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In this week’s Market Outlook, we take a look at the key charts of the week with #AUDUSD, #NZDUSD, #EURUSD and more!
Before we dive into a few charts of interest for the Forex Market Outlook, I wanted to cover the May seasonality because there’s a huge turn between April and May when it comes to the US Dollar.
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Seasonal heat map
On the seasonal heat map, the US Dollar Index usually underperforms in April. However, May is the best performing month for the US Dollar. This coincides with the downside of the AU Dollar and the GB Pound, as well as the likes of the EUR and the NZ Dollar.
I’m going to look at a few of them because we’re starting to see potential weakness from some pairs, especially GBP/USD.
I don’t think the US Dollar moves are completely done. However, I feel that we need to start looking at those key support and resistance levels in case we do start to see this May seasonal period.
Before we take a look at the strengths and weaknesses of the currencies, I wanted to take a look at the seasonal heatmap for May. This month, we saw USD weakness. However, that will soon change as May is typically the best performing month for the USD. The weak performing currencies for May will be GBP, AUD, and NZD.
Strength and weakness table
On the strength and weakness chart, the GB Pound remains relatively week. Although it hasn’t moved much from last week, we’re still in -4 areas. I want to be on the short side of the GB Pound.
The biggest loser last week was the CA Dollar. That’s quite surprising considering the Bank of Canada came out hawkish about the economy.
The best performing currency last week was the JP Yen. We’re starting to see safe-haven currencies like the US Dollar, the Swiss Franc, and the JP Yen gain more than these risk currencies. That’s interesting to see.
Looking at the strength and weakness table, we can see that GBP remains weak alongside the CA Dollar. The CHF and JPY were the strongest currencies last week, which tells us that we could see some risk-off markets.
EUR/USD
With EUR/USD, we will be looking at the daily chart timeframe. We need to identify where prices could go before we see some downside.
We were looking to buy EUR/USD at 1.19595-1.20030 last week.
We can get a pullback. However, if we’re going to see a sell-off at the start of May, then we want to identify key areas where the price could go to.
For me, the supply zone would be resting all the way up around 1.2155.
So, I’m going to look for long opportunities in the short term. If the price comes back up into 1.2155, then I think we need to start considering that there could be a reversal to this move and start seeing some downside to EUR/USD if the price hits that 1.2155 level.
We know that it’s a supply zone because after the price retested this area, we had a huge sell-off after. We know that this is a nice supply zone to the market.
EUR/USD continued the uptrend last week and doesn’t look to be slowing down just yet. The supply zone rests at 1.2155 which will likely be the target for buyers. If the price rejects this area and changes trend, then we could see the seasonal pattern play out.
GBP/USD
The price already had a sell-off last week. It started strongly for the GB Pound. However, it slipped recently.
The GB Pound is pretty much buoyed by the vaccines and reports that are coming over. So many people have been vaccinated in the UK that the likelihood of a third wave due to the Coronavirus is less and less likely to happen, which means that they could get back to the working economy sooner than other parts of the world.
This suggests that the GB Pound was strong for a while. However, it struggled to break above the 1.4 level. I think this is where we’re going to see the top-end in the market.
I wouldn’t be surprised to see the price come back up to get short. I’ll be watching for the GB Pound to move up to 1.4. We may only get back into 1.39 areas. But 1.4 looks like a pretty good area.
If the price were to double-top, then that would be ideal to look for shorting opportunities on the GB Pound towards the end of this month.
GBP/USD saw some weakness last week and is struggling to break above the 1.4000 barrier. The GBP’s strength has been driven by the vaccine rollout in the UK with many investors believing a third coronavirus wave will be unlikely to send the UK into another lockdown. This positivity has kept the GBP strong, however, if we fail to break 1.4000, then we could see some downside.
Maybe there’s a little bit more upside to the US Dollar weakness until we see the price hitting towards 1.4 level.
AUD/USD
We spoke about Aussie in the Forex Market Wrap, and what we really like about Aussie was the fact that the price is forming a head and shoulder pattern.
Now, I want to see now is a nice bearish weekly candlestick forming.
At the moment, the price is capped between 0.7752 and down at 0.77.
If we’ll see a reversal in Aussie strength and US Dollar weakness, then I would expect the market to break to the downside.
If it will break out of the consolidation, then I expect a retest at 0.77 for some downside. But just because that’s that case, doesn’t mean that it’s going to happen. The price could also break to the upside.
The next supply zone to worry about is all the way back up at 0.7910. The reason why I was looking at the bullish candlesticks is that this was the last buying activity until we saw a huge sell-off in the market.
If the price breaks to the upside instead of breaking lower, then we could see the market continue to rally up to 7910 for a reversal.
AUD/USD is an interesting pair to watch as the price seems to be ranging between 0.7700 and 0.7750. If the seasonal USD bullishness enters the market, then we could see a break of the lows and a reversal in the trend. If the USD weakens slightly towards the end of May, then the price could head towards the next supply zone at 0.7910.
So, if the price goes back to that point, I expect sellers to re-enter the market. Keep an eye on Aussie; its far away from the supply zone. I think we could see if the price will break the highs instead of breaking down to the lows.
NZD/USD
Kiwi is another one I like. However, the supply zone is resting up.
So, 7334 to 7432 would be an area where I’d expect prices to fall. We also looked at the potential for the price to bounce off of the supply zone, as well as this slightly shorter timeframe supply zone around 7250 and 7238.
It’s either we’re going to get a rally up into this level at 7250 and get a rejection or the price could break higher and react from the daily timeframe supply zone.
NZD/USD also ranged last week, showing us that the NZD buyers could be fading. However, if we expect to sell from supply zones, then we could see another rally in the price. The key supply zone st 0.7240 remains untested and could be an area where the price fails to break. Alternatively, if the price were to rally the daily supply zone rests at 0.7334.
USD/CAD
It’s not on this seasonal mix, but I still feel like there is an opportunity to be a buyer of USD/CAD if you can go to the demand zones around 1.2403 and finish at 1.238.
This is going to be a nice area to look at for buyers to step back in. There was an aggressive turnaround where we saw significant buyers coming and taking out highs.
If the price can come back down, then I think we’ll see buyers step back into the market.
Finally, USDCAD continues to move lower after the recent hawkish statements from the Bank of Canada. However, if the seasonal bias is anything to go by, then we could see a reversal too. The demand zone at 1.2400 is an area where strong buyers entered the market, so this could happen again if the price retests this area.
These are the ones to watch in May; I think this would be a good opportunity to be a buyer. Keep an eye on USD/CAD as well.
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