The FX Week Ahead
Faraday Research | Jan 23, 2017 10:40AM ET
As the dust settles from Trump's divisive inauguration speech, let’s take a look at how the majors are shaping up.h3 EUR/USD
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EUR/USD’s recovery is likely to be tested this week.
Prices have been rotating higher since the turn of the year, forming a bullish support line. However, the market is now heading up into a thick zone of resistance defined by December’s highest high (1.0873) and highest close (1.0763).
While the resistance zone is compelling, it’s important to remember that short-term momentum remains bullish. That said, we will only look to short EUR/USD following clear signs of buying exhaustion.
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Last week’s Theresa May inspired Brexit bounce has significantly altered the short-term dynamics of this market.
Such a robust rally from the flash-crash lows could signal the start of an A,B,C,D ‘harmonic move’ higher. If that happens, it would complete at the 1.2750 resistance zone.
While Tuesday’s High Court ruling may see a jump in volatility, the stage is set for cable’s recovery to continue.
USD/JPY remains locked in ‘retracement mode’ with prices rotating lower inside a descending channel.
Monday morning’s risk-averse reaction to Trump's inauguration has seen USD/JPY brake lower from Friday’s tight trading range. A retest of last week’s pivot low at 112.50 appears to be the first order of play.
Given the gusto with which the market rallied from 112.50 last week, we would not be surprised to see USD/JPY hammer a bottom out at those levels.
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The Aussie’s stellar start to 2017 continued last week as prices broke and held above resistance at 0.7520.
While the dominant market structure is firmly bullish, Friday’s price action gave the first indication that indecision may be creeping in. Having hit highs of 0.7588, the market ended the session back where it opened, forming a ‘doji day’.
Friday’s doji candle should not be treated as a reversal pattern in its own right. It should, however, be used as an early-warning signal that the Aussies ascent may be about to slow.
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