Last week, we suggested the US dollar would see a correction of recent gains before the rally was to resume. Indeed, the greenback was under pressure most of last week. Looking ahead, current candlestick formations suggest the return to Dollar strength will not be symmetrical across the majors. The British Pound and New Zealand Dollar pairings are leading the others, offering new short entry opportunities.
EUR/USD
Euro retracement underway
We sold EURUSD below a long-term trend line in place since August having identified a Long Black Candle that closed beyond support. Last week started with the pair below 1.47, bringing our total floating profit to over 800 pips. We suggested the Euro had found support at a trend line that has marked weekly lows since October 2006 and expected a corrective bounce.
Indeed, EURUSD decline has stalled at the trend line, yielding an Inverted Hammer. We continue to maintain that any reversal of Euro weakness is corrective, and will continue to hold short expecting renewed downside momentum to reach the next “soft” target at 1.4370.
EUR/USD Strategy
1. Continue holding short EURUSD at 1.5510.
2. Keep stop-loss at break-even.
3. Next “soft target” lies near 1.4370.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
GBP/USD
Down trend ready to resume
Last week, we saw the Pound daily chart was showing a very similar Inverted Hammer to that of the EURUSD and suggested to look for a corrective reversal higher before bearish momentum is to resume.
Current positioning sees GBPUSD has broken past a significant supporting trend line in effect since August 2002. Zooming in to the daily chart (see inset), we see price action has yielded a large Bearish Engulfing formation, suggesting the retracement may be over. We will look to enter short, eyeing renewed downside momentum. As with the EURUSD, we will use a “soft” target, aiming for the pair to reach the designated level but not setting a firm order to exit the trade as we expect GBPUSD to trend lower in the long term.
GBP/USD Strategy
1. Short GBPUSD at 1.8591.
2. Set Stop-Loss at 1.8832 above recent wick highs.
3. Aim for a “soft” target at 1.8096, initially risking 241 pips to gain 495.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
USD/JPY
Will the bullish trend endure?
Last week, we indentified USDJPY price action as trading in a Rising Wedge formation since mid-March and showing a Harami reversal pattern at resistance. The Harami was confirmed by a bearish close on the following candle and USDJPY fell sharply lower soon thereafter. However, Friday’s spike of Dollar strength reversed loses to show a slightly imperfect Bullish Engulfing pattern. The set-up does not quite meet the most rigid definition of the formation as only the body of the bullish candle engulfs the preceding one, with the bearish candle showing a lower low.
Naturally, less-than-ideal formations are to be expected in the real world and can prove to be valid signals. That said, caution is warranted in this particular case. A Rising Wedge formation is typically indicative of a reversal and is confirmed by negative divergence between the direction of price action and an oscillator. We can see that USDJPY was making new highs in August as the Slow Stochastic oscillator as pointing down, suggesting bullish momentum is running dry. With this in mind, we will remain on the sidelines as price action offers greater clarity.
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
Bearish reversal to continue
Last week we suggested USDCAD was due for a corrected downturn below a resistance trend line in play since May 2004 and showing a Bearish Engulfing on the daily chart. Indeed, the pair declined 144 pips to close the week below the 1.05 level.
Last Thursday’s trading yielded a Long Black Candle (not shown), with only a moderate reversal on Friday. We think the Canadian dollar has room to advance further before the greenback bullish trend resumes. Tentatively, we expect support around the 1.0330-80 area. That said, our broad bias remains bullish and we will monitor price action for new entry opportunities.
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
Trend line support under pressure
Last week, we saw the AUDUSD selloff find support at a major trend line in place since March 2006 and suggested looking for a retracement from this level to yield a short entry point.
Current positioning sees the AUDUSD daily chart showing a Bearish Engulfing (see inset). That said, price action remains above trend line support, making a short at current levels unattractive from a risk-reward perspective. We will look for continuation following the Engulfing pattern to penetrate the trend line to go short. We expect the subsequent down swing to test the 0.83 mark.
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
Down move to resume below key resistance
We have been looking for the New Zealand dollar to bounce higher and offer a favorable short entry point having seen NZDUSD standing directly at the site of a supporting trend line stretching back to September of 2001. Last week saw the pair retrace higher to test support-turned-resistance at the bottom of a channel that had contained price action since mid-March.
Current positioning sees NZDUSD issue a Bearish Engulfing below resistance, suggesting the correction may be over. We will now look for an entry short, with the first “soft” target (indicated in yellow) at 0.6822, the 8/13 low.
NZD/USD Strategy
1. Short NZDUSD at 0.7161.
2. Set Stop-Loss at 0.7304.
3. Aim for a “soft” target at 0.6822, initially risking 143 pips to gain 339.
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.
