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Dollar Testing Support

By , Sr. Technical Strategist
31 August 2006 11:14 GMT


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EUR/USD – The EURUSD continues to test the 8/23 high at 1.2851.  The past few days’ action has been choppy, but this is when breakouts are most probable.  Reinforcing this idea are the tight Bollinger bands on the daily.  Similarly, price has consolidated within a triangle since the 6/5 high at 1.2976 and the apex is at 9/12.  Upside momentum is picking up – MACD slope (daily) is positive and RSI has just crossed above 50 (daily).  The resisting line from the upper end of the triangle is just below the 1.2900 figure and a break there would bolster the bullish outlook.  Initial support is at yesterday’s low at 1.2811.

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USD/JPY – The USDJPY has declined off of 117.40 resistance (8/25 high) after forming bearish divergence with hourly oscillators.  Still, a break below the trendline from the 113.95 low – currently at 116.40 – is required to confidently suggest that price is headed lower.  Today’s candle took out the previous high (117.40) by mere pips.  If price today can close below 117.14 (opening price), then we would have an inverse hammer reversal candle.  Resistance is at the trendline from 119.38 and support at the confluence of the aforementioned trendline from 113.95 / 8/29 low at 116.49.

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GBP/USD – Price closed above the 8/16 high of 1.9023 yesterday, thus bulls’ sights are on the 8/8 high at 1.9144.  Daily momentum is picking up as RSI nears 70.  However, it is hard to ignore the bearish divergence with RSI on the hourly at each new high.  A break below former resistance at the 1.9000 figure would begin to suggest that a reversal is in play, but only a break below 1.8775 (nearly 300 pips away) confirms a reversal.  The combination of short term bearish divergence and the latest COT readings (little commercial buying and extremely long speculative positioning) may limit upside potential. 

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USD/CHF – The USDCHF is in a similar situation as GBPUSD and EURUSD (as the inverse of course).  Price is just above support from the 78.6% fibo of 1.2182-1.2423 at 1.2234.  While RSI is not oversold on the hourly, divergence at each successive low could limit near term weakness.  The confluence of the 8/21 low / potential trendline from the 1.1919 low at 1.2182/1.2003 serves as important support.  A break below there argues for a return to the 1.1919 level.  Resistance stems from a longer term trendline (from 3/10 low at 1.3121) at 1.2380.

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USD/CAD – USDCAD remains trapped between 1.1050 and 1.1130.  The pair appears to be tracing out the 3rd wave of a correction from 1.1456.  Where might this correction end before buying returns?  The 3rd corrective wave (beginning at 1.1319) would equal the first (1.1456-1.1170) at 1.1033.  This is significant because the 78.6% fibo of 1.0927-1.1456 is at 1.1040 (just 7 pips away).  This fits with the notion that initial moves at turning points are often retraced a large amount before a continuation.  The initial move in this case is 1.0927-1.1456.  USDCAD fell to 1.1049 last week and Friday’s candle is a spinning top at the lower Bollinger band (daily).  The evidence points to a rally from nearby levels.  Additional evidence that a bottom is forming is CCI rising from above -100 in recent days.  However, a break below 1.1040 exposes the 6/12 low at 1.0960.

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AUD/USD – As we have focused on in recent commentary, the longer term bias is a bearish one as evidenced by the break of the supporting trendline from.7270 (and COT positioning…see http://www.dailyfx.com/story/charting_center/futures_positioning_cot_report/Positioning_Indicates_That_AUD_USD_May_1156749929640.html ).  The last two day’s rallies have sent the pair to the 78.6% fibo of .7670-.7549 at .7644 (the pair broke above to .7654 for a moment’s notice).  A break above .7644 targets a resisting trendline from the 8/10 high at .7713.  That line is currently at .7660.  Only a push through .7670 negates the immediate bearish bias.  A short term trendline from .7549 (8/25 low) rests at .7610.  A break below there makes a case for a larger decline to eventually test the .7500 figure.

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NZD/USD – Kiwi continues to rally in what looks like a 5th wave advance that should be followed by a decent sized correction.  The next bullish target is the 38.25 fibo of .7460-.5927 at .6513.  However, overbought hourly conditions and bearish divergence at current levels would seem to limit near term upside potential.  Initial support is at the 8/28 high at .6389.  However, this rally could very well continue until .6620 (where wave 3 (.6143-.6439) would equal wave 5 (beginning at .6328)).  Daily RSI is now in overbought territory for the first time since 12/6/2005 – when Kiwi topped out at .7198 before embarking on the decline to below .6000.  Fibo resistance is just above from the .7198-.5927 decline at .6561 (50%) and .6711 (61.8%).  Support is at the 8/16 high at .6439. 

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31 August 2006 11:14 GMT