US Dollar Poised for Short-Term Correction Before Bullish Resumption
EUR/USD: The sharp pullback below the July lows and establishment below the 200-Day SMA solidifies the prospects for the carving of a major lower top on the monthly chart which now ultimately projects additional declines down towards the 1.2000 area over the coming weeks and months. The latest inter-day rally off of the 1.3500 area lows has stalled out within our projected lower top region between 1.3835 and 1.4055 and Thursday’s break back below 1.3500 confirms the lower top at 1.3940 and should accelerate declines down towards 1.3000 over the coming days. Still, with daily studies looking slightly stretched, look to sell into a rally towards 1.3700 rather than attempting fresh shorts on downside breaks. Ultimately, only a close back above 1.3940 delays outlook and gives reason for pause.
USD/JPY:This is a market that looks like it trying very hard to establish some form of a base after recently setting fresh record lows just under 76.00. Although the downtrend remains intact and has been fairly intense, longer-term studies welcome the prospects of the formation of a material base and shift in the overall structure. Price action over the past several days has been confirming, with the market very well supported in the 76.00’s and unable to extend the downtrend to fresh record lows. From here, we look for the establishment back above the 50-Day SMA to reaffirm our recovery outlook and accelerate gains towards next key resistance by 80.25 further up. Ultimately, only a daily close back under 76.00 delays.
GBP/USD: The market has now extended declines to our objective by 1.5350, with the setbacks matching the December 2010 lows. While we continue to project additional weakness over the medium-term, short-term technical studies are quite stretched and as such, we see risks for a potential corrective rally before the underlying downtrend resumes. Look for a bounce over the coming sessions back towards previous support now turned resistance by 1.5780 where a fresh lower top will then be sought ahead of the bearish resumption.
USD/CHF: Although daily studies are showing overbought and warn of the potential for a short-term corrective pullback, the recent daily close back above the 200-Day SMA is significant and now opens the door for the next upside extension towards 0.9500 further up. Medium-term and longer-term studies still show plenty of room for upside ahead, while the short-term outlook also remains constructive above 0.8645. Ultimately, only back under 0.8645 delays short-term outlook and would open the door for a more sizeable corrective decline. Still, even at that point, buying into dips would be the preferred strategy. Any intraday dips back towards the 0.8900 handle are viewed as solid short-term buy opportunities.
EUR/GBP:Remains locked in a choppy multi-day consolidation with no sign of a clear directional breakout in either direction just yet. As such, selling rallies towards 0.9000 and buying dips below 0.8600 is the preferred strategy.
AUD/USD: The latest sharp pullback below 0.9925 now opens a fresh downside extension exposing 0.9000 and officially confirms a major lower top by 1.0765 below the 1.1080 post float record highs from July. However, with short-term technical studies looking stretched, we would not rule out the possibility for some form of corrective relief back above parity before the market once again resumes its downward trajectory. Ultimately, look for any rallies to now be well capped below 1.0400, where the 200-Day SMA resides.
USD/CAD: The market has put in an impressive recovery since posting fresh yearly lows by 0.9400 several weeks back and while the bounce has been significant on a short-term basis, scope still exists for additional gains ahead with medium and longer-term studies still very much on the oversold side. The 200-Day SMA comes in by the 0.9800 figure and the recent break and close back above this longer-term moving average opens the door for a more sizable shift in the overall construct of the market and a sustained move back towards the 1.0500-1.1000 area further up. A closer look at the weekly chart shows the trigger of a major double bottom, and the recent close back above parity helps to reaffirm constructive outlook. Look for any interday setbacks to now be well supported above 0.9900 on a daily close basis.
NZD/USD: The latest sharp pullback below 0.7965 now opens a fresh downside extension exposing 0.7500 and officially confirms a major lower top by 0.8575 below the 0.8845 post float record highs from July. However, with short-term technical studies looking stretched, we would not rule out the possibility for some form of corrective relief back above 0.8000 before the market once again resumes its downward trajectory. Ultimately, look for any rallies to now be well capped below 0.8250, where the 100-Day SMA resides.
EUR/JPY: The latest acceleration of declines has opened the door for a fresh bout of weakness to multi-year lows below 105.00. Next key support comes in by the 2001 lows at 100.00 and although technical studies are looking stretched on a daily basis, we can not rule out the possibility for a drop to test this major psychological barrier before any consideration for a corrective bounce. Ultimately, a break back above 107.00 will now be required to officially alleviate short-term downside pressures.
GBP/JPY:The latest acceleration of declines has opened the door for a fresh bout of weakness to record lows below 118.80. Next key support comes in by major psychological barriers at 115.00 and although technical studies are looking stretched on a daily basis, we can not rule out the possibility for a drop to test this major psychological barrier. Still, technical studies are well oversold and taking shots to fade the current weakness could prove to be a highly profitable position at current levels. Ultimately, a break back above 125.00 will however be required to officially alleviate short-term downside pressures.
US DOLLAR INDEX: The market remains very well supported on dips and is showing some clear signs of a material base. Key multi-week range resistance has been broken by 9,750 and this solidifies the prospects for a major bottom and should now open the door for fresh upside towards the 10,500 area over the medium-term. In the interim, any inter-day pullbacks should now be well supported by previous resistance turned support in the 9,700 area.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel's reports in a more timely fashion, e-mail email@example.com and you will be added to the "distribution" list.
If you wish to discuss this topic or any other feel free to visit our Forum page
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.