British Pound Retraces, Euro Grapples with 1.50 Against US Dollar

The US Dollar has continued to slide lower, with prices poised to test the critical 1.50 level against the Euro. We remain long the greenback against the British Pound, looking for the recent upswing to be reversed near current levels but ready to take profits off the table should aggressive Dollar selling continue.

[B]EUR/USD[/B]

[B]Strategy: Flat
Weekly Profit / Loss: -148 pips
Total Profit / Loss: [/B][B]-148 pips[/B]

Our short EURUSD at 1.4710 position was stopped out as prices closed above 1.4847, the 9/23 wick high. Looking at the weekly chart to access the overall picture, positioning continues to favor the downside with a clear Rising Wedge bearish reversal formation bolstered by negative divergence on the RSI oscillator. The bulls face a major hurdle at the 1.50 level, a level that is significant both psychologically and technically with the intersection of the wedge top and a horizontal resistance level. We will remain on the sidelines for the time being as prices find their bearings at this key juncture.

[B]GBP/USD[/B]

[B]Strategy: Remain Short at 1.6617, Targeting Below 1.5767
Weekly Profit / Loss: -127 pips
Total Profit / Loss: [/B][B]+278 pips[/B]

We sold GBPUSD at 1.6617. Prices hit our revised soft target at 1.5767, the 09/28 wick low, and rebounded higher. We now notice that this level also coincides with the bottom of a falling channel established from the August high. Prices put in a Bullish Engulfing and proceeded to correct higher to test that channel’s upper boundary, now at 1.6361. We will remain short, looking for this resistance to hold up and send prices lower once again to take out 1.5767 to the downside. Alternatively, we will book profits should GBPUSD issue a daily close above this juncture. A stop-loss remains at the break-even point (1.6617).

[B]USD/JPY[/B]

[B]Strategy: Flat[/B]

Last week, we wrote that USDJPY may be setting up bullish correction with the emergence of positive RSI divergence ahead of the major double bottom at 87.09, looking for a break above the top of a channel established from the August swing high to open the door for a run towards support-turned-resistance at 92.09. Indeed, this very scenario is now upon us, and we will keep an eye out for signs of bearish reversal near 92.00 to enter short, trading along with the firm down trend in place since 2007.

[B]USD/CAD[/B]

[B]Strategy: Flat[/B]

Last week, we wrote “USDCAD looks poised to break below major support at 1.0682 after testing the top of a falling channel that has confined prices since March…the next level of support is seen at 1.0334.” Indeed, prices now find themselves standing squarely at 1.0334 but continuing to show positive RSI divergence, hinting that the bears may be losing conviction. That said, no confirmation is in sight at this point and we will remain on the sidelines.

[B]AUD/USD[/B]

[B]Strategy: Flat[/B]

After weeks of showing what appeared to be a clear Rising Wedge bearish reversal setup, the Australian Dollar has silenced the naysayers (ourselves included), pushing back above critical support-turned-resistance at a rising trend line that had guided the last major uptrend from 2001 to 2008. Prices are now testing above the midline of a rising channel from the lows of this year, with continued bullish momentum targeting the formation’s upper boundary, now at 0.9523. While the bullish case is very compelling at this point, prices have come a long way with no respite an getting on the bandwagon now would not be prudent from a risk/reward perspective. To that effect, we will stand on the sidelines for now.

[B]NZD/USD[/B]

[B]Strategy: Flat[/B]

NZDUSD positioning is unchanged from what we identified last week: prices are testing major resistance below 0.7444, a level that has been a significant barrier for price action since September 2007. This is reinforced by the midline of a rising channel established from the lows in March that has contained upside momentum since early July. That said, we have no clear entry signal and will have to remain on the sidelines until better confirmation presents itself.

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