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US Dollar Retracement Remains Likely Before Larger Bullish Trend Resumes (Candlestick Weekly)

Tuesday, 21 October 2008 08:46:02 GMT  |  Ilya Spivak, Currency Analyst

The forex markets saw the US dollar consolidate against its major counterparts last week. Looking ahead, we expect a retracement of recent momentum to offer entry opportunities as the greenback prepares for an extended rally.

EUR/USD


Euro to correct higher before down trend resumes

We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. The pair is now trading at 1.3323 bringing our floating profit to around 2187 pips. Last week, we suggested EURUSD would rise to test a downward-sloping trend line established at the July high before resuming the downtrend. Current positioning is little changed as the pair spent most of last week range-bound. We continue to favor a near-term move to the upside: the US dollar index, an average of the greenback’s value against six top currencies, is positioned at resistance and looks poised for a correction. This retracement will present an opportunity to add to existing shorts or initiate a new short position as bears re-take momentum.


EUR/USD Strategy

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

2. Retain stop loss at 1.5142.

3. Next “soft target” aims for a test below 1.3256. 



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




GBP/USD


Pound to rise as Dollar retraces recent strength

The British Pound has traded in a wide range in recent days (roughly defined between 1.7032 and 1.7527). Last week, we suggested GBPUSD would rise having shown a Hammer with next-day bullish candle confirmation at the lower boundary of a downward-sloping channel. We see this period of consolidation give way to a bullish correction as US dollar strength retraces, looking for a test of the channel’s top to offer selling opportunities targeting a break past the most recent low at 1.6771.


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 under pressure as risk aversion eases

Albeit choppy, USDJPY prices have crept higher as normalizing credit conditions see risk aversion fade. Positioning is little changed from last week, with continued bullish momentum facing significant hurdles: a major multiple support/resistance level stands near 102.97, with a downward-sloping trend line established in mid-August also in close proximity. As we said last week, “The fundamental bias does not seem to offer a clear-cut view on relative strength of USDJPY, so we will remain on the sidelines for the time being as more evidence presents itself.”


USD/JPY Strategy

Flat. 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


Canadian Dollar to see near-term strength

Having broken past resistance at a downward-sloping trend line established in May 2005, bullish USDCAD momentum has stalled ahead of a multiple support/resistance level at 1.1988. Prices are now wedged between this and a sharply rising trend line connecting recent lows. Negative divergence with the Slow Stochastic oscillator points to the likelihood of a breakdown lower. As with most of the majors, we will view this near-term US dollar weakness as a buying opportunity looking for the bullish USDCAD trend to resume.


USD/CAD Strategy

Pending Long. 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 to rise with risk appetite

Last week, we pointed out that Australian dollar positioning was nearly identical vis-à-vis its US counterpart to that of the Euro: prices had found a bottom and looked poised for an upswing to test trend line resistance before the bearish trend commenced again. As wit the Euro, the move stalled as prices consolidated in a wide range (roughly between 0.6479 and 0.7057). Our analysis is largely unchanged as we look for near-term bullish momentum to offer a new selling opportunity targeting beyond recent lows.


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 consolidates, upswing likely

As with the Australian Dollar, NZDUSD spent last week in consolidation mode, oscillating in a range roughly defined between 0.5898 and 0.6235. Our analysis here remains intact with that of last week as we look for a pull-up to the 0.6435-0.6550 region where previous support meets a downward sloping trend line established from an Evening Star reversal pattern in mid-July. Here too, we will view this brief period of bullish dominance as an opportunity to enter short in line with the broader down trend.


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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