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Dollar Decline Runs Out Of Steam

By DailyFX Research Team
03 July 2006 21:53 GMT

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EUR/USD – Our previous predictions played out just as planned, with the 1.2787 providing resistance at the top end of the overnight Euro rally. With a recent breach of this level, the question once again becomes, “where do we go from here?” Assuming that the Euro does not close below recent resistance at 1.2787, we could see it test Fibonacci levels at 1.2868 in the near term. With oscillators and momentum indicators showing a mixed picture, however, we could just as easily see it break below support and test the 38.2 of its 1.2519-1.2730 run at 1.2650. 

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USD/JPY – The dollar continued its losses against the JPY as it broke below support at 114.38 to stop abruptly near the 50.0 Fibonacci level of the 111.32-116.67 climb. A short-term reversal has it closer to the psychologically significant 115.00 level, with medium resistance visible at the 115.23 barrier. The USDJPY also seems to have completed 5 waves down from 116.60, suggesting that a further bounce to the 50.0 fibo of 116.60-114.09 at 115.54 is also a possibility. Mitigating such a chance, however, is the fact that oscillators and moving average divergences are universally bearish. A further downward push would have to contend with fairly significant support at the 50.0% fibo of the 111.32-116.67 move at 114.00. Likewise a psychologically significant level, it could force the USD/JPY into a narrow trading range in the coming week.

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GBP/USD – The dollar-barrage continued with the British Pound, which cleared its recent downtrend resistance line to test its 50-day SMA at 1.8515. Now just above the 38.2% fibo of its 1.8879-1.8090 move, the GBP/USD could look to consolidate in the short term in anticipation of a further push higher. If it does so, it will have to clear the aforementioned 50-day SMA at 1.8515 for confirmation, while the nearest support below 1.8390 can be found at the 6/27 high of 1.8262. The path of least resistance seems to be above current levels, however, as 1.8090 seems to have established itself as a fairly important low. 

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USD/CHF –  The 290 point run down in the USD/CHF seems to confirm a solid break of the previous uptrend holding the pair since mid-May.  Recently, the swift run down has found convincing support around 1.2217, which was the intra-day low for today.  The current support lines up with the consolidation zone from a month ago, though its lack of a clearly defined level opens it up to an relatively uninhibited continuation.  However, a move lower would have to move its way through additional zones below the one currently holding back spot.  The lower bound of the lowest in the nearest purview lies around 1.2135, which was resistance for May 24 to the 27th.  Upside potential is limited by a former support level holding from June 9th to the 16th, which is now resistance at 1.2273.  Adding to the weight of this line, is the 23.6% retracement of the recent run from 1.2505 – 1.2217.

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USD/CAD – The USD/CAD pair continues to narrow its range in its current ascending triangle formation.  The upward sloping node of the formation currently offers support around 1.1088, which is further backed up by Friday’s lows at 1.1078.  This pair continues to set up for a break that will likely be quicker and larger than the last break on Thursday.  If a break to downside is realized, then the larger range between 1.1270 and 1.0975 could last for another few weeks.  However, if the eventual break occurs to the upside of this range, beyond the 1.1291 high from June 23rd, then a trend is very likely to develop as traders unwind their loonie positions to respond to the better risk : reward opportunities.

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AUD/USD –  The six week long downtrend in the AUDUSD that went uninterrupted just until last week, seems to have left quite a few technical levels above spot to keep bulls in the pair from building too much momentum.  Most immediately, fibs from the .7655 - .7270 have offered constraints on price action since Friday.  The 38.2% fibo of the aforementioned run is holding support, in confluence with the highs from June 21st.  To the upside, the 50.0% fibo was tested with an intra-day spike before trading back below the high offered from June 16th's pivot high.  Continuing higher could be a difficult proposition with so many levels ahead of it, but a move lower could be less difficult to navigate with the recent swing low at .7270 holding up weaker support.

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NZD/USD – The Kiwi’s rebound from its recent wave lower seems to have found resistance in the 38.2% fibo of the .6432 - .5928 decline.  Beyond this retracement, the 50.0% fibo and 61.8% fibo, at .6180 and .6239 respectively, offer nearby resistance levels that could sabotage any attempts at a move higher.  While fibos to the upside make for very obvious levels to much of the market, there seems to be much less for the bears of the pair to be subdued by.  The closest support levels are also the most apparent for FX traders.  The June 28th low at .5928 would be a first stop before the recent two year low, set on June 30th, offered a stiffer level.

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03 July 2006 21:53 GMT