daily technicals

US Dollar Could Renew Strength vs. Euro, British Pound

Friday, 31 October 2008 14:55:11 GMT  |  David Rodriguez, Quantitative Analyst

The Euro/US Dollar pair recently made a false break above its month-long trend channel, but Fibonacci resistance at 1.3270 has thus far held back any further advance. The EUR/USD now trades at potentially significant Fibonacci support at the 61.8 percent retracement of the 1.2300-1.3300 bull wave at 1.2700. A break below said level would confirm that short-term EUR/USD momentum remains to the downside, and subsequent targets to the downside include previous spike-lows of 1.2444 and a full retracement of its recent recovery closer to 1.2300. Fundamentally, renewed fears of European recession leave our fundamental bias for the EUR/USD to the downside.

The Euro/US Dollar pair recently made a false break above its month-long trend channel, but Fibonacci resistance at 1.3270 has thus far held back any further advance. The EUR/USD now trades at potentially significant Fibonacci support at the 61.8 percent retracement of the 1.2300-1.3300 bull wave at 1.2700. A break below said level would confirm that short-term EUR/USD momentum remains to the downside, and subsequent targets to the downside include previous spike-lows of 1.2444 and a full retracement of its recent recovery closer to 1.2300. Fundamentally, renewed fears of European recession leave our fundamental bias for the EUR/USD to the downside.

The US Dollar/Japanese Yen pair has thus far been unable to break through key resistance, and overall momentum continues to favor USD/JPY declines. Immediate resistance for the USD/JPY comes in at the 38.2 percent Fibonacci retracement of the 110.70-90.90 decline at 98.40, and continued failures at said mark serve to confirm our overall bearish bias on the pair. A triple-bottom near the 96.00 mark serves as the next downside target, and a break lower would arguably provide a solid opportunity to get short the USD/JPY. Only a sustained break above 98.40 would negate our short-term bearish bias.

The British Pound/US Dollar pair has stalled at important resistance at the 61.8 percent Fibonacci retracement of the 1.7520-1.5240 decline at 1.6650, confirming that short-term momentum remains to the downside for the pair. The GBP/USD now trades at the bottom of its short-term rising trend channel and 38.2 percent retracement of the aforementioned move, but the steep rising trendline inspires little confidence. A break below would provide confirmation that the short-term trend remains lower, and we could see the pair fall towards the psychologically significant 1.6000 and to subsequent lows near 1.5500. Only a clear break above 1.6650 would negate our bearish bias.

The US Dollar/Swiss Franc pair recently fell below its month-long rising trendline, but the pair has since stage an unexpected recovery and now trades at the 61.8 percent Fibonacci retracement of the 1.1750-1.1200 decline at 1.1540. Whether or not the upswing may continue will likely be decided within the coming trading session, as a break above a 61.8 percent retracement mark typically signals that the previous wave is “officially” over. Our bias was previously bearish, but the pair’s renewed strength has clearly hung doubts over previous expectations. Targets to the topside now include previous spike-highs at 1.1655.

The US Dollar/Canadian dollar pair seems confined within its broader uptrend, and indeed a clear reversal off of the 61.8 percent Fibonacci retracement of the 1.1300-1.3000 move at 1.1950 tells us that overall bullish momentum remains intact. The pair has since stalled at the 38.2 percent retracement of that same move, but a USD/CAD break above 1.2360 would open up a move towards fresh highs. Subsequent resistance would come in at intraday reaction highs at 1.2637.

The Australian Dollar/US Dollar currency pair remains confined within its month-long downtrend channel, leaving our bias to the downside for pair. Indeed, failure at the 0.6900 mark now opens up the AUD/USD to further declines, but it has recently found a short-term base at the 38.2 percent Fibonacci retracement of the 0.6000-0.6900 advance near 0.6550. A break below said level would likely bring a move back towards the 61.8 percent retracement of the same move at 0.6340—likewise coinciding with intraday spike-lows. Only a break back above 0.6900 would negate our bearish bias.

Much like the Australian Dollar, the New Zealand dollar recently reversed off of its month-long falling trendline against the US Dollar. The Reversal leaves our NZD/USD bias to the downside, and the pair now trades at previous resistance at the 0.5770 mark. A break below said level would subsequently eye extension towards important support near the 0.5610 mark, and a break lower would serve as confirmation that the recent recovery is now over. A sustained break above its short-term falling trend channel would negate our bearish bias.

Written by David Rodríguez, Quantitative Analyst for DailyFX.com

 

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