Weekly Technical Update: Weakness Stays with Greenback; Yen Might Start Sliding as Well

This week, The US dollar continued to loss ground to the euro, and pound, as well as to the JPY, which competes with the USD for risk-aversion-based flow. The commodity currencies such as AUD and CAD also gained on the greenback. Even gold, which has been declining is gaining again. It appears the dollar is sliding across the board. Let's review the technical developments for this week.

EUR/USD Nears Last Resistance Zone for Bearish Outlook

Daily: The EUR/USD rallied further this week and is going to enter an upper zone of resistance.

If the market continues further but can find a top in the zone that starts at 1.3120 to 1.3250, it can still decline towards and even past the 1.1880 area.

However, a breaks suggests continual rally towards 1.35 area.

There is a bearish divergence developing. The slowdown in momentum can also be seen by looking for strong bullish candles. The strongest has waned each week.

To confirm topping, I would like to see a strong day decline that can match and preferably be wider than the ATR.

Another thing to monitor is the USD/JPY and USD/CHF. At the moment, the USD is very weak against these. If it is rallying, the chances for EUR/USD to find a top improves.

Will increase monitoring of this pair next week.

USD/JPY Remains Bearish with Negative Reversal Signal

Daily: The USD/JPY fell below its previous support near 86.40, and tested the 86.00 level.

This came after a rally materializing after a bullish divergence. Because the rally did not reach the previous high near 89.00, the market is showing us a negative reversal. This is a signal when the price high is lower, but the RSI high is higher.

The projection for this is shown in the chart to about 85.20.

This is the support zone for the USD/JPY going back to Dec 2009. The timing of the USD/JPY hitting this support, and the EUR/USD hitting an important resistance zone, might give the USD some strength in the next couple of weeks.

GBP/USD Testing 1.55

Daily: The GBP/USD continues to be strong this week. There was a positive reversal spotted last week, and the market continues higher after reaching the projection.

The RSI did not develope a bearish divergence, a sign of continuing strength.

I did mention earlier this week that the market should be nearing resistance. The 200-period moving average (in gray), is being tested, and the market continues. It is not testing an important powerline/zone that starts at about 1.57 to 1.5870(61.8% retracement).

My take is that the market is now ranging, but is overextended to the upside. However, if the market accelerates next week, and the RSI shoots into the overbought zone. I would reconsider.

If the market finds topping action next week, I will become more confident of this scenario.

Next couple of weeks appear to be very crucial as the market spends time considering direction from significant powerlines, pivots, resistance, support, whatever technicians call them.

USD/CAD Breaks Below Congestion Pattern

Daily and 1H: There isn't much to update on the USD/CAD, except that it indeed broke below the congestion pattern. The target remains the 1.02/1.0180 area, and possibly retest of the parity level.

The RSI shows ranging momentum, so I would start looking for bottom action soon. The weakness in the USD appears to be bringing it to major supports across the board. Will this help the greenback bounce back?

If so, I would anticipate sharp reversals, such as a strong rally for USD/CAD from 1.018 next week, back towards 1.04, where the moving averages reside.

EUR/GBP Euro Trying to Turn the Corner

Daily and 4H: The EUR/GBP was seen last week to decline and be supported at 0.8250. This week, the market did indeed continue the decline, but is only showing more confirmation for this outlook today.

Looking the 4H chart, we see that the latest candle is threatening to break below the 0.8320 area. It broke it, but has not confirmed yet, and the break has not been convincing.

This does also breaks the SMA 200 in the 4H chart.

I am interested in seeing the reaction near 0.8250, the 61.8% retracement level. If there is a rally that breaks above the 0.84 area, I am convinced of a continuation rally.

However, I will be looking for topping action as early as 0.8320.

Then, the next target for decline is the previous low near 0.81/0.8060.

AUD/USD Struggling to Reach 0.91

Daily: Last week, I anticipated further rally in the AUD/USD towards the resistance zone around the 78.6% retracement area.

This week, the market gave us a strong bearish signal, but has not followed through. Instead, the week ended rallying, and testing this week's high just below 0.91.

This may complete a 2-swing correction suggesting a bearish attempt following the completion.

There is possibility of topping action, and a decline towards 0.8550 in the short-intermediate term.

GBP/JPY

Daily: The GBP/JPY did finally break above the congestion pattern we have been stalking the past several weeks now. The break is strong and has impulse type internals. The last few days saw the GBP/JPY slide but this offers a throwback.

If the market can rally to start next week, it can go towards 140.00, with 138.65 as first resistance.

The RSI did break above 60 temporarily, but the momentum is not convincing of a bullish rally.

There is only a slight bias to the upside due to the strength of the rally and the weakness of the subsequent decline. Also, Elliott Wave Principles suggest internals point to bullish scenarios as well in the short-term.

Perhaps, the Japanese yen will also take a hit. The rally in EUR/JPY and GBP/JPY is more probable if the USD/JPY can find a bottom and rally.