Greenback: Short-term Strength Challenging Longer-Term Weakness

Last week’s action suggested some further greenback strength this week, and this materialized. (Refer to Weekly Technical Update 12.04.2009). It is the moment of truth for certain USD crosses such as the EUR/USD and GBP/USD. There is apparent Euro weakness as well, seen in the EUR/GBP. There was also a minor setback in risk appetite, but the week ended without any major blow. The GBP/JPY for example was supported above last week’s low. Let’s take a look at this week’s market action, and assess what the outlook is.

EUR/USD: Breakout

• Weekly and Daily: The recent showing of greenback strength is now showing that it may be more than just a short-term surge. The EUR/USD pair for example, had broken a long-term trendline last week, and this week, broke a slower intermediate trendline as well.
• The 50-Day MA was crossed as well.
• The market in the Daily time-frame is oversold and at powerline that was the resistance in a wedge pattern (see weekly time-frame).
• In the shorter-term, there may be some support at the 1.4500-1.4600 area. We would then have to assess whether a subsequent rally is just a pullback, or if the market has not given up the bullish outlook.
• The 50-Day MA may be used as a test, as well as the general 1.4800 area. If the market tops here and declines, we have a confirmation for this week’s bearish trendline breakout.
• A subsequent decline in the intermediate time-frame is to the 50% retracement or 1.3800- 1.4000 area.
• An additional note on the weekly: The stochastic reading has broken below a topping action, showing that the 6-month extended bullish momentum has cracked.

GBP/USD: Daily Technical Update 12.11.09 GBP/USD Assessing Breakout

USD/JPY: Throwback

• Daily: Last week, we had a break of short and a more intermediate term trendlines, suggesting a rally to test the longer intermediate-term resistance at around 93.00, which is the 61.8% retracement area.
• This week’s decline to the 88.00 area (actually down to bout 87.50), came in three consecutive sessions, but created a reversal signal by Friday. The harami followed  by a strong bullish candle suggests a reversal.
• The market supporting this pair above the previous clear-out action area is a confirmation for the trendline breakouts last week.
• As mentioned, resistance can be expected at the 93.00 level as this coincides with 61.8% retracement and a downsloping intermediate trendline.

USD/CHF Friday Surge Puts Pair Near Resistance.

• Daily: Since last week, the market has rallied past the 1.0200 short-term resistance, and the 1.0300 short-term resistance. It is now testing an important downsloping trendline. The market may break this without being a reversal signal. A break of this trendline, which goes back to the first two peaks of the decline, only suggests sideways action. The market may still be bearish in the short-term, though the longer-term mode is neutral.
• The market may be bearish in the short-term because the 1.0500 area is resistance, and the market is overbought according to the stochastic reading.
• However, the intermediate outlook may be a reversal, as the 50-day MA was broken. This outlook is confirmed if the MA can hold as support now that it is broken as resistance.

USD/CAD: Daily Technical Update 12.11.09 USD/CAD Testing Support

EUR/GBP Stalking Breakout within Long-term Wave Count

• Daily and 4H: The EUR/GBP consolidated this week, but was very bearish to end the week. Friday’s price action broke the week’s congestion pattern (triangle) support. This may be the swing that completes subwave 2 (See Daily).
• If the market can bottom around the 0.8900-0.8950 area, then we may have the start of subwave 3 of wave V, which has a minimal projection to 0.9400 in the longer intermediate term.
• We’ll see next week if the count is still valid. If the market breaks below 0.8900, the wave count may have to be invalidated.

GBP/JPY: Daily Technical Update 12.11.09 GBP/JPY Stalking Range

NZD/USD Confirming Reversal Signals

• Daily: The long-term rally stalled in November, and has been consolidating since. A break of the 50-day MA also suggests a reversal is in order. However a test of this MA as resistance is needed as confirmation for the crossover reversal signal.
• In the screenshot, the grey fibonacci levels are from a short-/intermediate swing, and the green is from a long-/intermediate swing.
• If the market stays below the 50-MA next week, we may have further decline to the 0.6800 area, which is 61.8% retracement of the long-/intermediate swing.  Of course,  support at 0.7100 will have to be broken as well, but the hold of the MA as resistance would improve the likelihood of that.

Fan Yang
Currency Analyst
Commodity Trading Advisor
fyang@cmsfx.com

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All screenshots are made from VT Trader 2.0 and are of actual market data at the time of the screenshot.