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Forex Majors Position to Challenge the US Dollar (Fibonacci Weekly)

Thursday, 06 November 2008 10:25:47 GMT  |  Ilya Spivak, Currency Analyst

The US dollar has started to paddle back after a sweeping appreciation against the major currencies. A deep correction looms, offering entry opportunities to position for the return of the greenback’s dominance.

EUR/USD


Strategy: Pending Short.

The Euro looks set for a bullish retracement having declined over 13% since the last upward correction in mid-September. Bearish momentum had developed into a Falling Wedge reversal formation confirmed by positive divergence with the RSI oscillator and has now apparently broken above resistance. The Fibonacci zone looms ahead, with the first layer of resistance at 1.3306, the 38.2% retracement of the 09/22-10/27 decline. We will look for an upswing to establish resistance below the downward sloping trend line stretching from the pair’s peak in July. From here, we will enter short to trade with the dominant long-term bearish trend. 



For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.




GBP/USD


Strategy: Pending Short.

British Pound positioning is very similar to that of the Euro, though Sterling has yet to break above the upper boundary of its Falling Wedge formation. The pair has found a formidable hurdle at 1.6069, the intersection of the wedge top and the 23.6% Fibonacci retracement of the 09/25-10/27 down leg. The 38.2% level at 1.6550 immediately follows, making for an arduous climb ahead of the sterling bulls. Still, clear positive divergence with the RSI oscillator maintains that upside momentum is the likely next step. As with the Euro, we will look for GBPUSD to exhaust its correction on a test of the downward-sloping trend line established from July to get short for a continuation of the long-term bearish trend. 



For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.




USD/JPY 


Strategy: Flat.

The Yen’s tendency to reflect the trends in market risk sentiment has seen USDJPY sell off as jittery investors poured out of risky assets at the onset of the credit crunch in mid-August. Prices have been guided by two trend lines, a dominant one established from the August highs and a shorter-term one with a steeper slope in place from October. The recent rebound in risk appetite has see USDJPY lift off the lows and seemingly surpass the first level of trend line resistance. However, most recent positioning saw the pair sharply rejected at 99.60, the 76.4% Fibonacci retracement of the 10/21-10/24 collapse and slip back below the trend line to stall at the 61.8% mark (97.91). It is unclear whether we have witnessed a false break or a minor setback to the otherwise building bullish correction, so we will remain on the sidelines as we wait for the pair to clarify its bearings. 



For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.




USD/CHF


Strategy: Pending Long.

The setup in the Swiss Franc pairing is a near-perfect inverse to that of EURUSD. We see a Rising Wedge confirmed with unmistakable negative divergence with the RSI oscillator. Near-term support has been established at 1.1538, the 23.6% Fibonacci retracement of the 09/22-11/04 rally. We will look for a break of major support at the intersection of the wedge bottom and the 38.2% level (1.1374) to yield a test of 1.1242, the 50% Fib. From here, we will look for signs of reversal to establish long for a continuation of the dollar’s appreciation cycle. 



For more resources on the USDCHF, please visit the DailyFX Swiss Franc Currency Room.




USD/CAD


Strategy: Pending Long.

Having rally smartly to test the 1.30 level, USDCAD showed a Dark Cloud Cover candlestick formation and collapsed to break through upward-sloping trend line support in place since late September. Support has been found at 1.1508, the 38.2% Fibonacci retracement of the 11/07/07-10/28/08 ascent. The pair has put in a Harami candlestick formation, suggesting the downturn may be nearing completion. However, this is typically considered weak-level signal and requires confirmation. Further, the impressive correlation between the US dollar and global stock performance seen in recent weeks suggests that the greenback still has room to decline as traders return to oversold risky assets. To that effect, we will abstain from taking an outright long position at current levels as we wait for price action to offer further evidence that a bottom is in place. 



For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.




AUD/USD


Strategy: Pending short.

Australian dollar positioning brings us back to the patterns seen in EURUSD. Although no Wedge formation is evident in this setup, we clearly see a downward-sloping channel and an upward-sloping RSI oscillator create positive divergence. Final confirmation has also been achieved, with a well-defined bullish daily close above the channel’s upper boundary. We will look for upside momentum from here, with initial resistance marked by the 50% Fibonacci retracement of the 09/22-10/27 decline at 0.7262. From there, we will look for signs of a forming top to position for a short in line with the broad, long-term downtrend. 



For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.




NZD/USD 


Strategy: Pending Short.

The New Zealand dollar is effectively the same as its Australian counterpart: a bearish channel shows divergence with the RSI oscillator and has yielded a bullish breakout. We will look to resistance at 0.6267, the intersection of the 38.2% Fibonacci retracement of the 07/16-10/27 selloff and a multi-month downward sloping trend-line. Here too, we will look for selling opportunities as the dominant trend regains momentum. 



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.

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