Euro Completes Retracement, Ready to Resume Up-Trend

Having put in a top at 1.5900, the EURUSD finally took a respite from its break-neck ascent with a retracement to support at 1.5337. This level sees the intersection of an upward-sloping trend line as well as the 61.8% Fibonacci retracement of 1.4439 – 1.5900 rally. The single currency did not wait at support for long, surging higher again after the brief breather.

[B]EUR/USD

Strategy: Bullish against 1.5410, Targeting 1.5900[/B]

Having put in a top at 1.5900, the EURUSD finally took a respite from its break-neck ascent with a retracement to support at 1.5337. This level sees the intersection of an upward-sloping trend line as well as the 61.8% Fibonacci retracement of 1.4439 – 1.5900 rally. The single currency did not wait at support for long, surging higher again after the brief breather. Our bias remains bullish, aiming for a retest of the top at 1.5900.

[B]GBP/USD

Strategy: Bullish against 1.9853, Targeting 2.0000[/B]

Closely mirroring the dynamic of the EUR, the sterling spent last week in a retracement period as dollar bears eased their assault on the troubled greenback. GBPUSD declined to 1.9756, a dual support level marked by an upward sloping trend line and the 38.2% Fibonacci retracement of the 1.9361 – 2.0397 rally. The similarity with the EURUSD suggests both pairs are singularly driven by broad sentiment towards the US dollar. Poised to resume the bullish run, cable now eyes the 61.8% Fibonacci retracement of the aforementioned rally at the psychologically significant 2.0000 level.

[B]USD/JPY

Strategy: Bullish against 98.81, Targeting 104.80[/B]

The dollar rallied nearly every currency last week, and the Yen was no exception. The pair put in a bottom at the 161.8% Fibonacci extension of the 117.90 – 104.84 down move and pushed back up over the critical 100.00 mark. The USDJPY has seen close correlation to stock indices and overall risk sentiment in recent months. Last week’s actions by the Fed have generally been seen as accommodative, suggesting the pair has scope to move up higher as jittery markets calm their nerves. Our bias shifts to bullish, targeting a return to levels near the 105.00 mark. We will be sure to use very conservative stop-loss policy however, as any market news that re-introduces risk aversion to the market will surely see USDJPY tumble once again.

[B]USD/CHF

Strategy: Bearish against 1.0175, Targeting 0.9450[/B]

Though not historically considered to be highly correlated pairs, USDCHF and USDJPY have been moving in lock-step since September 2007. The relationship no doubt owes its existence to both currencies’ connections with risk sentiment – CHF is a stand-by “flight to safety” currency while USDJPY has been religiously following the swings in equity indices as the sub-prime fiasco exploded on the scene last summer. A key difference, however, is that while the Yen appears to have some up-side left, the Swissie has begun to look more like the inverse of the EURUSD that we always thought it was. Having concluded a bout of greenback strength, the pair paused at the 61.8% Fibonacci retracement of the 1.1108 – 0.9647 decline. We see this level holding, with USDCHF resuming downward momentum towards the 0.9650.

[B]USD/CAD

Strategy: Bearish against 1.0250, Targeting 0.9860[/B]

The loonie has perpetually ignored the other majors, remaining range-bound while the others swung fantastically to record levels. Though it briefly peaked above the range top at 1.0249 in January, the move turned out to be a head-fake: USDCAD promptly fell back into familiar territory, bracketed on the bottom by the 38.2% Fibonacci retracement of the 0.9055 – 1.0249 rally. Now looking decidedly bearish below the same, familiar resistance, the pair eyes trend line support at 0.9860. The same old Fib level is close below, so a continuation of the ranging dynamic we have noted is likely to remain intact.

[B]AUD/USD

Strategy: Bullish against 0.9119, Targeting 0.9500[/B]

Having established a double top at 0.9500, the AUDUSD retraced all the way down to a long-term trend line established on 08/17/07. That proved adequate support, as Aussie bulls mounted a come-back to test the 61.8% Fib at 0.9119. A break of resistance here would ignite a rally back for another test 0.9500. We will look for a close above 0.9119, then enter long with a tight stop just below the Fib support. Should the pair fail to close above 0.9119, we will remain flat awaiting confirmation of a directional bias.

[B]NZD/USD

Strategy: Flat at 0.8020, waiting for confirmation[/B]

Having penetrated through the upward-sloping trend line established 01/22/08, the Kiwi dollar’s decline was halted by the 38.2% retracement of the 0.7380 – 0.7897 rally. Since then, price action has returned to the trend line support-turned-resistance and is testing that level in an attempt to regain bullish momentum. We reserve taking a directional bias on this pair as we wait to see where the current candle closes.


[I]To reach Ilya with comments regarding this or other articles he has authored, please email him at <[email protected]>.[/I]