Our selected currency pairs, AUDJPY, AUDCHF, and USDJPY for long bias and EURUSD for short bias also turned around as expected, with weekly gains of 3.76%, 3.60%, 1.72% respectively while EURUSD closed the week with -1.06% losses.
Market Sentiment – Looking Forward
Starting with the main indices in question, the S&P500 Index managed to turn around after dipping below 1840 last week. Price action has barely managed to close above 1890 support, the same level which was tested earlier on Monday after China’s GDP release. The same story has more or less played out in the Nikkei225 as well including the German DAX 30.
Overall, the indices give us the picture that a modest pullback is on the cards which could see some market participants, especially those who have entered the market near the closing levels on Friday nervous as prices are likely to pullback to establish support before embarking on the much-needed correction to the bearish decline. Of course, for the moment, there is no doubt that the markets are still bearish in the longer term horizon.
In the context of the above set up, we remain focused on the currency pairs of our choice.
Market Sentiment Analysis – Currencies
- AUDCHF (0.7106): After breaking above 0.69, prices rallied above 0.71 but closed with a potential shooting star pattern on the 8-hour chart time frame. On the lower time frame (H1) we notice an ascending triangle consolidation pattern, which is broken to the downside, below 0.71, a retest to the broken resistance at 0.70 – 0.698 is likely to be tested for support ahead of a longer-term rally towards 0.72 and eventually to 0.728.
- AUDJPY (83.13): Establishing a base near the 80 level, AUDJPY posted a strong rally which saw prices test 83 which is a known resistance level. A minor pullback on AUDJPY is on the cards with 81.5 – 81.0 being the support level of interest. Establishing support here could signal a move higher on break above 83, targeting 85.5 – 86
- USDJPY (118.74): With 117 resistance being cleared, USDJPY has closed just short of the 119 resistance. A test to 119 for resistance could see a move lower to 117 – 117.5 region where support needs to be established. To the upside, a break above 119 could signal a larger move to 121
- EURUSD (1.0792): Prices have stalled near the 1.08 handle on Friday and support comes in at 1.07. We expect EURUSD to remain range bound within these levels of support and 1.08 resistance. A break below 1.07 could see a move to 1.065 which marks the breakout level from the December’s ECB meeting.
In conclusion, the week ahead is likely to see a pullback across the board following a longer term rally being set off. The risk on sentiment is likely to prevail over the coming weeks but traders should be wary of the fact that we are still in a bear market as of now. FOMC meeting this week is a key event to watch for followed up by the preliminary GDP release from the US for the fourth quarter of 2015.
