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US Dollar May Continue Correction versus Euro, Japanese Yen

Monday, 22 December 2008 16:43:59 GMT  |  David Rodriguez, Quantitative Analyst

Recently sharp reversals in US Dollar pairs signal that further USD recovery against the Euro and Japanese Yen is likely.

The Euro has stalled at significant resistance against the US Dollar, and we see further scope for Euro/US Dollar weakness through upcoming trade. After such dramatic US Dollar declines, we would expect to see similarly sharp corrections. A reversal at the pair’s 61.8 percent Fibonacci retracement of its 1.6040-1.2330 decline and 200-day Simple Moving Average signals further dramatic advances are unlikely. The very short term shows that the Euro/US Dollar has thus far held short-term intraday lows of 1.3825, but a break below signals that a move towards previous lows near 1.3600 is likely.





The US Dollar/Japanese Yen may continue to bounce from recent multi-year lows, as the pair has hit the bottom of its multi-year trend channel and quickly reversed. The lows likewise coincide with heavily oversold weekly oscillators, and a return to more normal market conditions would favor further US Dollar recovery. Multi-year spike lows at 87.14 should serve as a base, while next resistance is seen at the top of its short-term downtrend near 93.00.





The British Pound has found a short-term base against the US Dollar, holding highly-contested support near the psychologically significant 1.4700 mark. Its recent price formation likewise looks vaguely like an inverse head and shoulders pattern, and a break above 1.5500 would signal that a more medium term reversal is likely. Shorter-term, the British Pound looks to challenge previous spike-highs at the psychologically significant 1.5000 mark.





The Swiss Franc showed incredible strength against the US Dollar through recent trade, but a sharp USD/CHF reversal off of important Fibonacci support suggests that further short-term corrections are likely. The 1.0670 mark represents the 61.8 percent Fibonacci retracement of the 1.2300-0.9640 move, and said level may continue to contain declines through near-term price action. Shorter-term, subsequent resistance can be found at recent spike-highs of 1.1136.




The US dollar has found a base against the Canadian Dollar at the 1.2000 mark, representing the confluence of the USD/CAD’s short-term rising trendline and the 38.2 percent Fibonacci retracement of the 1.0300-1.3020 move. Said level is likely to contain any short-term declines in the USD/CAD, while intraday spike-highs near 1.2400 represent subsequent support. A break below 1.2000 would negate our short-term bullish bias.





The Australian dollar has shown clear difficulty in clearing psychologically significant support at 0.7000 against the US Dollar, which likewise represents the 38.2 percent Fibonacci retracement of the 0.8520-0.6010 decline. Inability to clear said resistance mark would definitively suggest that likely short-term direction is to the downside—favoring Australian dollar weakness. Support can be found at the AUD/USD’s short-term rising trendline, which roughly comes in at 0.6800. A break lower signals that a move towards previous support in the 0.6500-0.6600 range is likely.





The New Zealand Dollar has been unable to clear important resistance against the US Dollar, opening the door for further short-term NZD/USD weakness. The NZD/USD set a clear short-term top at the 50.0 percent Fibonacci retracement of the 0.6960-0.5200 move at 0.6080, leaving clear risks that the pair may break short-term uptrend support at the 0.5700 handle. Subsequent support can be found at previous congestion levels between 0.5500-0.5600. A break above 0.6080 would clearly negate our bearish bias.



We love getting feedback on our reports. Tell us how we’re doing: E-mail the author of this report at drodriguez@dailyfx.com.

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