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AUD/USD Top Measures to 0.8906, EUR/JPY Revisits 138.05 Resistance

AUD/USD Top Measures to 0.8906, EUR/JPY Revisits 138.05 Resistance

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- AUDUSD weak H&S/range break measures to 0.8906.

- EURJPY back into familiar resistance level since mid-July.

- Euro Punished by ECB’s New Measures as QE Remains on Hold

The US Dollar took a step back against the European currencies and the Canadian Dollar yesterday afternoon in New York but the ground under the greenback has shifted favorably, no doubt about it. The US Dollar's bull run that has fueled it to its highest levels since August 2013 was largely unaided by rising US yields, particularly at the long-end of the yield curve until recently:

US Yield Curve - D, 1W, 1M Bps Changes

AUD/USD Top Measures to 0.8906, EUR/JPY Revisits 138.05 Resistance

As US yields have started to rise the past week and month, the fundamental footing on which the US Dollar stands has strengthened. There have been two notable results of this action in the bond market in recent days: the resiliency of the commodity currencies has abated; and the Japanese Yen has started to slide again.

AUDUSD Daily Chart - November 2013 to Present

AUD/USD Top Measures to 0.8906, EUR/JPY Revisits 138.05 Resistance

The recent downturn in AUDUSD finally piques our interest now that the range that has developed since the first week of April has been broken below $0.9205. While this looks like a weak head & shoulders topping pattern, the timing of the Stochastics and MACD issuing sell signals alongside the break in price gives greater confidence for a continue breakdown.

EURJPY is a different animal, even as it has been trapped in its own range for the past six weeks-plus. The return to the ¥138.05 resistance level coincides with a pause in the EURUSD selling amidst USDJPY breaking out to fresh six year highs. Considering the overextended nature of the US Dollar's current run, a EURJPY breakout higher would thus require one of two scenarios: EURUSD treads water and USDJPY runs higher; or EURUSD rebounds and USDJPY treads water.

See the above video for technical considerations in AUDUSD and EURJPY.

Read more: USD/JPY May See 110.00, USD/CAD 1.1200 Over Coming Weeks

--- Written by Christopher Vecchio, Currency Strategist

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Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.