Key Fibonacci Levels In Play For Forex Majors

Forex markets have substantially retraced recent US dollar strength, with well-defined Fibonacci levels now guiding the return to long-term trend momentum.

EUR/USD

Strategy: Bearish below 1.4609, Targeting 1.4000

Having tested all-time highs at 1.60, the Euro showed a Bearish Engulfing reversal candlestick formation on 07/22 and collapsed nearly 13%. Support was found at the psychologically significant 1.40 level. Prices then retraced to find resistance ahead of the 50% Fibonacci retracement of the 07/22-09/11 decline at 1.4908. Current positioning shows EURUSD has broken past support at the 38.2% Fib level (1.4666) but bearish momentum has stalled on a re-test of a trend line established in March 2006. We will look for a daily close below the trend line to initiate a short targeting a return to 1.40.

GBP/USD

Strategy: Bearish below 1.8796 (or 1.8473), Targeting 1.7500

British Pound positioning is very similar to that of the Euro. GBPUSD lost over 13% to find support at the 1.75 level and bounced higher, piercing resistance at 1.8473, the 38.2% Fibonacci retracement of the 07/15-09/11 drop. Prices have now entered a congestion area from mid-August between the 50% Fib at 1.8796 and the aforementioned 38.2% level. We will look for a top to form in this area following a test near 1.88 and enter short. However, we will also consider a short should GBPUSD issue a daily close below current Fib support.

USD/JPY

Strategy: Bearish below 104.50, Target TBD

Previously, we noted USDJPY had broken out of a Rising Wedge and suggested to position short. While the price action validated our overall directional bias, the pair's ties to trends in risk sentiment has seen trading turn very choppy amid the unfolding meltdown on Wall St and across global credit markets. Recent days have seen USDJPY confined between the 23.6% and 38.2% Fibonacci retracements of the most recent 08/15-09/16 selloff at 105.15 and 106.18, respectively. We will look for the pair to meaningfully break out of current congestion with a close below the double bottom at 104.50 and position short.

USD/CHF

Strategy: Flat, awaiting confirmation.

The Dollar's rally against the Swiss Franc found resistance ahead of the 1.1400 level, putting up an Evening Star bearish reversal candlestick formation and falling back to 1.0714, the 50% Fibonacci retracement of the 07/15-09/11 rise. Prices have since reversed higher to breach initial resistance at 1.0880, the 38.2% level. Notably, we've seen a false break at this level before, so caution is warranted. Indeed, current trading sees prices testing to the downside. We will remain on the sidelines for the moment, looking for confirmation of a return to bullish momentum. We will look to EURUSD for clues as well as the pair has seen strong inverse correlation with USDCHF.

USD/CAD

Strategy: Flat.

USDCAD price action has been confined to a Rising Wedge formation since late last year. The most recent bullish oscillation from mid-July met resistance near 1.08 and sold off to find support at 1.0323, the 50% Fibonacci retracement of the 07/22-09/11 rally. A bottom looks to be forming here, reinforced by the resistance-turned-support of the range that was in play since the beginning of this year. That said, it is important to remember that a Rising Wedge is typically a bearish reversal formation, so a breakout to the downside is not out of the question. We will remain on the sidelines for the time being

AUD/USD

Strategy: Pending short, waiting for confirmation.

Talk of parity with the greenback has evaporated as the Australian Dollar has nose-dived from 22-year highs to lose over 20% in less than 2 months. Prices found support above the 0.78 level and bounced higher, taking out initial resistance at 0.8268, the 23.6% Fibonacci retracement of the 07/22-09/17 decline. Bullish momentum has stalled and turned range-bound ahead of the 0.85 level. This could be indicative of either a topping ahead of a return to the bearish trend or a consolidation before the correction continues. In the latter scenario, prices would break higher through 0.8560 (38.2% Fib) to challenge considerable resistance in the congestion area ahead of 0.8797 (505 Fib).

NZD/USD

Strategy: Pending short, waiting for confirmation.

The New Zealand Dollar positioning is very similar to that of its Australian counterpart. Having found a bottom at the 0.65 level, the pair corrected higher to surpass initial resistance at 0.6745, the 23.6% Fibonacci retracement of the 07/15-09/11 decline. Prices have since turned sideways between this and the 38.2% level at 0.6938. With the broad trend still firmly bearish, we will continue to monitor prices action to time entry. Should current consolidation see a top, we will look to sell on a daily close below 0.6745. Otherwise, a break higher meets significant resistance in the price congestion area ahead of the 50% level at 0.7096

DailyFX

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