Euro Retraces, Looks For Downtrend To Resume

Having given back some of its recent rally, the US Dollar looks poised to regain momentum again the Euro, Swiss Franc and the Yen. The Canadian dollar too looks weakly positioned against the greenback above support of the long-held range. While the Australian continues to show very few chinks in the armor despite clear deterioration in fundamentals as the yield advantage guide price action, the New Zealand dollar collapse has accelerated.

EUR/USD

Strategy: Bearish below 1.5560, Targeting 1.5170

Over the past several weeks, we've experimented with the establishing our Fibonacci retracement setup for the EURUSD to capture either the entire bullish run from 1.4437 to 1.6019 or just the first leg that took the pair to 1.59. Following the initial run, EURUSD made a triple top at 1.59 before a final push towards 1.60. The historic high was touched but unsurpassed, and EURUSD subsequently fell. The slope of the first run differs from that of the second leg, and we were tempted to treat these as separate moves (especially given the feeble 1.60 test). Price action seems to have a similar idea, as the decline in EURUSD stopped just at the 38.2% Fibonacci retracement of the 02/07-03/17 advance to 1.59, while resistance is neatly capped by the 23.6% Fib of the same move. Our bias remains bearish. We see EURUSD descending lower from here, targeting a break of current support to hit the 50% Fib at 1.5170.

GBP/USD

Strategy: Bearish below 1.9876, Targeting 1.9360

Last week's expectations of a bullish relief rally did not materialize. Rather, GBPUSD dropped convincingly lower past the last level of Fib support marked by the 76.4% Fibonacci retracement of the 02/20-03/13 rally at 1.9605. We have also noted that price action has been confined to a downward-sloping channel since mid-March. The most recent decline stalled at the lower boundary of this channel. A strong bullish candle today at support suggests some limited upside may be on order before the broad decline resumes. We will look for the pair to pull up to the 61.8% Fib just below 1.5760 and monitor price action carefully. Should sings of a reversal appear, we will short here. In an alternative scenario, GBPUSD may rally all the way to the channel top at 1.9876 before a run at February's low near1.9360

USD/JPY

Strategy: Bullish against 102.90, Targeting 105.16

The faltering in the US dollar rally last week took its toll on the USDJPY as with most of the other majors. The pair broke past the upward-sloping trend line that had guided price action since mid-March to settle at the 32.8% Fibonacci retracement of the 12/27/07-03/17 decline above 102.90. We see this as a retracement rather than a violation of the overall bullish bias. We see the pair pull back to test the 50% Fib at 105.16. In an alternative scenario, a break past 102.90 could lead to a major decline to 100.14.

USD/CHF

Strategy: Bullish against 1.0375, Targeting 1.0547

Last week's we suspected that the impressive dollar rally that took USDCHF would find resistance below 1.0550, the 61.8% Fibonacci retracement of the 02/13-03/17 decline. A Star candlestick at this level suggested the next move to be a retrace lower. We advocated a long position in USDCHF at the 50% Fib level at 1.0375 for a continuation of the rally. Price action has fully validated this scenario. Our strategy remains unchanged as we look for USDCHF to return higher from current levels to test resistance below 1.0550 again

USD/CAD

Strategy: Bullish against 1.0009, Targeting 1.0200

Last week the Canadian dollar invalidated the upward-sloping trend line we had looked to guide price action since November of last year. This has prompted us to re-evaluate our perspective. We see the pair has found constant support above the 61.8% Fibonacci retracement of the 02/20-02/28 decline at 1.0009. With another pullback to this area again last week, risk-reward considerations favor a bullish outlook for an oscillation within the range towards the 1.0200 level

AUD/USD

Strategy: Bullish against 0.9287, Target TBA

Last week we continued to hold a long position established at support at 0.9287 for a test at 0.9500. Midweek, AUDUSD validated this strategy to hit the target and make 0.95 a triple top. Looking now, two scenarios look plausible. The more often a resistance tested, the likelier it is to break down. We are once again within 40 pips of 0.95 and could well see a decisive breakout on the next run upward. In this case we will go long immediately as it would put AUDUSD at levels unseen since the early 1980s. Alternatively, 0.95 could prove to hold again and spark a decline to 0.9287, marked by the 61.8% of the 02/28-03/20 decline. In this case we will re-enter long as before. This support is now made even stronger by the upward-sloping trend line that has held since August of last year, making a bullish appear most viable.

NZD/USD

Strategy: Bearish against 0.7940, Target TBA

Last week we reckoned NZDUSD would retrace to re-test trend line support-turned-resistance near 0.7940. We looked to enter short from there as the bearish trend resumes. The pair followed through as expected - a high wick tipped the trend line before NZDUSD collapsed lower. Current price action has stalled above the 0.7612, the 38.2% Fibonacci retracement of the 08/17/07-02/27 rally. We expect there to be some consolidation here, though we will hold off from taking profit as we expect downside momentum to resume in short order

DailyFX

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