GBP/NZD Sets Up

The GBP/NZD opened the week very bullish as signaled by its close above 1.9750. The rally this week has already recovered all of last week’s losses. However, the GBP remains a sell as the rally this week has been capped at the 61.8% Fibonacci retracment level.

GBPNZD DAILY CHART

 

Double Whammy

The CAD has enjoyed considerable strength as the Canadian economy strengthens on the back of its robust trading partner, the United States. As a result, we have seen a huge move lower in the $GBPCAD as sellers enjoy the double whammy of a strong CAD and a weak GBP.

GBPCAD monthly chart

As $GBPCAD moves lower, we see that there is a significant support zone ahead that dates back to 2009. Price found support at the top of the zone at 1.7580 back in September so this is the level to watch. Until we get to the previous low at 1.7580, the $GBPCAD can continue to benefit from the double whammy. However, watch price action in this support zone. Profit-taking is sure to take place given the move lower. However, it remains to be seen if a corrective rally on profit-taking turn into a reversal higher or if the $GBPCAD can break this long-term support zone and continue even lower.

The Setup of the Year?

Though I don’t trade commodities, I have to agree with CEO Technician here. Oil does look very interesting here. Then I think about the implications of a bounce in oil on the forex market. Everyone is bearish oil. The decline broke key support levels with price going for this long-term, big-time support level around $75. While the USD had its own strong reasons to rally, the weakness in oil did serve as a nice tailwind.  Now as price heads into a huge support zone, can oil continue to weaken?

All eyes on crude.

Euro Looks Higher

So far, the $EURGBP remains stuck in its huge wedge formation. Price has found resistance all trading session at the 0.7860 level. However, swing traders are looking to the 38.2% Fibonacci level at 0.7880 and 0.7920-70 for an indication of supply and demand. That’s the upside potential.

Since publishing the above at the start of October, the $EURGBP did go higher to 0.8050-70 only to fall back again and put in a higher low. In fact, there are several factors at play currently that may suggest that price could actually rally a little higher still:

  • Euro sentiment is a extremely bearish levels. The premise goes that when sentiment for asset classes are at extreme levels it is usually a signal in the opposite direction. Thanks to J.C. for sharing his EUR sentiment chart at Stocktoberfest.
  • GBP weakness fundamentally continues to show through in the economic data. Data releases are still a mixed bag but a year ago we had much stronger data released month-over-month than we having been getting now in recent months.
  • Today’s break of resistance is supported by a break higher in the RSI which has supported a move higher since price put in the higher low last week.
  • Bonus: For all you trendline followers, today’s price action has moved the $EURGBP comfortably above the trendline resistance coinciding nicely with the 7860 resistance level was capping price all week .

EURGBP four hour chart

On the bigger timeframes, the $EURGBP still favors bears long-term. However, it is hard to ignore the price developments of the past 24 hours that point to higher price levels. Expect swing sellers to set up at the higher levels. But if price rallies through the 0.8050 resistance levels, expect the EUR to look for higher still.