US Dollar strength has returned in force as the greenback surged against the major currencies to challenge multi-year resistance levels, opening the door for what could be a profound paradigm shift in the forex market.
EUR/USD Euro breaks long-term trend line We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support The pair is now trading at 1.3559 bringing our floating profit to around 1951 pips. In our previous report, we saw the pair correcting higher and suggested looking for a short once the pair retraces to the 1.49-1.50 area, filling in the gap left in early August. Bullish momentum did not extend as high as we had hoped, reaching 1.4865 before reversing down to close the week below major trend line support established January 2002. Risk-driven trading pushed EURUSD to gap down 112 pips at this week’s trading open, skewing risk-reward against an outright short. We will continue to monitor price action as we look for opportunities to add to our position. EUR/USD Strategy 1. Continue holding short EURUSD at 1.5510. 2. Retain stop loss at 1.5142. 3. Next “soft target” aims for a test of 1.3500. For more resources on the EURUSD, please visit the DailyFX Euro Currency Room. GBP/USD Multi-year Pound bullish trend under pressure We previously suggested the most recent corrective bull move from 1.75 would find resistance near 1.8794 above a Bearish Engulfing formation that marked the beginning of the 08/22-09/11 down swing. As with the Euro, bullish momentum did not extend as far as we had hoped and our entry was not triggered. Looking ahead, we revert to the long term picture to see GBPUSD at the bottom of a multi-year bullish channel that has guided the pair since 1999. A daily close below 09/11 low at 1.7444 would signal a bearish breakout from this trend, but a bullish bounce may be equally in the cards with the interest rate outlook now seeing some easing on the part of the US Federal Reserve. With that in mind, we will remain on the sidelines and continue to monitor the market as things develop. 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 Yen nears breakout confirmation In recent weeks, we noted that USDJPY could diverge from US dollar strength seen in the other majors with the pair trading in a Rising Wedge formation confirmed by negative divergence with the Slow Stochastic oscillator. Indeed, USDJPY broke below wedge support even as the greenback scored gains across the remainder of the forex spectrum. USDJPY positioning is little changed since we previously identified price action as trading below a downward sloping trend line and above support established at the 07/16 bottom. Current positioning sees the pair poised to take out support. Should we indeed see a daily close below this level, we will position to enter short targeting pivot support/resistance at 100.80. USD/JPY Strategy Pending short. 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 breakout imminent Last week, we saw USDCAD positioned in close proximity to support at the lower boundary of a Rising Wedge formation established in September 2007. This was reinforced by the price congestion area between 1.0294 and 1.0225 containing the highs of the range that had characterized the pair before the bullish breakout. Price action found support here and shot higher, closing last week just at Wedge Resistance. Current positioning sees USDCAD testing above Wedge resistance. We will look for a daily close above this level to confirm the bullish breakout and initiate a long position targeting near the May 2007 swing high. USD/CAD Strategy 1. Long USDCAD between 1.0825-50 on a daily close above Rising Wedge resistance 2. Set stop loss at 1.0705, risking 145 pips. 3. Set initial target at 1.1181, aiming to gain 331 pips. For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room. AUD/USD Australian dollar testing 2-year low We had previously suggested the Australian dollar could correct higher from the recent bottom near 0.78 to offer a selling opportunity near 0.8560. In a similar fashion to the EURUSD, the bullish retracement did not quite reach as high as we expected: AUDUSD topped out below 0.85 and collapsed to sink below the previous low to test the 0.75 level. Current positioning sees prices too far gone to justify a trade for a risk-reward perspective. Prices have broken out of the long-term bullish channel that has guided AUDUSD higher since 2001. We will remain on the sidelines as we continue to monitor the pair for trading opportunities. 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 Renewed bearish momentum testing new lows Previously, we saw NZDUSD showing a Star candlestick formation suggesting a top was forming following a corrective pull-up from 0.65. Indeed, the pair reversed lower and is not testing below the previous bottom. We will look to position for a short if the pair closes below the bottom at 0.6550. NZD/USD Strategy Pending short. 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