The forex market was at the mercy of the US dollar last week. Our long-standing posture in favor of the greenback yielded handsomely: selling the Australian Dollar brought 282 pips while a long-term short Euro trade is currently floating over 600 pips in profits. We expect some correction in the near term, with most major pairs positioned at long-standing support and resistance levels. We will look to these retracements as selling opportunities, expecting substantial dollar gains in the coming weeks.
EUR/USD
Euro may retrace before further downside
We began last week with the Euro positioned at a long-term upward sloping support line that had guided price action since August 2007. Writing in a midweek update, we identified a Long Black Candle that closed beyond support and suggested selling EURUSD in the 1.5510-40 area. Our initial “soft target” was at 1.5280, meaning we would look for this to be the next important juncture but would not set a firm order to exit the trade on expectation that EURUSD downside would extend substantially lower. The speed of the subsequent selloff presented a pleasant surprise as EURUSD collapsed lower to open this week below 1.4900, yielding over 600 pips in floating profit.
Current positioning sees EURUSD showing an Inverted Hammer at 1.4880, a major resistance-turned-support level that had been a triple top for nearly three months as price action initially tested the 1.50 mark. A retracement seems likely, with EURUSD finding resistance near 1.5300, the bottom of the April-August range. Indeed, DailyFX Currency Strategist John Kicklighter has pointed out that the US Dollar Index has yet to test resistance at the bearish trend line in place since late 2005. This will offer an entry opportunity to those traders that missed the original trade as well as allow those already short to their positions.
EUR/USD Strategy
1. Continue holding short EURUSD at 1.5510, looking to add near 1.5300.
2. Move stop-loss to break-even.
3. Next “soft target” lies past current support at 1.4700.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
GBP/USD
Pound positioned at key support level
We remained flat GBPUSD last week as the speed of the pair’s decline did not offer lucrative entry points from a risk-reward perspective. The pair declined 3.12% to open this week at a long-term support line in place since March 2002.
Looking ahead, we see two possible scenarios: GBPUSD could either issue an outright break of current support or begin with a pull-up to offer a better short entry point. In either case, we view the dominant bias as decidedly bearish. An upward correction would likely meet resistance near 1.9320, a multi-year support/resistance level. An Inverted Hammer at support (see inset) lends credence to the retracement scenario. The eventual support break opens the door for extended selling to test the 1.80 level.
GBP/USD Strategy
Flat. 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
Near-term top in place?
Last week, we opted to remain flat as USDJPY threatened a downward correction showing a Hanging Man below an apparent Double Top in the 108.20-80 area. Broadly speaking, we have advocated USDJPY upside since the pair broke above resistance established by a trend line connecting highs since June 2007 on 6/10 (not shown). As the dollar rally accelerated, we saw the pair surpass resistance and suggested to go long on a corrective pullback to 108.70-109.00 with a “soft target” at 113.15. The intense dollar rally did not take enough of a respite to trigger entry, with USDJPY accelerating higher to surpass the 110.00 mark.
Current USDJPY positioning sees the pair showing a Hanging Man candlestick, suggesting the possibility that the rally is ready to reverse. As mentioned in the EURUSD section above, the US Dollar Index is positioned below a resistance trend line that has not been breached since 2005. A correction is likely to find support near the 109.00 level, offering a long entry opportunity.
USD/JPY Strategy
Flat. 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
Bullish momentum remains strong
Last week we stayed out of USDCAD as the pair traded just below substantial resistance in the 1.0300-1.0350 area. Bullish momentum had repeatedly failed there since the beginning of the year. The pair surpassed the outermost layer of range resistance at 1.0376 midweek and we suggested buying USDCAD on a pull-back to the 1.0380-1.0400 area, initially targeting 1.0675. As with USDJPY, the pair did not make a deep-enough retracement to trigger entry. Prices advanced straight up, surpassing our target to test the 1.07 level.
Evaluating the long-term picture, a weekly chart reveals USDCAD positioned ahead of a resistance trend line in play since May 2004. As with most of the majors, USDCAD is positioned at a pivotal juncture with an increasing likelihood of retracement in the near term. We will look for a pull-back towards the 1.0500-1.0550 area to position for a long entry.
USD/CAD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
AUD/USD
Nowhere to go but down?
Last week, we found AUDUSD retracing higher having broken past a major support level at 0.9330. With price action at support-turned-resistance, we opted to go short targeting the price congestion area near 0.9018. The AUDUSD decline far exceeded our expectations: prices shot past our target, yielding 282 pips and reaching a weekly low 0.8865.
The speed of the selloff has been staggering, offering little opportunity to re-enter at a favorable price. Price action now sees support at 0.8590, a level marked by a trend line that has been in place since March 2006. Should this too give way, we will enter short targeting 0.8380. However, our ideal scenario is to see a bounce higher to offer an opportunity to sell with better risk-reward parameters.
AUD/USD Strategy
Flat. 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
Has support been found?
Last week we saw NZDUSD positioned ahead of support at 0.7240 and opted to remain flat on risk-reward considerations. The pair’s decline was undeterred however as price action breached the 0.7000 level.
Currently, NZDUSD stands directly at the site of a supporting trend line stretching back to September of 2001. As with the other majors, the ideal scenario from a risk-reward perspective is a bounce higher offering a short entry point. That said, we will sell the pair should it break support to target 0.6450.
NZD/USD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
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.
