Candlesticks Capitalize on Dollar Strength

Last week saw our long US dollar positions yield hit their targets against the Euro and Canadian Dollar, locking in 455 pips in profit. This time around, our preference for the greenback continues. We start this week with an immediate opening to establish short against the Australian dollar, with fresh opportunities against the Euro and Sterling expected in the near term.

[B]EUR/USD

Initial target hit, more downside likely[/B]

Last week we opted to continue holding an open short EURUSD position having sold the pair at 1.5863 targeting a pullback to the long-term bullish trend line. EURUSD hit our profit target, yielding 272 pips.

Looking ahead, we see EURUSD positioned right at the bullish trend line that has supported price action since mid-August of last year. The long-term picture appears decidedly bearish, with the weekly chart showing a Three Black Crows reversal pattern. That said, the magnitude of support around the 1.55 level is very substantial, so a corrective bounce is likely. We will remain flat for the moment as we look for price action to yield another opportunity to re-enter short.

[B]EUR/USD Strategy[/B]

Flat. Updates will be posted throughout the week at the Candlestick forum.

For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.

[B]GBP/USD

Gathering bearish momentum[/B]

As we suggested last week, GBPUSD saw a bearish breakout beyond the boundaries of a Rising Wedge formation. Following a short correction higher, price action resumed bearish momentum, producing a Long Black Candle.

Near-term positioning once again skews risk-reward against an outright short at current levels as GBPUSD trades ahead of support at 1.9693, the 07/08 close that saw the bottom of the pair’s last down swing. We will look for a daily close below this level to offer an opportunity to sell GBPUSD targeting just above the 1.94 level.

[B]GBP/USD Strategy[/B]

Flat. 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

Downward correction threatens bulls[/B]

Last week, we opted to remain flat USDJPY. We saw the pair issue a bullish candle following the Hammer candlestick but decided to wait for confirmation seeing price action trading ahead of significant resistance at 108.20. We suggested looking for final confirmation by way of a daily close above this level to initiate a long position. USDJPY failed to meet entry requirements and a trade was not triggered.

Current positioning sees USDJPY showing a Hanging Man bearish candlestick below resistance, signaling the potential of forming a double top followed a downward correction. Recalling from last week’s long-run analysis, we continue to see the broad bias as favoring more upside having seen price action break past a downward-sloping resistance line that contained bullish momentum since June 2007 on 06/10 (not shown). To that effect, we will remain on the sidelines waiting for the pair to offer favorable entry conditions in favor of the trend.

[B]USD/JPY Strategy[/B]

Flat. Updates will be posted throughout the week at the Candlestick forum.

For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.

[B]USD/CAD

Triple top in place?[/B]

Two weeks ago, we identified USDCAD as showing a Morning Doji Star candlestick formation and suggested going long in the 1.0025 – 1.0050 area targeting 1.0233 above recent wick highs. Following a pull-back to trigger entry, USDCAD produced a large Bullish Engulfing and proceeded to rally. Last week, we saw no signs of waning upward momentum having seen USDCAD advance 145 pips in our favor and opted to keep holding the trade. As expected, USDCAD hit the target at 1.0233 to yield 183 pips.

Looking ahead, we see USDCAD trading just below substantial resistance in the 1.0300-1.0350 area. Bullish momentum has repeatedly failed here since the beginning of the year, meaning caution must be exercised in how we proceed from here. We will remain on the sidelines for the time being and monitor how price action responds at current levels before committing to a trade. That said, we see the long-term bias as having been turned bullish when early June saw USDCAD break higher out of Triangle formation that characterized the pair for nearly a year.

[B]USD/CAD Strategy[/B]

Flat. Updates will be posted throughout the week at the Candlestick forum.

For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.

[B]AUD/USD[/B]

[B]Large bearish reversal underway[/B]

Last week, we proposed that AUDUSD was trading in a Rising Wedge formation established from the 03/13 high. This put the pair at Wedge support having tested the topside. We chose to look for a penetration below the formation’s lower boundary to initiate a short.

As we expected, AUDUSD broke below the Rising Wedge and picked up enough downward momentum to break past a major support level at 0.9330. Price action has now pulled back to support-turned-resistance, offering an excellent entry opportunity. We will short the pair from here targeting the price congestion area near 0.9018.

[B]AUD/USD Strategy[/B]

  1. Short AUDUSD at market in the 0.9300-0.9330 area.

  2. Set stop-loss at 0.9441.

  3. Set target at 0.9018, risking 141 pips to gain 282.

For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.

[B]NZD/USD

Working lower through support levels[/B]

Last week saw NZDUSD at a major support above 0.7383, threatening a triple bottom. Though our bearish bias remained unchanged, we opted to wait and see how price action would behave before re-entering short. The pair broke support mid-week, but we still decided to stay flat as price action was in close proximity of support at the bottom of a channel that had been in place since mid-March. This skewed risk-reward parameters against a short and we saw continued patience as the most prudent option.

Looking now, it appears we must once again hold back from pulling the trigger on another short. NZDUSD issued a Long Black Candle that broke beyond channel support but prices now stand ahead of another major level at 0.7240. The pair has seen substantial reversal here, and once again risk-reward considerations tell not to commit to a short until we get confirmation that support has been overcome.

[B]NZD/USD Strategy[/B]

Flat. 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

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