Bounce in the US dollar may end now


Jason Sen

The US dollar has been in a bear trend for over a year. The recent bounce over the past two weeks is now testing 20-month trendline resistance at 90.70-90.80. Take a look at the weekly chart below.

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This coincides almost perfectly with the first 23.6% Fibonacci resistance at 90.66, just as the index starts to enter overbought territory on the stochastic indicator.

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So let’s examine some dollar pairs to assess the likelihood of the dollar bear trend resuming from here.

The EUR/USD monthly chart below shows how the pair peaked at very important longer-term Fibonacci resistance. This was coupled with the 200 and 100-week moving averages (the red and blue lines). You can see this month’s red candle testing the upward-sloping two-year trendline as we dip lower from that January peak.

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As we zoom into the weekly chart below, we see the pair testing that trendline more clearly. As I write, we are holding above.

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Closing in again on the daily chart below we see how there is a much shorter two-and-a-half-month trendline. This also offers support as it intersects with the 23.6% Fibonacci level, just as the pair enters oversold territory on the stochastic oscillator.

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There’s every reason, therefore, to expect at least a short-term bounce. We may even re-test the high at 1.2525/35.

The AUD/USD weekly chart shows the pair trading in a gently upward-sloping channel. In January we rejected the top of the channel triggering a dip back to the middle of the channel.

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The AUD/USD daily chart below shows good short-term support at 7765/7740 from the red 200-day moving average and 61.8% Fibonacci level. As you can see, we have bounced nicely off this support as I write in severely oversold conditions.

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If the market were to close the week where we’re trading now, the pair would have a nice bullish hammer to encourage bulls next week, as we pass back up above the blue 100-day moving average at 7780/85.

USD/CAD has been in a bear trend for over two years. However, it looks more stable recently in the weekly chart below. We are hovering around the upward-sloping five-year trendline but holding the red 200-week moving average at 1.2625.

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Even if we do manage to continue higher we run straight into more important 23.6% Fibonacci and 10-year trendline resistance at 1.2670/80. This looks unlikely to be beaten.

USD/JPY is hovering just above very important five-and-a-half-year trendline support at 108.00. So there is some hope for the dollar in this pair. In fact you can see in the weekly chart below how we have only traded sideways over the past year in a range from 115.50 down to 108.11, then a 2017 low of 107.31 in September.

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Note we have been unable to beat the shorter-term 15-month upward-sloping trendline now at 110.60 to trigger a recovery. A break below the yearly low would therefore confirm a breakout to the downside. This would act as a very strong sell signal.

Jason Sen

Technical Analyst & Trader

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