The majors have fallen out of synch in their positioning vis-à-vis the US dollar. The Euro and New Zealand dollar look to extend losses against the greenback. The Canadian dollar is positioned to begin decline, though bearish momentum has seen many false starts in decent weeks. The Australian dollar looks to blaze its own path by extending gains against its US counterpart, while both the Pound and Yen are left searching for a clear direction.
EUR/USD
Ready to move lower
Last week proved to be a rollercoaster ride for the EURUSD. Dollar price action seemed entirely driven by the price of oil and the US earnings calendar for the Financials sector. The pair gapped at the week’s open to show a Hanging Man. The following day saw an ill-fated rally that took price higher from the 1.5906 level, setting a new high at 1.6036 only to collapse for a close within 4 pips of the open at 1.5910. Writing in a midweek update, we suggested selling the pair at 1.5863 targeting a pullback to the long-term bullish trend line. EURUSD closed the week at 1.5837, yielding a modest 26 pips.
Looking ahead, we see EURUSD accelerate lower. While past price congestion below current levels does offer multiple layers of support, we see the decidedly feeble test above 1.60 as indicative that sellers retain the upper hand. Fundamentals are certainly supportive of Euro weakness as nearly every release out of the 15-nation bloc in recent weeks has printed in the red. We will retain our short for the time being expecting downward momentum to accelerate. That said, next week brings another busy round of earnings reports that could spook the markets and lead to more risk-driven dollar selling. As usual, updates will be posted throughout the week at the Candlestick forum.
EUR/USD Strategy
1. Continue holding EURUSD short at 1.5863
2. Retain stop-loss at 1.6039 above all-time wick high
3. Target the long-term trend line at 1.5531, risking 176 pips to gain 332
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
GBP/USD
Testing key levels
Last week, we saw GBPUSD just below a multiple support/resistance area at 1.9960 below the psychologically significant 2.00 level.
Positioning had failed to yield a reliable candlestick signal and we remained flat. Price action would rally to surpass resistance as the week progressed but a substantial rally failed to materialize. Rather trading has remained choppy around the 2.00 mark.
Current positioning sees GBPUSD testing below the aforementioned multiple support/resistance level. We have also identified what appears to be a Rising Wedge chart formation. This is generally bearish, signaling bullish sentiment is losing steam and favoring a break to the downside. That said, risk-reward parameters are not ideal for an entry at current levels. We will continue to monitor price action in the days ahead to see if an opening presents itself.
GBP/USD Strategy
We remain flat, waiting for confirmation. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
USD/JPY
Long-term bias favors bulls
Recent trading has seen USDJPY breach the bullish trend line that had guided the pair since mid-March. Last week, the pair appeared to have found near-term support above multiple support/resistance at 105.52. USDJPY tried lower with a close below this level, but a handful of upside surprises on the Earnings calendar saw dollar bulls return price action above the 106.00 level.
Looking ahead, the insights to be had from the daily chart seem to offer little by way of a directional signal. We will take this opportunity to take a step back and re-evaluate the longer-term picture. The weekly chart suggests a downward-sloping resistance line that guided prices since June 2007 was decidedly penetrated with a Long White Candle about a month ago. Price action looks to have remained indecisive since then, consolidating above support near 105.70. While last week’s candle formed a Hammer, we see this insufficient to go long at current levels. The pair produced a similar setup two weeks ago with no follow-through. We will remain on the sidelines for the time being, though the long-term setup favors a bullish bias.
USD/JPY Strategy
We remain flat, waiting for confirmation. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.
USD/CAD
Positioned for upside momentum
In recent weeks, we indentified USDCAD as consolidating in a large Triangle formation. We noted that resistance was overcome in the beginning of June, followed by a brief rally and retracement back to trend line resistance-turned-support. Price action has since traded lower along triangle resistance-turned-support.
We saw the end of last week produce a Morning Doji Star at the fulcrum of the Triangle formation, suggesting a bullish reversal is forthcoming. We will look to go long targeting recent wick highs above 1.0230.
USD/CAD Strategy
1. Long USDCAD in the 1.0025 – 1.0050 area.
2. Set stop-loss at 0.9961 below recent wick lows.
3. Set target at 1.0233 above recent wick highs, risking 89 pips to gain 183.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
AUD/USD
Where to from here?
We suggested a bearish scenario for AUDUSD following an apparent break of a bullish trend line that supported price action since 8/17/07. We looked for a bounce higher to retest trend line support-turned-resistance offering entry for a short trade. Recent weeks have seen the pair retrace higher as expected. That said, expectations of renewed downside momentum look to have missed the mark: AUDUSD has continued higher to set new highs.
This time around, we approach the pair with a clean slate. We notice that price action appears to be showing a Wedge formation establishing since late February. While the upward slope would normally favor the likelihood of a bearish breakout, it seems last week saw AUDUSD break out to the topside and retrace to resistance-turned-support. Should the current candle close as-is, we would be looking at a Bullish Engulfing. We will wait for the close of the current candle and go long should this pattern be confirmed.
AUD/USD Strategy
We remain flat, waiting for confirmation. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
NZD/USD
Channel guides prices lower
Last week started out with NZDUSD in a range below the 0.7630 level. We initially spotted a would-be Hanging Man candle and suggested going short with the established bearish trend should the candle’s close offer confirmation. Initial entry conditions were not met as the pair rallied higher to test the upper boundary of the downward sloping channel that guided price action since mid-March. Writing in a midweek update, we suggested shoring the pair between 0.7680-0.7720 on confirmation of a Hanging Man at resistance. The next day’s decline proved profound, and our entry was not hit.
NZDUSD closed last week below the preceding range top at 0.7630, suggesting more downside is ahead. At this point we see it prudent to enter short at market between 0.7600 - 0.7630 eyeing a return to test 0.7446.
NZD/USD Strategy
1. Short NZDUSD at market between 0.7600 - 0.7630.
2. Set stop-loss at 0.7683.
3. Set target near multi-month support at 0.7446.
For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
