US dollar party is over as it breaks the eight-month bull trend
The break of the 100-day moving average is key, signalling further weakness ahead
My article last week focused on how the US dollar index was testing very important trendline and 100-day moving average support in the 94.90/94.60 area. In fact, earlier this week we managed a bounce off this level, but only as far as 95.95. Yesterday (Wednesday 6 May) the dollar index collapsed, breaking the trendline and the 100-day moving average (the blue line below). There must have been significant stop-loss orders placed just below this level, as once it was broken very sharp losses were seen, so far hitting 93.88.
You can see in the dollar index chart above how we are holding Fibonacci 50% support at 94.00, but any recovery from here is unlikely to last too long. We have obvious strong resistance now at the eight-month trendline and 100-day moving average (blue line) in the 95.00/95.10 area. Only a weekly close on Friday night above this level could rescue bulls.
A break below mid-February lows at 93.80 is likely to be the next trigger for a move to the downside targeting 93.40 then February lows at 93.25, but a move as far as the next support at 92.50 would not be a surprise over the coming weeks.
Looking at a couple of individual currency pairs backs up the idea of a weaker dollar ahead. The EUR/USD daily chart below shows how the pair initially halted right on the 100-day moving average at 1.1289 (blue line). However, after a two-day pullback, the pair burst higher yesterday (Wednesday 6 May) for a leap through the 100-day moving average.
It has been almost exactly 12 months to the day since EUR/USD was last above the 100-day moving average, so this is a significant event for the pair. Now that we have cleared this important hurdle, bulls will be feeling even more confident and will be looking to build on this four-week recovery to target 1.1450 and the next short-term resistance level at 1.1515/1.1530.
GBP/USD is of course facing a very personal event this week with a general election in the UK. Looking purely at the daily chart, however, the outlook is quite positive after we held important longer-term Fibonacci and 100-day moving average support at 1.5180/1.5150 (blue line). We look set to start the next leg higher in this recovery phase, but we do face quite strong resistance from the April high at 1.5490 and strong longer-term Fibonacci resistance at 1.5560/70. This is now the big challenge for bulls to overcome.
The AUD/USD had a tricky start to the week with a dip back below the 100-day moving average (blue line), but has made a quick recovery over the past two sessions. Bulls must now beat the first important resistance area at 8060/8075. Once through this level we could be pushing up quite quickly towards 8200/8225.
Jason Sen – Technical Analyst & Trader
For more information, trading education and offers visit Intertrader.com
The content of this article is the personal opinion of the author and not Intertrader.com. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.