Commodity Currencies Take the Week

Two weeks ago, the Greenback was the top performer, followed by the Japanese yen. Then, the Japanese yen we the highlight of last week. This week, the rotation comes to the commodity currencies such as the Loonie and the  Aussie. Let’s take a look.

EUR/USD Awaiting Breakout from Consolidation

• I was correct to update last week that the bullish attempt on Friday was not to be considered a bullish signal. Instead the market did indeed retest the 1.3450 area, but bounced off of it this week. (Refer to Weekly Technical Update 2.26.2010)

GBP/USD: Next Stop on the Bear Train: 1.45

• Daily: The market reached the target of 1.49, set in last week’s update. (Refer to Weekly Technical Update 2.26.2010).
• This week, the market pauses above 1.4850 and has only retraced 38.2%. The market is in congestion, and a strong break below the 1.50 level (see in 4H chart) may spell further decline towards 1.44/1.45.
• 4H: The 4H chart shows that the momentum is bullish, but the price action has not been very strong. A break above the current declining near-term trendline, might be followed by a rally to the 1.53 area. This however is even strong resistance, and the 1.45 target would still be viable if the market tops off here.

USD/JPY Eyes 87.00

• Daily: The USD/JPY pair is reversing the previous week’s decline, and the projection to 87.00 is looking less likely.
• 4H: The 4H time-frame shows that this current rally has strong price action. However, there is resistance at the 90.60 area (78.6% retracement). If the market tops off there, it may still be able to bring the pair to 87.00 level. The choppiness of the market of late, adds to the probability of this. (Usually a swing to 61.8% retracement instead of 38.2% lessens the probability of a full swing projection).

USD/CAD: Approaching Support

• Daily: The Canadian dollar, a commodity currency had a very strong week against the greenback. Last week’s anticipated rally was invalidated by the open of this week’s trading.
• The market instead started to plunge the pair towards the previous lows near 1.02. Judging from the momentum in the daily, further decline is possible, and a break of the current support is looking probable as well.
• Where will this current swing find support?
• Weekly: Looking at this chart, we see that the market did attempt a rally, as the stochastic shot up mid-Feb. However, this more bullish momentum was not a reflection of price which made a lower high. This is a “Bearish Reversal” (not to be confused with bearish divergence).
• A projection and possible support is near the 1.010/1.015 area.

EUR/GBP Congestion Pattern

• 4H: Looking first at the 4H time- frame, we see that the market is declining, but after a very strong push. The 0.9150 area held, and the market is already passing the 23.6% retracement. There may be some support at 0.8940. If this area holds, the probability of bullish breakout above 0.9150 improves.
• Weekly and Daily: We also see in the daily chart that the 0.91 area was 61.8% retracement and is holding. A decline that breaks below 0.8940 sees support at 0.8850.
• After 0.8850, looking at the weekly, we see the flat support at 0.87, and a rising support that may meet price action near 0.8750.
• This is a large congestion pattern, so be patient and wait for a clear breakout, and wait for the breakout to be confirmed with either a throwback (after bullish breakout of 0.9150), or a pullback (bearish breakout below 0.87).
• A bullish target is the 0.96 area, and a bearish target is the 0.84 area first, then if that breaks, the 0.80 area is the next target.

AUD/USD: On to 0.92

GBP/JPY:  Couter-trend Rally

• 4H: Looking GBP/JPY pair is showing strength as the 132.00 support held. The 4H time-frame shows that the 138/139 area is significant resistance, so look for some topping action there.
• Weekly and Daily: We see that this week paused near the swing projection, and the 161.8% retracement level. We see that if the current rally persists, it will meet resistance at the previous support, which is near 1.38. This may also test a declining channel resistance.
• The weekly shows momentum that suggests bearish continuation. So be cautious about the current rally, as it may just be a pullback from the previous breakout below the 1.40 support established throughout second  half of 2009.
• If the market tops off, a bearish target is the 130.30 area (78.6% retracement).

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

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