In this week’s Market Outlook, we take a look at the key charts of the week with #GBPUSD, #USDCAD, #EURUSD and more!
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In this week’s Forex Market Outlook, we’re going to look at currency strengths and weaknesses, and key levels to watch this week.
It’s a Bank Holiday in the UK today, so we’ll look at the data later than usual. I wanted to let the US Dollar settle first.
Currency strength meter
With the Currency strength meter, we didn’t really have anything at the extremes last week, which made it difficult for us to point out what the market would do next.
The only one at the extreme right now is the US Dollar. It is a red dot which is at a -5 stage. We recently saw the US Dollar lose a lot of strength, especially last Friday. There are no real changes of complete trends just yet. It looks weak.
The strength and weakness of the currencies last week left us without much direction. No currency was dominant apart from the CA dollar. So, trading opportunities were few and far between last week.
However, the USD broke away and is now at a reversal extreme in the market. When the strength meter shows a currency at -5 or below, it means that it is very weak but it could reverse. We know that seasonally, the USD usually performs well through May. With this information, we could expect a reversal to the USD weakness.
However, we could still see a couple of day or swing trading opportunities to buy the USD if we use this with the seasonal data. We could pair it against the EUR and the GBP.
I do not want to buy against the CA Dollar because it has been strong. The reason why that’s been strong is because the Bank of Canada held a more hawkish tone on their economy. It was quite unexpected considering that Central Banks tend to follow the US Central Bank.
When the US talks about hiking or lowering rates, other Central Banks tend to follow. But seeing this new dynamic and Canada’s economy, it seems to be performing well from the Bank of Canada’s point of view.
So, we’ll take that into consideration. The CA Dollar rallied significantly and changed trends across a lot of currencies, so we should see some USD/CAD downside.
Before we head on to charts, I also want to take a look at some retail sentiments. I want to highlight USD/CAD because if we look at the open interest on USD/CAD, it’s at 20%
Looking at the retail sentiment reports, we can see that the open interest on USD/CAD is 20%, which is high compared to the other currency pairs. This information shows us that there has been an increase in long positions from last week by 50% and a decrease in short positions by -36%. This tells us that the downtrend on USD/CAD may not be ending just yet.
It’s telling me that 50% of retail traders are currently holding long positions or over the last week they’ve increased their positions by 50%, and they’ve decreased their short positions by 36% That means that retail is heavily long on USD/CAD.
If we look at the chart, we can see that the USD/CAD broke to the downside and has been quite bearish recently. So, you wouldn’t want to be buying yet because retail is heavily long in this market.
Does that mean that the price won’t pull back? No, it doesn’t. It means that the price or trend will likely continue to the downside.
I’m considering looking for short opportunities at the 1.2395 level.
Suppose we wanted to round it up to a psychological level. We could look at 124 because the market consolidated there, moved sideways, then broke aggressively to the downside.
I’m looking for the price to climb up and head back to 123.95 on USD/CAD. We could see some sellers re-enter the market around that level.
USD/CAD has been downtrending. Recently, the price formed a consolidation before we saw an aggressive sell-off. If the price were to retrace back to this consolidation area and 1.2395 level, then we could look for sellers to re-enter the market.
That’s a key level where you could keep your eye on.
Moving on to EUR/USD, there are two levels that I particularly like.
The first one is at 1.2117 because the market basically turned aggressively on that level. It consolidated, built some orders, and then moved aggressively to the downside. So, if the price were to go back to 1.2117, that would be my ideal area. I would like to see sellers re-enter the market there.
We also have this level down at 1.20699, which is the most traded level within this previous consolidation zone. The price blew straight past it recently but then retested it. It’s finding a bit of resistance now.
If we were to see a lower timeframe change in trend, then we could also look for an opportunity to go short here as well.
EUR/USD has recently changed trend on the four-hour timeframe and could offer short opportunities this week if the USD rallies.
The most ideal level for sellers re-enter the market is at 1.21177. That was the most recent level where the market moved lower from. Alternatively, we could watch the current levels of 1.20699 as this was the highest volume level from the consolidation.
A change in trend on the lower timeframe would be ideal for short opportunities.
I prefer looking for the 12117 as the ideal level to go short because of the aggressive selling that happened there recently.
Finally, I’m going to end on the GB Pound. We actually shorted the GB Pound last week. We banked that when the price went back down into these structure lows. Now, the market is reversed.
If we start to see some bearishness coming into the market, I would expect a potential opportunity to form around about 1.3944. I’ll look at lower timeframes for key changes in trend patterns if the price reaches that area.
Finally, GBP/USD could also be one to watch for a reversal due to the seasonality reports. The GBP tends to be the weakest currency through this month. We could expect further downside if the price retested the recent consolidation zone and high volume level of 1.3944.
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