Friday’s Forex Trading Setups: Will the EURUSD Spike Hold?

EURUSD

The EURUSD is higher on an agreement among EU leaders at its Economic Summit to allow repayment obligations of bank bailout funds to be junior to existing sovereign debt.  As such, the EURUSD is currently trading around 1.2600.  However, as seen by previous spikes higher in the EURUSD after EU related headlines that faded quickly, the pair could be vulnerable again today.  As such, before getting too excited about today’s EURUSD strength, Forex traders should watch where the EURUSD ends up today and opens next week.   If the pair falls back into its previous downward channel (see chart) it would reveal that Forex traders remain skeptical towards the pair and would be vulnerable to further weakness next week.  On the other hand, it the EURUSD manages to close the week above 1.2600 and holds onto its current strength, this would be a bullish signal for the pair.  Such a scenario would bode well for continued upside next week.

EU Economic Summit Preview: What to Watch

The EU Economic Summit is upon us.  However, even though things got started today, the real fireworks are expected to occur tomorrow as these events never lead to agreements on the first day.  Until the conclusion we can expect lots of rumors and volatility in the Euro.  Overall, this probably isn’t a time to be over leveraged with Euro positions as the risks are just too high. 

That being said, the real opportunities are after the Summit.

Dollar Rally Pauses

On the big surprises yesterday was the GBPUSD as it traded higher on negative remarks from the Bank of England's Governor Mervyn King.  The pair hit a high of 1.5650, and has since stayed comfortably above 1.5600.  The move was part of an overall drop in the USD yesterday which also saw the USDJPY trade lower, the AUDUSD higher, and the EURUSD going sideways, even as the Euro was weaker against other major currencies.

This leads us to today's trading where US economic data will be headlining the events later on in the day, as US Durable Goods Orders and Pending Homes Sales numbers will be released.  Depending on the outcome, it could cause a continuation of yesterday's dollar weakness.

EURUSD: As the chart below shows, the EURUSD hit a new low for the week yesterday on negative news from Italy, but quickly rebounded back around 1.2500.  The lack of selling momentum even with the Italian news indicated that Forex traders may not yet be ready to go full throttle on selling the pair.  As such, if today's US figures are worse than expected the EURUSD could be positioned to breakout higher if it trades above its 1.2520 intraday resistance.  

GBPUSD: After holding most of its post Inflation Report gains, the next step for the GBPUSD is to trade and hold above yesterday's highs.  On such a scenario, it would reveal that yesterday's buying momentum has staying power and could trigger a longer rally towards the 1.5800 figure.

Forex Today & The Week Ahead

While not much news is expected today other than the US’s New Homes Sales the week is slated to possibly be pretty exciting for Forex traders. Firstly, following today’s US housing figures, we will see further housing numbers from the US along with Durable Goods orders on Wednesday.  The US data will be critical to whether the USD will extend its rally following last week’s FOMC Meeting.

The big event for the week will be the EU Summit which starts on Thursday.  EU leaders will be discussing the future of bailouts, Eurobonds, and collective responsibility.  The Euro is expected to see volatility before and during the summit as Forex traders will be reacting to  news and rumors of the potential EU actions.

USDCAD & USDJPY Two Breakout Candidates

This morning we have two potential breakout trades taking form.  The USDJPY is once again below 79.00 and has fallen back towards yesterday’s lows. In a similar vein, the USDCAD has been trendling lower but has been unable to break below 1.0190.  Both of these pairs could see a downside breakout if their support levels are broken.

USDJPY: The pair jumped higher to open the week following the Greek election triggered risk rally.  However, with fear returning to the EU, the pair has been unable to above the 79.00 figure.  Last week, we saw the USDJPY also find support above 79.00 before finally breaking below that level and hitting a low of 78.60.  As such, if the current short term support at 78.82 fails to hold, it could trigger a downside breakout to last week’s lows.  Beyond that level, momentum could take it to the low 78.00’s.

USDCAD: Unlike the NZD & AUD which have been breaking out against the USD, the CAD’s gains have been limited.  Currently, the pair is finding support just below the 1.0200 figure, even as it has been trending lower.  The current trading conditions have created a triangle trading pattern which could ultimately lead to a breakout lower if 1.0200 support fails (see chart).  Its worth watching price of Gold which have been range bound over the last few days, but are currently trading at 1630, their upper range.  If Gold finds momentum, it could lead to demand to in the CAD and trigger a move lower in the USDCAD.

Greek Election Preview

Its election time in Greece.  I’ll start out by saying that so far, the best piece of commentary I have seen was from a Bloomberg video “Here’s What Happens If Greece Leaves the Euro.” In just over a minute the video quickly surmises the pain that Greece will feel if it retruns to the drachma.  Its financial system will be paralyzed, inflation rises, and lots of unanswered questions will follow.  However, the video ends with the realization that at the end, a devalued drachma could just be what Greece needs to finally turn itself around.  Overall, regardless of the election, all paths appear to point to Greece leaving the Euro, however it’s all a matter of when.

Forex price action analysis NZD/JPY

The cross price action did exactly what we have been expected and wrote about on 13 of June. The pair started a bearish move after breaking the H4 candle’s low at 61.82. Further pressure was seen just before the rate decision of RBNZ. The NZD/JPY reached the support of the rising trend line and recorded a daily low at 61.32 and bounced back. From there bearish pressure was diminishing leading the pair to trade above 62.20 and closing our deal with a minimal lose. A re-entry could have been taken once the pair spiked creating a bearish candlestick right on the resistance line of the wedge. According to price action analysis of the NZD/JPY, the pair is zigzagging in a tight trading range with no clear direction for the next move. Meanwhile, It is highly recommended to stay out and to wait for the results of the election in Greece.