special reports

US Dollar at Key Levels Against Forex Majors - Where to From Here?

Tuesday, 16 December 2008 09:18:07 GMT  |  Ilya Spivak, Currency Analyst

The US Dollar has retreated against the major forex currencies over recent days, suffering most at the hands of the Euro and the Japanese Yen. Prices are now poised to test pivotal support, with positioning favoring a return to US dollar dominance.

EUR/USD


Strategy: Pending Short

We have been looking for a meaningful correction of EURUSD weakness for some weeks, and now it looks to have materialized. Prices have shot up higher to break trend line resistance and now stand to challenge 1.3741, the 38.2% Fibonacci retracement of the 07/15-10/27 decline. Although the break above the trend line is cautionary, we continue to think the current move is corrective and further EURUSD weakness lies ahead considering the pair down from the medium term uptrend from March 2006 and the long term bullish cycle from February 2002. Further, positioning in the US Dollar Index suggests the current retracement may be ready to turn over. We will look for confirmation of a reversal in the candlestick formations of the coming days, looking to enter short as the broad EURUSD downtrend regains momentum. 



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




GBP/USD


Strategy: Pending Short

In a similar fashion to the Euro, the British Pound has breached resistance at a short-term trend line en route to test resistance at 1.5518, the 23.6% Fibonacci retracement of the 09/23-11/13 down leg. However, the bullish reversal in GBPUSD has been less profound than that in EURUSD. Indeed, the pair has moved up 6.3% so far this month to the Euro’s 9.5%. This points to considerable weakness in sentiment towards the sterling considering it is typically more volatile than EURUSD and would be expected to see a sharper rally if USD correction was the only thing driving both pairs. GBPUSD has long since crashed below multi-year bullish trend line support established along swing lows in 2003, setting a bearish bias. We will look to go short on signs of a reversal below 1.5518, targeting a return to test the recent bottom near 1.4550. 



For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.




USD/JPY 


Strategy: Short below 92.25, Targeting 88.36

We entered short USDJPY as the pair broke out of a Triangle formation and surpassed support near the low from late October and the 123.6% Fibonacci extension of the 03/17-08/15 rally (92.25). The pair has now found support at 90.11, the 138.2% Fib extension level. Current positioning shows positive divergence with the RSI oscillator, suggesting an upswing may be in the works. We will view this as corrective, offering traders not yet short a second chance to establish the position before the bears regain control of price action and push the pair past near-term support to challenge the 150% extension at 88.36. 



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




USD/CHF


Strategy: Pending Long

The Swiss Franc’s positioning is nearly identical to that seen in the broader US Dollar Index: Prices have retraced to the 50% Fibonacci retracement level of the most recent 09/22-11/21 upswing at 1.1492. The level is reinforced by trend line support established form mid-July. As with EURUSD and GBPUSD, we will look for signs of stabilization here to position for a return to US Dollar strength, looking to get long USDCHF near 1.15 for a break above the 38.2% mark at 1.1685. 



For more resources on the USDCHF, please visit the DailyFX Swiss Franc Currency Room.




USD/CAD


Strategy: Pending Long

Having put in a triple top at 1.30, USDCAD sank lower to break past a trend line connecting recent swing lows to find support at 1.2339, the 23.6% Fibonacci retracement of the 09/26-10/27 rally. This has been a very important support/resistance pivot level in recent months, and at least some stalling seems reasonable. Though the trajectory of the rally from late September has been violated, we maintain that the long term bias in USDCAD favors a bullish outlook. The pair definitively surpassed multi-year resistance back in August, suggesting current trading is corrective. We will look for cues from other major pairs as well as the US Dollar Index to time an entry long, eyeing a return to test 1.30. 



For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.




AUD/USD


Strategy: Pending short

The correction of US Dollar strength against its Australian counterpart has been a bit more gradual than other pairs. Prices now stand squarely below resistance at a trend line established from the swing high in mid-July when USD began reversing its 6-year down trend against the spectrum of top currencies. While it is tempting to enter short at current levels (especially given the presence of Hammer and Inverted Hammer candlesticks formed over the past 2 trading sessions) we are given pause as some majors (notably GBP) still have room to push the greenback lower, influencing AUDUSD flows. It is also important to note that similar trend lines have been broken across other pairs (like EURUSD) in recent days – the Aussie could prove to be a laggard and catch up. We will look for further confirmation in the days ahead to trigger a short entry targeting another challenge of the 0.60 mark. 



For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.




NZD/USD 


Strategy: Pending Short

New Zealand Dollar positioning closely mirrors that of GBPUSD, though here prices have already pushed to challenge significant Fibonacci resistance at 0.5598, the 23.6% retracement of the 09/22-11/20 decline. As with the other majors, we see no significant reason to abandon a bias favoring the US Dollar and will look for signs of a reversal to enter short, initially targeting another test of recent lows below 0.52. 



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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