Weekly Forex Trading Outlook 2-14-2016

Hi team! We’re on the cusp of yet another forex trading week. I’m as excited as ever!

Last week we had some awesome setups and great volatility providing a number of opportunities. Congrats to everyone that bagged pips while trading along with us in our Forex Factory thread. I’m looking forward to seeing you all there again this week.

But before we get going, let’s dig into some charts so we have a roadmap and plan for the week ahead.

EUR/USD: Uhh… What Now?

Last week I closed the EUR/USD analysis with this nugget:

“My plan is to wait for a retest of the 100 hour moving average (wherever that might come in) and initiate a small position. If it goes lower, I’d look to buy a bit more.”

That’s exactly what I did as mentioned in our ForexFactory thread. The trade worked nicely, trading right up to our target of 1.1325 that was first mentioned in my mid-week update the previous week.

If you followed along, you made a nice 225 pips or so. So what’s up next for the EUR/USD? Great question! So far it’s clear that the pair was rejected off the daily trend line resistance:

EURUSD DAILY

So one approach would be to wait for ~1.1300 or a bit higher to try some shorts. But let’s take a look at a smaller timeframe, the 1-hour chart:

EURUSD 1-HOUR

Here we can clearly see that the Euro is in an uptrend. We’re trading at the bottom of a trend channel with the 200 hour moving average a bit below that. This could provide some support and basis for a long position.

If I were looking for a trade to hop into early on Sunday this would definitely be a good one. I’d probably only be comfortable taking this trade for ~100 pips to see how it reacts up in the 1.13’s again. And that’s not generally my style. I may wait to see how things develop, but the trade is there if I’m antsy for something.

USD/CAD: Is This Thing Going to Go Anywhere?!

Last week I said I was looking to short this pair. Most of the week for USD/CAD was pretty boring until I found this nugget. The rising wedge gave me confidence to take a short position in USD/CAD (near the top of the wedge) with a tight stop loss and make a play for my short bias.

Sure enough, the pair broke down. Here’s a look at the current 4-hour USD/CAD chart:

USDCAD 4-HOUR

Here you can clearly see the wedge I drew, but it’s much easier to spot and trade from a 1-hour chart:

USDCAD 1-HOUR

The reason I wanted to show both of these charts is because I want to show that USD/CAD is in at least a temporary downtrend. That’s much clearer from the 4-hour chart. I closed my shorts on Friday at 1.3830; my plan now is to get short again on a test of the bottom of the wedge previous support (hopefully) now resistance. That level should come in a bit above 1.3880 — so that’s the spot I’ll be starting to sell.

My target for those shorts would be about 1.3550. There are several reasons that make this level an attractive target. But we need to go out to the daily chart to see them:

USDCAD DAILY

There are three support points that line up with 1.3550. First, there’s the 100 day moving average which actually comes in slightly above at 1.3581 right now. The blue, upward sloping trend line comes in at ~1.3535. And finally, the 61.8% fib retracement level comes in at ~1.3543. These are the reasons I like targeting 1.3550.

If we trade down that far, an aggressive play would be to buy that level. A more conservative play would be to wait and see what kind of reaction there is. Waiting a couple days is not out of the question. Of course, if we were to break below the blue trendline all bets are off for longs.

GBP/JPY: What a Week!

It was a heck of a week if you’re a GBP/JPY trader. The pair had a 1,082 pip range for the week. Wow! I would have loved to report that we caught all those pips, but that’s not the case. We were able to bag a fair number of them though.

Last week I left things a bit wishy-washy. And they certainly were. It wasn’t 100% clear that GBP/JPY was going to continue the downtrend. In hindsight, we should have taken that bias because it was the current trend. Oh well.

Fortunately we were able to get short and catch a ton of the down move. But what’s even better yet is that GBP/JPY closed out the week with a much clearer picture of what to expect this coming week. Let’s dig in with a look at the weekly chart:

GBPJPY WEEKLY

As you can see, GBP/JPY had its lowest weekly close since 11/18/2013. The 200 week moving average appears to be in danger as price pushed through it last week. I’d expect more downward pressure on this pair this coming week.

You’ll also notice that the 50% retracement level from the loooong run up comes in at 156.26 which coincides incredibly well with the 76.4% fib extension level I drew from more recent moves. Based on this, the 156.50 level seems like a reasonable target to shoot for. We may even see it trade this week. Wouldn’t that be nice!

If we zoom way down to the 1-hour chart we can see price action is behaving quite nicely:

GBPJPY 1-HOUR

The recent pullback was capped at lows put in on two different occasions: 1/21/2016 and 2/9/2016. Not only that, the blue downtrend line coincided beautifully with the 100-hour moving average to offer more points of resistance.

Seeing all of this play out, I couldn’t help myself and took some shorts on Friday afternoon. Several other traders joined me; I’m currently short with an average price of 164.44.

The coast will be clear once we break the current bear flag we’re trading in. It’s easy to see this on the lower 15-minute timeframe:

GBPJPY 15-minute

A conservative trader could wait for this flag to break. There’s nothing that says it can’t break higher, so that’s the risk of getting short now.

All that being said, I’m going to attempt to play this trade a bit differently than I normally do. Although I outlined a target profit of 156.50 above, I’m not going to set a limit order to cover at that spot.

Instead, I’m going to systematically move my stop loss down each day. My rule to execute this will be to move my stop 20 pips above the two day’s previous high. So for example, when trading opens on Sunday, my stop will be 20 pips above Thursday’s high. On Monday, assuming I don’t get stopped out, my stop loss will be 20 pips above Friday’s high. And so on…

Eventually I will be stopped out on a correction higher or forced to close the trade manually if the new day’s stop loss level would actually put it below the current price.

The goal here is to attempt to try and capture a larger move than I otherwise would setting specific targets. I’ve never tried this before, but I’ll let you all know how it works out.

USD/JPY Breaks Key Support

Last week I had this to say about USD/JPY:

“I have a hard time seeing USD/JPY moving lower from these levels in the very short term. I think it’s far more likely that we trade up into the mid 119’s. And if we’re to see a large drop through support, it’s going to start from us going higher to the middle of the range, failing, and then dropping hard.”

Man, was I wrong!

The worst part of this thinking was that it ended up leaving me to believe that it would also drag GBP/JPY higher for a retracement. This is a big reason why we missed the initial down move in GBP/JPY last week. But let’s look more at USD/JPY. Take a look at the daily chart:

USDJPY DAILY

Not only did USD/JPY drop right through the lower trend line of the downward sloping channel, but it crushed right through key support at 116.00. As expected, once breached, the drop was significant.

There’s now a lot of chatter about 110.00 being the “next support”. I’ve marked that level with the lower dashed blue line. As you can see that support goes back to September/October 2014 where it served as resistance.

So while we could expect USD/JPY to trade down to 110.00, it could also move higher before doing so. A retest of 116.00 as resistance can not be ruled out. In this situation I favor shorts. The trend is now down and until we get a signal on a lower timeframe that we’re in for a deeper correction, we’re in selling rallies mode.

That all being said, I probably won’t take a trade in USD/JPY because I’m favoring trading GBP/JPY instead. I don’t want to get over exposed a Yen position.

GBP/USD: More Range Trading?

I made a few pips on some GBP/USD longs last week. But I stayed out of the pair for the most part as it just wasn’t doing much. For now, we’re stuck in a range as we can see from the 1-hour chart:

GBPUSD 1-HOUR

The smart thing to do here is to wait for the range to break and take a trade in that direction once it does. Looking at this chart it’s clear that the pair could break either way, but when we look at the daily chart I do start developing a bit of a bias:

GBPUSD DAILY

There’s a lot going on in this chart. First, we can see that the move up stalled out not only at the 100-day moving average but also at the 50% retracement level of the most recent down move. This all happened early in the month on the 3rd and 4th.

But looking back to March and April last year we see that GBP/USD found a temporary bottom at nearly the same level as the two resistance levels I just mentioned. All this action happened right around 1.4670.

When you start putting this all together, you can see why one might develop a downward bias. Trends are difficult to reverse and more likely than not they tend to continue. Betting with the trend is putting the odds in your favor.

So, in short, I’m not taking a position in GBP/USD yet. I have a short bias and if I wanted to get aggressive I might sell the top end of the 1-hour range with a very tight stop. This is the same type of trade setup I took with USD/CAD last week; it worked well.

But a more conservative trader would wait for a break of the hourly range and then hop in a trade. Remember, it could still break higher… time will tell.

 

It feels like another week of solid opportunities presenting themselves to us. I hope everyone is ready to bag some pips! Please share your thoughts in the comments and let me know if I overlooked something.

 

Geppy

I've been involved in the forex markets for over a decade, initially starting as an FX trader at Allston Trading in Chicago. Eventually I went on and founded my own (non trading related) company. I spend my days working from home and trading forex, equity, and crypto markets.

15 thoughts on “Weekly Forex Trading Outlook 2-14-2016

  1. Geppy, Very nice upcoming market anaylisis. seems, logical and convincing. Joined your ff thread too and try to learn from this group as swing trader.Thanks Geppy………Happy trading this week

  2. Geppy, some awesome analysis, I also used to be an ex finance guy for an IB. Enjoying your style and intricate details of using fibs along with MA’s, and pure PA. Let me know if theres books/materials I can read to implement such analysis on a weekly/daily basis. Thank you, hoping to learn from you buddy, loving your method.

    1. Thanks, Bobski. Not sure on books to learn a similar style to what I do. Honestly, I’ve put it together here and there on my own over the years just trading and learning from my mistakes. Glad to have you here though!

  3. Hi Geppy, Started to review you updates. I am retired and past my prime age.
    Your judgement is logic and sound . I have fate in you and thank you for sharing.

    1. Alex, what I wouldn’t give to be retired and just trading Forex all day 🙂

      Thanks for the kind words, I hope to see more of you.

  4. I must say. I never met a trader with a style so much like my own. After breaking through tens and tens of strategies, after years of trading I just settled with basic trend lines and support and resistance. I love what you’re doing here. Already subscribed, I got much to learn here. Thanks for doing that, and always love what you do 🙂

  5. Hi Geppy,
    I have just found this thread/blog, literally a few hours ago, and it resonates with me. I like your style. I have alot of catching up to do but one quick question: How do you settle on a stop loss figure – last swing high? 200 pips? last support/resistance?

    Thanks in advance,
    Bill

    1. Hi Bill, glad you found us!

      Stop losses are also discretionary. I don’t have rules in terms of number of pips from my entry.I always look for a logical support or resistance area to put my stop above or below. And obviously, it should always correspond with a favorable risk/reward.

  6. Morning Geppy.
    I traded GBPJPY yesterday, nice work on this one. I’m wondering on going in short today as well. There still seems to be a pretty good amount of pressure, but market holds 163-ish lvl.
    Would you still consider going in short up until 156.5 you mentioned?
    Looking at W1 chart, there really seems to be nothing there to stop current rush until that level.

    1. Hi Sulik, if you follow our ForexFactory thread (mentioned in the beginning of the post) you’ll be able to see our current stance/bias on the trades I mention here.

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