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Euro Upside to Offer Selling Opportunity against US Dollar

Wednesday, 07 January 2009 10:46:47 GMT  |  Ilya Spivak, Currency Analyst

The Euro has retraced close to half of December’s impressive rally against the US dollar and now looks poised for an upswing. The broad trend continues to favor a bearish outlook, with a correction higher offering an attractive selling opportunity ahead.

EUR/USD


Strategy: Short at 1.5510, Looking to add

We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. The pair is now trading at 1.3613, bringing our floating profit to 1897 pips. We noted at the beginning of December that EURUSD looked poised for a bullish correction that would offer a selling opportunity to trade with the long-term down trend. Indeed, the pair managed a rally of historic magnitude (far higher than we expected) to test above 1.47 but failed to break support-turned-resistance at the long-term trend line that had guided EURUSD higher from 2002 and was broken in October. The pair has now retraced about 50% of December’s impressive up move and is showing a Hammer at the key multiple support/resistance level near 1.3423. We will look for an upswing to find a top on a test of support-turned-resistance at the bottom of the range from late December in the 1.3823-1.3910 area to add to our short position. 



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




GBP/USD


Strategy: Pending Short

The British Pound has seen heavy selling pressure and failed to follow the anti-Dollar correction we saw in EURUSD. The pair has now traded up to test resistance at a downward sloping trend line connecting swing highs from late September. Although the overall trend bias favors a bearish scenario, we note that positive divergence with the RSI oscillator threatens a reversal at the moment. We will remain on the sidelines for the time being, looking for confirmation as price action considers the current juncture. 



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. We now also note that price action looks to have been confined to a bearish channel established from mid-July. Price action bounced higher from support at the bottom of this channel in mid-December and is now testing a key support/resistance level at 93.17. The pair is showing the makings of an Advance Block bearish reversal pattern, with a bearish close on the current candle serving as confirmation. We will continue holding short as we look for USDJPY to resume bearish momentum. 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: Pending Long

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). Near-term, positioning sees the pair testing the preceding swing low above 1.1810 and showing a Star candlestick, hinting at the possibility of a bottom in the making. We will look for confirmation in the coming days to enter long. 



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




AUD/USD


Strategy: Flat, Waiting for confirmation

The Australian dollar has broken above resistance at a downward sloping trend line that has guided the pair lower since mid-July. Prices have now risen to test resistance in the 0.7054-0.7247 price congestion area that has contained the bulls since October. While the trend line break suggests a bullish bias, we note that negative divergence with the Slow Stochastic oscillator may point to the formation of a near-term top. We will look for further confirmation of the pair’s directional bias in the coming days. 



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




NZD/USD


Strategy: Flat

In a similar setup to AUDUSD, the New Zealand Dollar has broken above a trend line dating back to mid-July and is now on pace to test double top resistance at 0.6090. A long position does not look attractive at present from a risk-reward perspective, so we will remain flat for the time being. 



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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