Currency market: FX next week

Brian Twomey Brian's Investment

Most dangerous currency market situation occurs when a currency price trades oversold to more oversold and overbought to more overbought. Doesn't happen often but when it hits, a market price fails to correct as the price continues its fall or its rise. And the rise and fall is deep to encompass 100's if not 1000 pips.

GBP/USD in 2019 was the first time to identify such a treacherous phenomenon when GBP/USD dropped every week for 6 solid weeks from 1.2900's to 1.1900's. No warning exists to such a situation. The revelation must come quickly or losses are suffered. Explains why GBP currencies are separated from overall trade rankings. The idea is if it transpired once then it may develop again.

GBP/USD in 2019 however was an isolated incident as non USD currencies failed to follow trade to more oversold. Today is different as all currency prices are on board to trade more oversold or more overbought. Once a leader currency trades to different degrees of oversold and overbought then the plebeians of the Roman army naturally follow.

GBP/USD for example since last Thursday dropped 400 pips from oversold 1.1900's to current 1.1500's in 5 straight days of red candles. GBP/USD's drop from 1.2300's to 1.1500's occurred in 5 weeks against 4 red weekly candles.

AUD/USD as the next partner currency to GBP, dropped 164 pips straight down the oversold route. AUD/USD has no business to trade below 0.6857 yet dropped another 66 pips.

The examples reign supreme in every currency and every market price but the import is markets trade in a precarious yet unhealthy and unstable period. For how long is unknown as we are dealing with a new concept.

The commonality from 2019 and today is about 200 pips per week to drops. Since 2016 and the new market trade environment, a currency price cannot handle a 200 pip per week drop. A correction must be seen.

Healthy markets for many past years followed the Measured Move, a 4 candle formation to encompass 3 up candles to 1 down or 3 down to 1 up candle. EUR/USD as a leader and highly neutral currency is most specific to the Measured Move. As EUR/USD trades oversold to oversold, the Measured Move so pertinent to EUR was almost obliterated.

Next week

After a 300 pip straight up performance this week, EUR/AUD now challenges its big break at 1.4705 and targets 1.4793 easily. Or EUR/AUD trades back to 1.4500's. GBP/AUD traded 182 pips this week and 1/2 EUR/AUD's range. Normally GBP/AUD outperforms EUR/AUD easily but GBP/AUD suffers the GBP/USD oversold effects.

EUR/USD achieved Sunday's 1.0072 yet should trade to easily 1.0133 and higher.

EUR/CAD and USD/CAD trade as the exact same currency pair as both trade exact same prices. EUR/CAD faces its big break at 1.3260 while severely overbought USD/CAD trades safely above 1.2910. EUR/CAD's proper place is a higher exchange rate above USD/CAD.

USD/JPY and EUR/JPY trade as the exact same pair and exact same price. EUR/JPY proper is price trades above USD/JPY. The problem is both USD/JPY and EUR/JPY currently trade at Richter Scale overbought.

Exact same pair means ranges, support and resistance levels are exact to each other. A big move is required to break the logjam such as EUR/CAD above 1.3260.

AUD/JPY from top ranked 1st position this week traded 143 pips to GBP/JPY 165 and EUR/JPY 300. GBP/JPY trades below vital 161.82. A Continuation lower forces all JPY cross pairs lower.

EUR/JPY from vital 137.27 for lower prices is expected a close Friday in the vicinity of 138.50 then short for next week.

Author

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.