Candlesticks

US Dollar Rally Yields Over 750 Pips, New Entries Ahead

Wednesday, 14 January 2009 03:49:17 GMT  |  Ilya Spivak, Currency Analyst

Buying the US Dollar proved lucrative last week: long term short positions in the Euro and Japanese Yen pairings moved substantially further in our favor while new exposure selling the Australian Dollar added over 300 pips in floating profit. Looking ahead, we now see an opportunity to get long the greenback against the Canadian Dollar and an NZDUSD short entry just around the corner.

EUR/USD


Strategy: Short at 1.5510 and 1.3364, Targeting 1.3075 and 1.2547

We first sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. Last week, we opted to look for an upswing into the 1.3823-1.3910 area to get add to the position (or offer a new entry for those not already short). Our view proved a bit ambitious: writing in an update, we noted EURUSD “ran out of steam on a test of 1.38 and dropped back to a key multiple support/resistance level above 1.34. A daily close below this level clears the way for a selling opportunity targeting 1.3075.” Indeed, the pair closed below support and we added to our short at 1.3364. From here, the next key juncture is at 1.3075, the range top that contained the pair from 10/22/08 - 11/10/08. This is a soft target, meaning we are looking at it as an important level but will not set a hard take-profit order on expectations of substantial long-term EURUSD downside. We will maintain a stop-loss on the added portion of the trade at 1.3508 above yesterday’s wick high.



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




GBP/USD

Strategy: Flat

Last week, we opted to remain flat on the British Pound, noting the downtrend was being threatened by positive divergence with the RSI oscillator. Our caution proved well-founded: GBPUSD rallied over 500 pips in the next several days. Writing in an update earlier this week, we noted that “GBPUSD traded up to resistance at a downward-sloping trend line connecting major swing highs since late October and put in a bearish Star candlestick, hinting at the possibility of a forming top.” We were looking for next-day bearish confirmation but the subsequent decline took GBPUSD sharply lower, skewing risk-reward against the trade. We remain flat and will wait for sterling to offer other opportunities going forward.

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

USD/JPY


Strategy: Short at 92.48, Targeting 84.25

We sold USDJPY as the pair broke below a triangle formation and the swing low from late October. Last week, we noted that price action bounced higher from support at the bottom of a bearish channel to test key support/resistance level at 93.17 showing the makings of an Advance Block bearish reversal pattern. We added in an update the following day that the Advance Block had been confirmed, bolstering the bearish scenario. We will remain short as we look for USDJPY to continue lower. Our target remains 84.25, the record-lowest monthly close from 04/1995.

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




USD/CAD


Strategy: Long at 1.2188, Targeting 1.2749

Last week, we wrote that, “The Canadian Dollar put in a triple top at 1.30 to its US counterpart and trended lower through December, with price action confined to a bearish channel formation. Still, we see the longer-term trend bias as bullish: USDCAD broke convincingly above multi-year resistance at a trend line connecting major highs from 05/2004 and has now pulled back to test major support/resistance in the 1.1760-1.1880 area (a major bottom in 11/2004 and a key top in 11/2005 and 02/2007).” We added that USDCAD was testing the preceding swing low above 1.1810 and showing a Star candlestick, hinting at the possibility of a bottom in the making. Indeed, stalled above the aforementioned support, put in an Inverted Hammer, and rallied to break past the bearish channel’s upper boundary. We will look go to long from here, looking to enter in the 1.2177-1.2241 area to initially target December’s top at 1.2749. We will maintain a stop-loss at 1.1939.




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




AUD/USD


Strategy: Short at 0.7079, Targeting 0.6397

Last week, we saw the Australian Dollar break trend line resistance to rise to the 0.7054-0.7247 price congestion area that has contained the bulls since October. We noted that “while the trend line break suggests a bullish bias…negative divergence with the Slow Stochastic oscillator may point to the formation of a near-term top.” Writing in midweek update, we said AUDUSD had shown a Hanging Man with bearish confirmation, pointing to a downward reversal. We entered short at 0.7079, setting stop-loss at 0.7380 above the 10/07/2008 wick high and initially targeting just below 0.64. Indeed, the pair has sold off considerably, adding over 300 pips in floating profit. We will remain short from here as we look for bearish momentum to continue.

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




NZD/USD


Strategy: Pending Short

Last week, we saw the New Zealand Dollar had broken above trend line resistance dating back to mid-July to test double top resistance. The pair has since put in a Hanging Man candlestick and sold off, dropping back below the trend line and shifting the overall bias to favor the bears. Near-term support has been found near 0.5530, a multiple support/resistance level. We will look for a modest bounce here to re-test the trend line and look to establish short. Updates will be posted on 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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