We know why: oil dropped this week. We also had another Bank of Japan intervention. And are we actually in a ceasefire or not? But most importantly, what does this mean for the forex markets this week? Well, let me show you, because we have some great trades setting up.
Hi, I'm trader Tom, currency analyst at Investing.com. Right now, I'm going to share all of my top trade setups for this week.
In this video, we are going to look at U.S. dollar weakness and understand why it is weak and the trading opportunities it is creating. We are also looking at Canadian dollar weakness and the trade setups it is creating, and we want to understand that weakness. We are also looking at yen weakness as well. So strap in. Let's take a look at all of the setups this week.
Let's start with oil because if you want to know what is actually going on in the market, you need to start here because this dictates what everything else does.
As you can see, oil experienced heavy selling pressure on a weekly basis. This came on the back of a ceasefire. If the ceasefire remains in place and relations between Iran, the United States, and Israel become more stable, you are likely to see a decline in oil prices. It is as simple as that, and that is what we saw this week.
When oil prices decline, it generally supports equity indices. Just look at the NASDAQ and the S&P 500. Everything is flying. Markets are trading at all-time highs right now.
What does this relationship mean for currency pairs and specifically the trades we are looking at this week?
One of the biggest beneficiaries, if there is such a thing, during this Middle East conflict has been the U.S. dollar. When the conflict was at its peak, the U.S. dollar was very strong because it became a flight to safety. But now the opposite is happening. Oil prices are falling, equity indices are rallying, and the U.S. dollar's safe-haven appeal is fading. That is going to be the catalyst for some of our trades.
Also, when oil prices decline, the Canadian dollar tends to weaken. Another traditional safe haven is the Japanese yen. So if equity indices continue rallying, the yen is also likely to weaken. This essentially explains all of our trading opportunities. But now we are going to look at them from a technical perspective to see exactly where we can enter and how we can position ourselves.
So let's start with Canadian dollar weakness, specifically NZD/CAD.
On a weekly basis, we have had a major shift. The pair had been in a downtrend and repeatedly respected a key support area, with rejection wicks continuing to close back inside the range. But on the back of oil weakness, we got Canadian dollar weakness, and the pair has now shifted into an uptrend. We are seeing higher highs, higher lows, and a strong bullish weekly candle. We want to buy NZD/CAD, and potentially there is room for a move back toward the 0.8250 area.
On a daily basis, we simply want a retracement into value. A big part of my trading approach is not chasing price higher. Even if the market keeps rallying, I do not care. I will not enter the trade without value. If we start seeing a retracement into support along with our Smart River indicator, that area could provide a strong buying opportunity in NZD/CAD for another move higher. I am not interested in buying at elevated levels. I want value.
The same applies to AUD/CAD because the pairs are highly correlated.
On a weekly basis, you can clearly see the pair is in an uptrend with higher highs and higher lows. We also saw a strong bullish weekly candle driven by Canadian dollar weakness. If we zoom out, the previous highs become the next target zone so there is still room for further upside.
On a daily basis, however, I am not interested in buying at current levels because there is no value. But if we get a pullback toward previous resistance turned support, and our Smart River indicator catches up, I will look for a bullish daily candle as confirmation to start buying AUD/CAD. I would then refine entries using lower time frames such as H4 or H1.
Looking at the H4 basis, as long as the bullish structure remains intact, the setup remains attractive. If price pulls back into support and bullish candles begin forming, we can look for continuation higher.
I become more cautious if we start seeing a breakdown in the H4 structure because there would be less confluence supporting the trade.
The final Canadian dollar pair we are looking at is EUR/CAD.
On a weekly basis, the pair had been in a downtrend, but now we have seen a strong bullish reaction from a major support area. That can now be classified as a higher low, which suggests the pair has shifted into an uptrend. Historically, this support area has repeatedly acted as both support and resistance, so the reaction is not a coincidence. Price tends to react where it has reacted before.
The main target would be a move back toward previous highs.
On a daily basis, a pullback into support could present another buying opportunity. There could be a deeper retracement first, but overall the structure still favors upside continuation. The daily structure has already broken higher, which aligns with the bullish weekly structure.
That said, it is important to remember that market volatility remains elevated. Any geopolitical escalation over the weekend could easily push oil prices back higher and bring Canadian dollar strength back into the market. Traders need to remain alert in these conditions.
So those are the Canadian dollar trades. Let's now move to U.S. dollar trades, starting with AUD/USD.
On a weekly basis, the pair has broken above a key resistance zone, and the next target is the major psychological level near 0.7400.
If we zoom in, price had been struggling around resistance for some time. Traders kept asking whether it would finally break higher, and eventually it did. U.S. dollar weakness emerged even after strong nonfarm payrolls data.
You are probably wondering why the U.S. dollar weakened despite strong economic data. The answer is geopolitics. The U.S. dollar functions as a safe haven; when risk sentiment improves because of a ceasefire, the dollar weakens even if economic data remains strong. Geopolitics is currently overriding macroeconomic data.
So AUD/USD remains a bullish setup with a strong weekly candle.
On a daily basis, however, price action still looks messy, with some selling candles appearing. The pair may need a deeper pullback before moving higher again. Alternatively, if resistance breaks decisively and then turns into support, we can look for continuation higher from there.
The same theme applies to GBP/USD.
The pair had previously been in a downtrend with lower lows and lower highs, but now price has broken above previous highs and is beginning to form higher highs. There is room for a move back toward overhead resistance, and we have also seen a strong bullish weekly candle.
As you can see, all I am doing is putting all of the pieces together to build informed trade ideas.
Again, on a daily basis, price action still looks somewhat messy, reflecting uncertainty around the U.S. dollar. If price breaks higher and then pulls back constructively, we can look for long setups. Alternatively, if support holds and bullish candles form, that could also provide an entry opportunity. But if the daily structure breaks lower, I would no longer be interested in buying.
On a weekly basis, the pair had also been in a downtrend because of U.S. dollar strength; but the ceasefire narrative has weakened the dollar and shifted NZD/USD into an uptrend with higher highs and higher lows. We also saw a strong bullish weekly candle and there is room for further upside toward previous resistance levels.
On a daily basis, there are still some rejection wicks; so price action remains somewhat messy. A pullback into support followed by a bullish candle could provide a good trade opportunity. Alternatively, if U.S. dollar weakness accelerates on Monday depending on geopolitical developments over the weekend, the pair may simply break higher immediately.
The final U.S. dollar pair is USD/CHF.
On a weekly basis, the pair transitioned from an uptrend into a downtrend, forming lower lows and lower highs along with a strong bearish weekly candle. There is room for a move back toward previous lows, and psychologically those levels become natural downside targets.
On a daily basis, support had been holding repeatedly, but Friday finally produced a breakdown. Once again, this occurred despite strong U.S. economic data because geopolitics is currently the dominant market driver.
A pullback into broken support could now offer an opportunity to sell USD/CHF toward lower levels.
If you want to know exactly where I enter trades, where I place stop losses, and how I manage targets throughout the week then feel free to join Discord; it’s free and link’s below.
So those are the U.S. dollar pairs. Finally let’s look at couple yen pairs I also like.
We recently saw several Bank of Japan interventions which naturally makes traders hesitant about trading yen pairs. But as I always say you have to trade what market is showing you not what think might happen. If you constantly assume another BOJ intervention coming you will never take trade.
So let's focus on the facts.
Looking at CHF/JPY on a weekly basis,the pair remains inside range,but we have seen very bullish bounce from support followed by strong bullish weekly candle.That suggests potential move back toward resistance near psychological 204 level.
However there is caveat because pair still technically daily downtrend.Price action also remains messy because repeated BOJ interventions.But if we get break above most recent high during week then I would become interested buying toward resistance.If resistance does not break then I am not interested trade will simply stay patient.
The same applies to EUR/JPY.
On a weekly basis,the pair had previously been in downtrend but is now shifting higher with higher highs and higher lows forming.We are also seeing strong bullish reaction from support.
However,BOJ intervention has created messy daily price action.The key is waiting for clean break of daily resistance.That is final piece of puzzle.If that happens then we can look for move from one resistance level next,next major resistance area becoming primary upside target.