Summer brings trend changes to forex market
As we edge towards the end of the summer it’s worth taking a look at the forex markets as there have been significant trend changes over the last two to three months. We will start by looking at EUR/USD as this perhaps has been one of the most dramatic changes of all.
The weekly chart above shows how we have established a downtrend since the beginning of May with that dramatic one-week reversal. It’s been a fairly steady descent back towards the lows of November 2013 as we now sit below the 200-week moving average at 1.3416. A break below the 100-week moving average at 1.3355 is likely to keep the pair under pressure into the autumn. It is worth looking at the daily chart below as this serves to confirm a more negative outlook and a likely continuation of the three-month bear trend.
Note how the blue 100-day moving average line is now just crossing below the pink 200-day moving average line. This is commonly known as the ‘death cross’ and the grim name speaks for itself. This sell signal is something that longer-term traders and funds are likely to pay attention to and it could lead to increased selling into the autumn months.
GBP/USD topped out at the beginning of July as you can see in the weekly chart below and is into its sixth consecutive losing week as I write and testing May lows. We are about to test important 200-day moving average and longer-term Fibonacci support at 1.6655/25. It is likely that this important support area will attract buyers in the shorter term with the pair severely oversold on the daily chart but unless we manage a weekly close above 1.6880/1.6990 the pair is likely to continue this negative trend into the autumn.
The AUD/USD has been in a more negative trend since April 2013 but did manage a very good recovery this year right from the beginning of January. However this recovery appears to have run out of steam over the past five or six weeks. We have settled below the 100-day moving average over the past week which helps to confirm a more negative outlook and the resumption of the longer-term bear trend. A break below May lows at 9210/00 would likely increase pressure to the downside and we then have to watch what happens at 200-day moving average support of 9175.
The USD/CHF managed a good rally from May 2013 from a low of around 1.0175 up to a high in May of this year at 1.1490. Again it appears this trend has been reversed and we have slumped back as far as 1.0970 over the past three months. In the chart below you can see how the blue 100-day moving average is getting very close to forming another ‘death cross’ in this pair as it approaches the pink 200-day moving average.
A weekly chart of the USD/NZD below shows the pair in a negative trend over the past 12 months but this trend appears to have reversed with the last four weeks of consecutive gains but we will need to see at least a weekly close above the June highs of 1.1899 to help confirm a trend reversal. However we are as I write breaking above the 200-day moving average at 1.1820 which is certainly a positive signal in the shorter term.
The only exception would appear to be the USD/CAD which has been in a negative trend for almost two years now. A good correction to the bear trend was seen from mid-March of this year up until the end of June but from July we are seeing a resumption of that longer-term negative trend with consecutive weekly losses over the past five weeks. The important area to watch into the autumn months is strong resistance around the 9200/10 area. Only a sustained break above here can rescue bulls from a resumption of that multi-year bear trend.
The general theme in all but the last example is of course a stronger US dollar as markets focus on the eventual interest-rate rise that will begin a new cycle. The economy has been gaining in strength since a wobble last winter due to severe weather. It would appear that only a reversal in this economic trend could reverse the trend for the stronger dollar.