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US Dollar is Vulnerable after Sharp Weekly Reversal

US Dollar is Vulnerable after Sharp Weekly Reversal

2012-03-16 20:04:00
Jamie Saettele, CMT, Sr. Technical Strategist
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Dow Jones FXCM Dollar Index (Ticker: USDOLLAR)

Daily

US_Dollar_is_Vulnerable_after_Sharp_Weekly_Reversal_body_usdollar.png, US Dollar is Vulnerable after Sharp Weekly Reversal

Prepared by Jamie Saettele, CMT

Jamie – The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) broke through the base channel (green) last week and is now acting as support along with the 3/13 low at 9969. Failure to remain above the green channel would shift focus lower towards the confluence of the 20 day average / 50% retracement of the advance from 9738, at 9900/20. These levels intersect channel support (in black) next week. Bottom line (next 4 weeks): Sideways?

JoelThe market remains locked in a multi-day consolidation and should continue to chop between the 9,600-10,100 area. Overall, we do retain a bullish outlook given the broader recovery structure out from a major base in 2011 and therefore recommend looking to buy on dips in favor of an eventual break above 10,100.

Euro / US Dollar

Daily

US_Dollar_is_Vulnerable_after_Sharp_Weekly_Reversal_body_eurusd.png, US Dollar is Vulnerable after Sharp Weekly Reversal

Prepared by Jamie Saettele, CMT

Jamie – Thursday’s outside day gave way to a break of the high and the EURUSD is closing the week on its highs. From a technical perspective, there are plenty of reasons to take this advance seriously. Medium term, the 20 day average is above the 50 day average and recent divergence with the USDCHF is typical of turns (USDCHF traded above the February high while EURUSD held the February low). 13140 and 13100 are supports next week and bulls are favored against 13045. 13290, which intersects with former trendline support next week, is interim resistance. Bottom line (next 4 weeks): Higher?

JoelThe recent aggressive pullback from just under 1.3500 strengthens the prospects for the end of a corrective move in 2012. From here, the risks are tilted to the downside and a break below next key support by 1.2975 will be required to officially put the pressure on the downside and open an acceleration of declines back towards the 2012 lows at 1.2620. At this point, only a break back above 1.3300 would alleviate downside pressures and delay outlook.

British Pound / US Dollar

Daily

US_Dollar_is_Vulnerable_after_Sharp_Weekly_Reversal_body_gbpusd.png, US Dollar is Vulnerable after Sharp Weekly Reversal

Prepared by Jamie Saettele, CMT

Jamie –The GBPUSD technical position is similar to that of the EURUSD. “From a technical perspective, there are plenty of reasons to take this advance seriously. Medium term, the 20 day average is above the 50 day average” although Friday’s sharp rally was capped by the 200 day average. 15800 is support next week and bulls are favored against 15690. Structurally, the decline from the 2/8 high may be a completed flat. If that count is correct, then a rally towards 16300 is in its early stages. 16298 is where the rally from the January low would consist of 2 equal legs and intersects channel resistance in early April. Bottom line (next 4 weeks): Higher?

JoelThe market has been costly confined to tra//de between the 100 and 200-Day SMAs since early February and the latest break back below the 100-Day SMA therefore suggests that we could be on the verge of a bearish break. The key level to watch comes in by 1.5600, and a break and close below this level will reaffirm bearish outlook and open the door for a more significant bearish decline towards the 1.5000-1.5300 area further down. Inability to establish below 1.5600 however, will suggest that more choppy directionless trade is in the cards.

Australian Dollar / US Dollar

Daily

US_Dollar_is_Vulnerable_after_Sharp_Weekly_Reversal_body_audusd.png, US Dollar is Vulnerable after Sharp Weekly Reversal

Prepared by Jamie Saettele, CMT

JamieI wrote last week that “I am looking towards 10410/50 in what may be a 4th wave correction…I favor shorts above 10700 and longs at 10410/50.” The AUDUSD dipped into the mentioned support zone on Thursday before reversing sharply (the low was 10422). If the interpretation of wave structure is correct, then the AUDUSD is headed for a break above 10856 in the coming weeks. An objective is ABOVE the record free floating high of 11080 at 1.1160, which is the 61.8% extension of waves 1 through 3 (from the end of wave 4). The objective intersects with the Elliott channel in mid April. Interim resistance is 10670 and 10715. Early week support is 10560 and bulls are favored against 10500. Bottom line (next 4 weeks): Higher

JoelDaily studies are finally starting to look stretched and warn of a more significant pullback ahead. Look for the latest break and daily close below 1.0595 to confirm outlook and open the door for a more legitimate bearish reversal towards the 1.0300 area over the coming days. Only a daily close back above 1.0670 would delay topping outlook and give reason for pause.

US Dollar / Japanese Yen

Daily Bars

US_Dollar_is_Vulnerable_after_Sharp_Weekly_Reversal_body_usdjpy.png, US Dollar is Vulnerable after Sharp Weekly Reversal

Prepared by Jamie Saettele, CMT

JamieFocus for the month remains 8550, which is defined by the 2011 high and confluence of Fibonacci extensions (100% extension of 7602-8162 / 8001 and 261.8% extension of 8001-8187 / 8058). The best strategy is to continue moving up the stop, which should now be under this week’s low at 8195 (for medium term players). Early week support is 8265/85 and bulls remains favored above the mentioned 8195. A drop below is required in order to reassess. In summary, look higher towards 8550 before a larger corrective decline takes place. Bottom line (next 4 weeks): Topping

Joel – The market is doing a good job of showing the potential for the formation of a major cyclical bottom after closing above the weekly Ichimoku cloud for the fist time since July 2007. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming weeks. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond 84.00 over the coming sessions could prove hard to come by with shorter-term technical studies needing to unwind from their most overbought levels in over 10 years before a bullish continuation. As such, we would caution buying breaks above 84.00 for the time being and instead recommend looking for opportunities to buy on dips towards 80.00-82.00.

British Pound / Japanese Yen

Daily

US_Dollar_is_Vulnerable_after_Sharp_Weekly_Reversal_body_gbpjpy.png, US Dollar is Vulnerable after Sharp Weekly Reversal

Prepared by Jamie Saettele, CMT

Jamie – Continue to look higher in the GBPJPY but watch the Elliott channel for resistance. The advance from 12653 is probably a 5th wave and 5th waves are followed by reversals. Fibonacci objectives (.618% extension of waves 1 through 3 and 161.8% extension of September-October 2011 rally) are near the 5/31/11 high at 13510. Bottom line (next 4 weeks): Topping

JoelThe cross continues to show evidence of the formation of a meaningful base, with the latest topside acceleration blowing through a good deal of significant resistance levels in the form of the 200-Day SMA and some critical multi-day highs in the 131.00 area. From here however, daily studies are looking quite stretched in the short-term and we would be on the lookout for a corrective pullback to allow for these studies to unwind before the market considers a bullish resumption. Selling a break back under 130.00 for a move towards 125.00 is therefore the preferred strategy over the coming week.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

To be added to Jamie’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jsaettele@dailyfx.com

Jamie is the author of Sentiment in the Forex Market.

--- Written by Joel Kruger, Technical Strategist for DailyFX.com

To contact Joel e-mail jskruger@dailyfx.com. Follow him on Twitter @JoelKruger

To be added to Joel’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jskruger@dailyfx.com.

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

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