, and then the 1.67 S/R level.

EUR/AUD: This pair rejected the 1.50 S/R level, which also happened to be the 61.8% fib of this recent swing low move, and gave a new bearish move for 320 pips last week. Note how price stalled near the recent low of 1.46; a level I’d mentioned to monitor over recent weeks.

Watch the revised 4hr chart’s triangle trend lines for any new make or break:

Upper targets: any bullish breakout will bring 1.50, then the previous high, near 1.52, followed by the 9-year bear trend line and, then, the previous S/R level of 1.55 into focus.
Lower targets: any bearish pullback below 1.46 would bring the 1.40 level into focus.

EUR/NZD: The EUR/NZD stalled last week right at the 4hr chart’s 61.8% of the recent swing low move and gave a bearish move from there.

Watch the 4hr chart’s revised triangle trend lines for any new breakout:

Upper targets: any bullish breakout will bring the 4hr chart’s 61.8% fib and recent high, near 1.585, then the key 1.60 and 1.675 S/R regions, followed by the 9-year bear trend line into focus.
Lower targets: any bearish breakout will bring the previous low, near 1.52, and then the 1.50 into focus.

USD/CNH: This pair broke down from a 4hr chart triangle pattern last week for a 320 pip move and price has now broken down from a larger daily chart triangle. However, the USD/CNH remains within the longer-term weekly chart trading channel, with about 500 pips between current price and this support.

Watch for any hold below the daily chart’s bottom triangle trend line to target the weekly chart’s bottom channel trend line:

Upper targets: watch for any bullish pullback to target the daily charts broken triangle trend line.
Lower targets: any bearish breakdown would have me looking for a test of the weekly chart’s bottom Channel trend line and then the recent low, near 6.70, followed by the weekly chart’s 50% fib near the previous S/R level of 6.50.

USD/TRY: This pair remains up and out from the 6-month Flag pattern but pulled back last week to near the 78.6% fib of the swing high breakout move.

Watch the revised 4hr chart’s triangle for any new breakout move:

Upper targets: any bullish breakout will bring the recent high near 3.65, followed by the key 4 level, as long-term resistance, into focus.
Lower targets: any bearish breakout will bring the recent low, near 3.49/50, followed by the weekly chart’s 61.8% fib and, after that, the 3.10 region as previous S/R into focus.

CAD/JPY: this pair continues on from a bullish triangle breakout too; this one being worth about 1,600 pips.

Watch the 4hr chart’s triangle trend lines and the key 89 level for any new breakout:

Upper targets: the weekly chart’s 61.8% fib, near previous S/R of 95.
Lower targets: any bearish break will have me looking for a test of the 4hr chart support trend line and, then, the 4hr 61.8% pullback which is near the previously broken 2 ¹/₂ bear trend line.

USD/SEK weekly: watch for any pullback following this trend line, and then Flag, breakdown to head to test the 61.8% fib; near 7.50:

USD/ NOK weekly: watch for any pullback following this Flag breakdown to head to test the 61.8% fib; near 6.80:

Commodities:

Gold: Gold made a bullish breakout on Friday from a 6-week descending trading channel. There is considerable resistance above from the 6-year bear trend line that now intersects just below the $1,265 level though.

Watch for any continuation from the bullish descending trading channel breakout:

Upper targets: any bullish continuation will bring the 4hr chart’s 50% fib, near $1,250, and then the 4hr chart’s 61.8% fib, near $1,265 S/R and the 6-year bear trend line and, then, the weekly chart’s 61.8% fib near $1,600 into focus.
Lower targets: any bearish retreat will bring the 4hr chart’s 100% fib level, near $1,200 S/R, into focus.

Silver: Silver remains quite messy after that spike lower move. This is giving the weekly chart a bit of a ‘Double Bottom’ look to it though.

Oil: Oil has continued to hold above the 50% fib of the swing high move since Dec 2015. Price action broke up and out from a recent 4hr triangle on Friday though so watch for any continuation from this move.

Watch for any continuation from the bullish 4hr chart triangle breakout:

Upper targets: the 4hr chart’s 61.8% fib of the recent swing low move, near $48, and then the daily/weekly/monthly chart’s upper trend line into focus.
Lower targets: any bearish retreat will bring the recent low, near $42, and then the $40 S/R level followed by the weekly chart’s 61.8% Fib, near $38.50, into focus.

Note: There is 2-year bear trend line above current price and this also forms the monthly chart’s ‘Neck Line’ for a potential ‘Inverse H&S’ pattern. This pattern has a height of approximately $30 or 3,000 pips and this puts the target for any breakout move up near the $85 level which ties in with the 50% Fibonacci of the 2008-2016 swing low move.