US dollar bounce likely to have ended
Last week I focused on the recent dollar recovery with the US Dollar Index bouncing from 91.01. I wrote:
‘We are closing in on important 23.6% Fibonacci resistance at 94.03. This is coupled with the August high at 94.14. Bears will be eyeing this as an opportunity to jump into new short positions. Some lucky bulls who have ridden this recovery will be thinking about taking a profit on their long positions.’
On Tuesday this week we topped just 11 pips from the 94.03/94.14 selling opportunity. The negative candle in severely overbought conditions helps to confirm a top is in place. The odds favour a resumption of the nine-month bear trend so let’s examine the short-term downside targets.
We have minor support from the peak of the last week of August at 93.35/93.25. This actually held the downside on Wednesday, but further losses are likely eventually targeting key support at 92.80/92.70. There’s a good chance this will hold on the first test for a bounce to 93.20/93.30. However, a break below 92.50 would show bears gaining more control. This would target 92.10 and then the low just two weeks ago at 91.60/91.52.
Obviously a break below the September low at 91.01 would start a more significant move to the downside and the next leg lower in the bear trend.
Here’s what I wrote on EUR/USD: ‘We also meet an important cluster of longer-term Fibonacci support around the 1.1730/1.1690 area. This is the biggest chance bulls will have to regroup and force a resumption of the nine-month bull trend, as we start to become oversold on the daily chart.’
This week we bottomed exactly at 1.1694 and have already bounced back to 1.1788. Obviously I’m hoping the low has now been established, and the nine-month bull trend will resume. 1.1788 happens to be the 23.6% recovery target, but we should eventually move above here towards stronger 55-day moving average resistance at 1.1845/50.
This is likely to be the main obstacle to a recovery. Therefore a break above 1.1885 would be further bullish confirmation.
I wrote that gold was ‘closing in on important 100-day moving average and 38.2% Fibonacci support at $1270/1268, as we become oversold.’ We bottomed so far this week at $1268, so what are the recovery targets into next week?
Gold has already recovered back above the green 500-day moving average at $1272 to reach $1280. Above $1285 is an added positive signal but we first meet Fibonacci resistance at $1288/89. We should struggle here initially.
Eventually, further gains should target more important resistance at $1300/02. Bulls need a sustained move back above $1305 to regain full control.
Technical Analyst & Trader
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