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EUR/USD in Early Stages of ST Triangle; USD/JPY Rebounds at Support

EUR/USD in Early Stages of ST Triangle; USD/JPY Rebounds at Support

Christopher Vecchio, CFA,

Talking Points:

- USDOLLAR Index remains supported by daily 5-EMA.

- USDJPY holds within triangle after test of 119.30/40.

- See the September forex seasonality report.

The USDOLLAR Index continues to digest recent short-term overbought readings on two technical momentum indicators. For the most part, this has meant either churning price action (EURUSD) or mean reversion (AUDUSD and GBPUSD) relative to recent moves. The broad USD strength is highlighted by USDJPY's resiliency within its triangle.

While the pair ultimately failed in its breakout attempt and tested support near ¥119.30/40, unlike equity markets, USDJPY did not fall apart. A bullish engulfing bar/key reversal on the H4 timeframe this morning near ¥119.20/25 - the same area we've seen two morning star candle clusters form over the past three-weeks - suggests that traders aren't ready to commit to further downside in the pair.

This could be for a litany of reasons, but we would focus on speculation over Fed hikes and/or BoJ easing as to why USDJPY's decline relative to the S&P 500 has slowed into the end of Q3'15. It's best to keep a longer-term view here (look at the forest, not the individual trees): until ¥118.20/25 or ¥121.70/75 breaks, USDJPY is still stuck in a consolidation pattern that warrants patience.

See the above video for technical considerations in EURUSD's newly formed short-term triangle, USDCAD's push to fresh yearly highs within its July channel, AUDUSD, USDJPY, and the USDOLLAR Index.

Read more: USDOLLAR Index Supported, but USD/JPY Diverges after False Breakout

--- Written by Christopher Vecchio, Currency Strategist

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