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US Dollar Weakens, Buying Opportunity Ahead (Candlestick Weekly)

Tuesday, 09 December 2008 11:03:41 GMT  |  Ilya Spivak, Currency Analyst

Most major forex currency pairs are showing that the much-anticipated correction of US dollar strength is indeed underway. The New Zealand dollar leads the way with the others soon to follow, offering an opportunity to buy the greenback at attractive levels before the long-term rally regains momentum.

EUR/USD


Euro bullish correction underway

We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. The pair is now trading at 1.2877, bringing our floating profit to 2633 pips. Last week we noted the pair was showing a Bullish Engulfing having retraced to test resistance-turned-support following a breakout from a Triangle formation. We suggested bullish momentum to materialize from here, opening the door for a correction over the coming weeks.

After a bit of stalling, our analysis began to be validated as EURUSD pushed higher towards the key 1.3060 level, the site of significant resistance since October. A break above will target major trend line resistance established in July, which by then should be positioned in the 1.33-1.34 area. As before, we will view this as an opportunity to add to our short position (or to initiate a short for those traders without open exposure) to trade wit the dominant bearish trend.


EUR/USD Strategy

1. Continue holding short EURUSD at 1.5510, looking to add.

2. Move stop-loss to 1.3971.

3. Next “soft target” aims for a test below 1.2160. 



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




GBP/USD


British Pound poised for near-term gains

For several weeks, we have monitored GBPUSD as it made its way through a Falling Wedge formation, noting the pair was showing positive divergence with the RSI oscillator and was likely to break higher in the near term. Indeed, the pair surpassed Wedge resistance but then stalled at 1.5534, a support-turned-resistance level from late October. Last week, we saw the Pound show a Star candlestick having re-tested the Wedge top, hinting that bullish momentum could be ready to resume.

In fact, the pair continued to stall until early this week when a Hammer candlestick at support was followed by a sharp push higher to challenge the 1.50 mark. To possibilities present themselves from here: a continuation of the up move aims to challenge the 1.5534 level once again; alternatively, we could be seeing the development of a Head and Shoulders formation with a neckline at 1.4639, the recent double bottom. On balance, our preferred scenario is an upswing to offer favorable risk-reward parameters for a short position. Still, we are prepared to sell the pair should support give way to trade with the established bearish trend.


GBP/USD Strategy

Pending short. 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 unchanged, but fundamentals threaten short position

Last week, we found USDJPY having broken below a triangle formation and testing the low from late October. We suggested selling the pair on a daily close below 92.60, targeting 84.25. Entry requirements were met mid-week and we entered the USDJPY short position.

Looking ahead, we see the pair’s positioning is little-changed since we entered the trade with price action stalling around the October low. We will remain short for the time being, though near-term fundamental catalysts may mean a period of floating losses before the bears regain momentum.


USD/JPY Strategy

1. Continue holding short USDJPY.

2. Retain stop loss at 96.45.

3. Retain profit target at 84.25, the lowest monthly close since 1995. 



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




USD/CAD


Canadian Dollar bears capture momentum

Last week, we saw USDCAD find support at an upward-sloping trend line established along the lows since mid-September. The pair then tried briefly higher, testing resistance at the critical 1.30 level but failing to build momentum. Instead, price action yielded an Inverted Hammer candlestick bolstered by negative divergence with the RSI oscillator, pointing to near-term selling.

Indeed, USDCAD sold off to complete an Evening Star formation below the now triple-top resistance level at 1.30. Initial support was again found at the aforementioned trend line, though RSI divergence remains and threatens further loses. A breakdown aims at 1.2120, a key support/resistance level since early October. The break above resistance of the multi-year down trend in August suggests the longer-term bias remains bullish, meaning we will view draw-downs as buying 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


Australian Dollar positioned at critical resistance

Last week, we continued to see the possibility that AUDUSD was showing an inverted Head and Shoulders formation, albeit admitting that the second shoulder looked somewhat over-extended. While continued stalling has, by definition, taken that possibility off the table, the implications were largely the same: prices have traded higher to test significant resistance at trend line resistance in place since early October.

Looking ahead, a break above the current hurdle will likely took to target the 0.6982-0.7050 price congestion area that has proved to be significant resistance over recent months. Seasonal forces playing out in the forex markets as well as expectations of USD weakness in the other major pairs suggest the bulls are not quite done with AUDUSD. To that effect, we will remain on the sidelines as we look for a favorable short entry opportunity to present itself.


AUD/USD Strategy

Pending Short. 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


New Zealand Dollar breaks higher, corrective rally ahead

Last week we saw NZDUSD positioned below resistance at a downward-sloping trend line connecting the highs since mid-September, with positive RSI divergence favoring the bulls. Indeed, prices raced higher at the beginning of this week to convincingly break and close past resistance.

Current positioning sees NZDUSD pulling back to retest resistance-turned support. We expect bullish momentum to resume from here, with initial resistance at 0.5577, a pivot support/resistance level. With the multi-year uptrend firmly broken in late September, se will view any upswing as a bear market rally and position to capture selling opportunities.


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

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