US Dollar to Sell Off Before Trend Resumes, Yen an Exception (Candlestick Weekly)
The US Dollar looks set for near-term loses as a correction in deeply oversold risky assets sees capital flow out of the safe-haven currency, bolstering the forex majors. USDJPY looks to be an exception, with the Japanese Yen also likely to lose ground as risk trends retrace recent moves.
EUR/USD
Euro consolidation continues
We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. The pair is now trading at 1.2621 bringing our floating profit to around 2889 pips. Current positioning is little changed from what we indentified last week: EURUSD has broken above resistance at the top of a Falling Wedge Formation confirmed by divergence with the RSI oscillator. Prices have settled in a wide range roughly defined between 1.30 and 1.25. This is the first meaningful period of pause that the pair has seen since the multi-year uptrend was snapped in mid-July, suggesting a large move may be in the works. Seeing continued divergence, we remain of the view that an upswing is in the cards before the dominant bearish bias reasserts itself. We will treat this as a selling opportunity to existing short positions or establish new ones expecting substantial EURUSD downside in the longer term.
EUR/USD Strategy
- Continue holding short EURUSD at 1.5510, looking to add.
- Move stop loss to 1.4893.
- Next “soft target” aims for a test below 1.2160.
GBP/USD
British Pound poised to move higher
Last week we saw the Pound lag behind the Euro: GBPUSD positioning was very similar to EURUSD, but sterling did not break out and remained confined in a Falling Wedge formation. Current positioning sees the pair showing a very decisive Bullish Engulfing formation having tested the Wedge's lower boundary, with continued RSI divergence bolstering the case for an upswing. Our strategy here remains broadly unchanged as we look for a bullish correction to yield a favorable short entry into the dominant downtrend.
GBP/USD Strategy
USD/JPY
Medium-term outlook points to weaker Yen
The Yen's penchant to reflect market risk appetite has seen near-term positioning clouded as volatility brought on choppy trading. Turning to the medium-term outlook for greater perspective, we see USDJPY has been oscillating lower within a downward-sloping channel since late 2006, with most recent price action showing a bounce from support in late October. Divergence with the RSI oscillator bolsters the case for a bullish swing to test the channel top. This fits nicely with our expectations of a bearish turn for the US dollar in the other majors, as both the Yen and the greenback have benefitted tremendously as safe-haven assets. A corrective rebound in the demand for risky assets would send USDJPY higher even as the other majors turn away from dollar strength. We will remain on the sidelines as this broad scenario materializes, looking to a retracement as an opportunity to enter current trends with acceptable risk-reward parameters.
USD/JPY Strategy
Flat.
USD/CAD
Canadian Dollar turns range bound - where to from here?
USDCAD reversed its recent rally following a test at 1.13, showing a Dark Cloud Cover candlestick formation and breaking lower to take out support trend line that had been in effect since late September. Last week, we speculated that a Head and Shoulders formation could be unfolding, pointing to a bearish reversal. As it stands, this has not materialized: prices popped up to test support-turned-resistance at 1.2450 and have since been range-bound between this and the recently key juncture at 1.2090. While we would typically opt to go long at the bottom of the range, the cues of forthcoming US Dollar weakness from the other majors warrant caution. We will remain on the sidelines for the time being, though a daily close above range will strongly nudge us into an outright long position to trade with the long term USDCAD bull trend.
USD/CAD Strategy
Flat.
AUD/USD
Australian Dollar retains near-term bullish bias
Our view of Aussie dollar has somewhat changed since last week's report where we identified AUDUSD as trading in a downward-sloping channel. The pair now looks to be setting an inverted Head and Shoulders bullish reversal pattern. As before, divergence with the RSI oscillator offers confirmation. The presence of an Inverted Hammer at the weekly open suggests an upside run may be upon us, with final confirmation being yielded on a break of neckline resistance currently near 0.6800. As with EURUSD and GBPUSD, we will treat this as an opportunity to obtain a better short entry point.
AUD/USD Strategy
Pending Short.
NZD/USD
New Zealand Dollar mirrors Australian counterpart
New Zealand dollar positioning remains in line with that of AUDUSD. While last week this too seemed like a channel setup, it now appears more plausible that NZDUSD is showing an inverted Head and Shoulders pattern complete with RSI divergence and an Inverted Hammer at the weekly open. All signs point to a bullish correction before the bears regain momentum, so we will remain patient as before allowing the upswing to yield an opening to go short with the dominant down trend.
NZD/USD Strategy
Pending short.
DailyFX
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