Last week saw the dollar return some of its recent strength as a comparatively light US calendar allowed for technical retracements in most of the majors. The Euro lost downward momentum and has eased back into the middle of a familiar range, as did the New Zealand dollar. The slower pace did not carry over across the board however, as the Australian dollar rallied sharply higher than we expected. Both it and the Pound Sterling now find themselves walking a tight balance between retracement and outright trend change. This week’s most interesting openings appear in the greenback’s pairings with the Canadian Dollar and the Yen. The former looks to have completed a brief spell of dollar weakness and is eyeing a momentous upside swing. The latter lags a bit, with an analogous pull-back getting ready to offer a long entry in the coming days.
[B]EUR/USD
Back in familiar territory[/B]
Last week we noted that EURUSD closed below 1.54 showing a bearish Three Outside Down candlestick formation. We further identified an upward sloping trend line that has held up price action since August of last year near the 1.53 level. We opted to wait for a break of this support, expecting the bearish trend to accelerate with a move below the 1.50 in case of a breach. The requirement of a confirmed break proved wise – EURUSD bounced from trend line support to return to the middle of the 1.58-1.54 range that has contained price action since May.
Current positioning is showing a Long White Candle following a period of indecision (noted by small candle bodies with long wicks) after the initial bounce at trend line support. This suggests the bulls retain the upper hand for the time being, with the recent past favoring a return higher to test range resistance below 1.5800. We will look to short EURUSD here to trade the range in the direction of our overall bearish bias.
[B]EURUSD Strategy
[/B]
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Short EURUSD below1.5800 on confirmation of a reversal.
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Set stop loss near 1.5945.
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Set profit target just above 1.5400, risking 145 pips to gain 397.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
[B]GBP/USD
Channel pierced. Rally next?[/B]
Last week saw us view the GBPUSD downtrend with a bit less confidence as the pair reached a major support level above 1.9400. Seeing indecision with a Long-Legged Doji candlestick, we initially stayed on the sidelines awaiting confirmation. As the week progressed, we saw price action retrace to the top of the downward-sloping channel that has guided the pair since mid-March. In an update posted on the DailyFX Forum, we suggested to short GBPUSD below 1.9720 on confirmation of a bearish reversal. As with EURUSD, waiting for confirmation was a prudent choice. GBPUSD rallied past the channel’s upper boundary to close just below a multiple support/resistance area at 1.9760.
With current positioning in close proximity to a significant resistance level, we will hold off from an outright long position at the channel’s break. A range akin to EURUSD may be forming, and we will reserve directional judgment for the time being until price action yields confirmation.
[B]GBP/USD Strategy[/B]
We remain flat, waiting for confirmation. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
[B]USD/JPY
Retrace offers entry[/B]
We wrote extensively about unfolding USDJPY last week. A test at an upward-sloping support line just below 105.00 vaulted the pair to test multiple support/resistance at 108.40. As the week went on, we identified an Advance Block bearish reversal formation with bearish candle confirmation, suggesting a reversal lower. Price action validated the signal, descending below 108.00.
The likely scenario at thing point appears to be a retrace to trend line support near 106.00, with USDJPY reversing here as the rally regains momentum. A break and close below the trend line would go a long way to reversing the current bullish bias.
[B]USD/JPY Strategy[/B]
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Long USDJPY above 106.00 on confirmation of reversal at trend line support.
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Set stop-loss near 104.96.
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Set profit target just below 108.40, risking 104 pips to gain 240.
For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.
[B]USD/CAD
Rally imminent?[/B]
Choppy USDCAD price action has kept us on the sidelines for several weeks as we looked for the pair to yield a clear directional signal. Looking back at the broader picture, we notice the pair appears to be consolidating in a large Triangle formation. Resistance was overcome in the beginning of this month, followed by a brief rally and retracement back to trend line resistance-turned-support.
Current positioning sees USDCAD resting above the triangle’s penetrated upper boundary showing a bullish Hammer candlestick. This lends credence to a rally about to commence. Still, we will err on the side of caution and wait for the Hammer to be confirmed by a bullish close in the current candle. Should this materialize, we may be entering a substantial USDCAD upward correction. While our initial target will be modest in aiming for recent highs, we think the fundamental back-story (see article) is supportive of a protracted rally.
[B]USD/CAD Strategy[/B]
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Long USDCAD above 1.0130 on Hammer confirmation
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Set stop-loss near 1.0059. -
Set profit target below 1.0325, risking 71 pips to gain 195.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
[B]AUD/USD
Bearish momentum to resume [/B]
Last we identified AUDUSD price action as having broken out of a Rising Wedge bearish chart formation following a dismal May unemployment report showing the economy failed to add 13.5k jobs as expected to shed -19.7k instead. Extending wedge support backwards corresponds to an upward-sloping line that has held up since August, adding all the more significance to its penetration. The decline stalled above pivot point support near 0.9320. We expected a bounce here to retest trend line support-turned-resistance offering entry for a short trade. In a mid-week update, our estimation of the trend line placed the entry point near 1.9490. Our analysis missed the mark – the initial drawing of the trend line along recent wick lows proved misleading. Our entry was triggered only to see AUDUSD rally higher to hit the stop-loss and lock in a loss of 60 pips.
This time around, we establish the entire trend line from 8/17 onward. The line is tested numerous times with long wicks but AUDUSD never closes below it, suggesting the validity of its placement. The slope steeper, showing that Friday’s trading closed just below it. This gives us reason to believe that the initial scenario of a retrace prior to a larger down move is still in play. Still, we will look for a definitive sign of a reversal in the candlesticks before taking a position.
[B]AUD/USD Strategy[/B]
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Short AUDUSD below 0.9560 on confirmation of a bearish reversal
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Set stop loss near 0.9624 -
Set target near 0.9320, risking 64 pips to gain 240.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
[B]NZD/USD
Bounces back into the channel, trend still bearish[/B]
Having booked 323 pips in profit on a short trade, we started last week by re-evaluating the broader picture for NZDUSD. Price action was resting near 0.7500, which corresponds with bottom of a downward-sloping channel as well as a long-term bullish trend line that has guided NZDUSD higher since July of last year. We noted a Long-Legged Doji, which has since turned into a Morning Star formation. NZDUSD then proceeded to rally, returning back above 0.7600.
With price action still quite far from threatening the overall bearish bias, we see the current upward momentum as a correction within the broader down move. We will look for the rally to yield signs of exhaustion and position for a short entry in the days ahead.
[B]NZD/USD Strategy[/B]
We remain flat, waiting for further confirmation. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room.
[B]** NOTE:[/B] All open positions are closed out at the end of the trading week unless otherwise specified.
[I]To contact Ilya regarding this or other articles he has authored, please email him at <[email protected]>[/I]