Greenback Weakness About to be Tested
This week, the greenback continued to weaken after fighting back a bit last to end last week and the start of this week. However, we saw it slide across the board. Even more pressured were the CAD and AUD. Perhaps global growth concerns are stabilizing the EUR and GBP which has been almost singled out in April and May. The Japanese yen on the other hand is benefiting from this risk aversion.
USD/JPY: Measuring the Current Downswing
- Weekly: The 87 bottom proved to be temporary, as the market failed to rally above 89 this week. Instead, the market declined and broke below 87.
- I mentioned a possibility of reaching below 86, so is one assessment of the downswing.
- Previous downswings have been getting shorter since 2007, causing a congestion patter. The lows are still getting lower, but at a flatter rate. We see swings taking ratios of approximately 61.8% and 78.6% of the previous swing. If the current swing is 61.8% of the previous, it is projected to 85.33. This is the first area I would start looking for a bottom.
- Then 82.50 is the next area (78.6%). If that is broken, the bottom has opened up, and 79.00 is the next target.
GBP/USD Testing 1.55
- Weekly and Daily: The market initially respected 1.52. This week however, the market plowed right through it, testing the 1.55 area, the previous high in April.
- The RSI is above 60, but today, failed to break above 70.
- This week's strength and RSI crossing 50 in the weekly, suggests further rally can be expected next week. If the market rallies past 1.5570, it can go to the 61.8% retracement level at 1.5890/1.59 area.
USD/CAD in a Congestion Pattern
- Daily and 4H: The USD/CAD bullish, which is surprising because of major Greenback weakness. However, the same dynamic affecting the greenback is pressuring the currently growth-sensitive currencies such as the CAD, AUD and NZD.
- The USD/CAD actually gained this week, but the rally will be tested at 1.06. The rally can be projected from previous rallies towards 1.08 adn 1.1, but 1.06 is an important level to break for this outlook.
- The 1.06 area is a confluence of 61.8% and 78.6% retracement levels.
- Overall, we are in ranging action between 1.08 and 1.00 so expect some resistance at 1.08 even if 1.06 breaks.
EUR/GBP Euro Trying to Turn the Corner
- Weekly and Daily: The EUR/GBP pair continued with last week's attempt to turn the corner and establish a bottom near the 78.6% retracement area, seen in the weekly chart.
- You can also see in the weekly that this occurs in the middle of a possible channel, but if the current low is significant, it is more of a wedge pattern, with the support flatter than the one shown above.
- The daily chart shows a break above the 50-period moving average. I mentioned last week, that a break above 0.8450 suggests a rally towards 0.88, (0.8725 is at 61.8% retracement).
- There is still a chance for the EUR/GBP to turn back lower here below 0.85.
- The daily chart also sees the RSI testing the 60 level. If it breaks above 60, the momentum has turned at least ranging if not bullish. However, if topping occurs, we may develop a negative reversal and signal a bearish attempt.
- Topping action should really require confirmation, unless it is strong, such as a 1-day candle that closes more than 80 pips (ATR) to the downside. In that case I would not expect a strong pullback.
AUD/USD Bearish in the Short-term
- Daily: The market for AUD/USD pair is respecting the previous top at 0.8880 area. Although, we may be eventually see the pair move higher, it is in the short-term bearish because it has not established the bullish mode yet. Instead, it is challenging the bearish mode, which makes it ranging.
- Being ranging, and testing a previous resistance, the short-term outlook is bearish.
- The 4H chart shows what can trigger further short-term weakness.
- Currently the market is supported repeatedly at 0.8680 area. A break below this and a pullback to confirm suggests a slide towards 0.83/0.8350 area, which is the previous support.
- This should be accompanied by a break below 40 in the RSI in the 4H chart.
GBP/JPY - Stalking Consolidation
- Daily and 4H: The GBP/JPY pair may be attempting to find a direction.
- It came to 135.80 (I mentioned resistance at 135.30, but the upper bound of the resistance is at 136, as can be seen in the daily chart).
- However, the consolidation has a slight convergence of support and resistance, making it a triangle.
- The daily chart sees a negative reversal (RSI is higher, but price level is not), so there is some bearish bias, and the market is following that at the moment. This may be a wave e, meaning it may be the last wave in this congestion pattern.
- However, a break out needs to be confirmed. However, the bearish outlook to me is still near-term, within the context of a consolidation pattern, unless the volatility increases too.
- One way of seeing a rise in volatility is the fact that the market in the 4H chart took out the former took, and came down to take out the former low. So far this volatility has not been filtered, and reflects growing tug-and-pull between bulls and bears.
- I would look for the the market to find support near 129. First, however, a decline should see support near 131, even if it breaks below what seems to be a triangle ,but may be a declining channel.
- If all this above still leaves you clueless about what direction the market should be in, that is exactly the way you should feel. Therefore, look for more clues. Meanwhile in then near-term, the 4H chart suggests another bearish attempt should take place after today's consolidation.
Fan Yang Currency Analyst Commodity Trading Advisor firstname.lastname@example.org
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analyses.