US dollar correction likely to have ended
Last week I was looking for a short-term correction in the US dollar bull trend. We have since seen EUR/USD recover from a small double bottom pattern and close in on our target for the correction at 1.0640.
The pair missed this target by only 14 pips yesterday. I feel confident that the rejection of the strong resistance level at 1.0640 signals the top of this recovery. I do think this pair will now resume the bear trend and head towards 1.0200/1.0100.
A sustained break above 1.0660 might prove me wrong in the short term. This would signal a further correction towards very strong resistance at 1.0820/1.0830 for the next selling opportunity.
USD/JPY and AUD/USD
USD/JPY dipped back towards last week’s low at 115.04 at the start of this week. Yesterday we bottomed a little above, at 115.18, and I do think this is enough of a correction now. It looks likely that the bull trend will now resume.
We should therefore at least push up towards the double top high at 118.60/66. A break above here does eventually look likely. We would then move on to the 119.80/120.10 area.
The biggest support level of the week is at 114.75/114.55. Although I think it is unlikely we will see this level breached, it would be a good buying opportunity if it were tested. Only a weekly close below 114.00 would persuade me that the level has failed. We would then be heading towards 113.40/30 and further strong support at 112.00/111.90.
AUD/USD has also made a good recovery up to our target of 7380/7390. This is also strong enough resistance to end the bear market correction. However we do have what you can argue is much stronger resistance at 7435/7445, so only a sustained break above this level would persuade me there is further upside potential to this correction phase.
Impact on silver and gold
Silver has also staged an excellent recovery straight to our target of 16.85/16.90. I think there is a strong chance this resistance level will hold as we become overbought in the bear trend. So I expect the bear trend to resume now.
In fact yesterday we topped at 16.82, so we are almost bang on target. My stop is above 17.10 and, if this is unexpectedly activated, I would be looking for a re-test of the December high at 17.24 and then a move towards the next selling opportunity at 17.60/70.
Gold is more confusing because we have broken above our target and strong resistance level at 1180/1182. We are currently trading at 1187, having reached as far as 1190.
I’m still not convinced this is a bullish breakout until we see at least a close tonight above 1182. If we do manage a close above 1182 for at least two sessions then we could be headed for 1200, and perhaps even as far as 1218.
Technical Analyst & Trader
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