US dollar looks set to continue the bull trend now
The EUR/USD, AUD/USD and USD/JPY managed to stage a recovery last week when the Fed indicated that swift rate rises were not on the cards after the first increase at some stage this year. Today I am going to see if the charts indicate that any further strength is likely. We will start with the EUR/USD.
The chart above shows the recovery we’ve seen over the last week and a half and, although the big gains last Wednesday were not sustained on the Thursday, we have spent the last three days staging a recovery to retest that high last week at 1.1031. In fact we topped almost exactly here yesterday at 1.1029. We are starting to look overbought and in my opinion it looks unlikely we can now break above that 1.1029/31 resistance. You cannot fight the longer-term bear trend and I see nothing to indicate any trend change at this stage. The best that the bulls can hope for I think is a market that ranges between 1.0500 and 1.1030. Of course a daily close or preferably a weekly close above 1.1040 could prove me wrong and trigger the next leg higher in the recovery to target 1.1100/1110 and perhaps far as 1.1240, but we then run into very strong resistance up at the 1.1300 area.
GBP/USD also collapsed after the strong spike higher last Wednesday to 1.5147, but never staged the recovery that we saw in the EUR/USD over the last few days.
In fact you can see how the trendline going back to October has held the price action over the last four sessions, and it looks like yesterday the bulls finally gave up. In the short term the 1.4850 area should be the decider and, if we cannot hold above here, the bears will feel they have regained control of this market. I wouldn’t be surprised to see a retest of March lows in the 1.4685/1.4635 area. Only a break and close above the last four session highs at 1.4988/1.5008 can rescue bulls at this stage.
The AUD/USD has actually been the best performer over the last two weeks, staging quite a strong recovery from 7558 up to 7937 yesterday. However, we hit cloud resistance and the failure to beat February highs at 7912 indicates weakness creeping back into this market.
Only a close above seven-week trendline resistance at 7965 could change my mind, but this is still quite a big challenge around the 8000/8030 level. The pair are starting to look overbought and I’m sure the bears are starting to feel they can regain control of this pair as well.
The last dollar pair that I cover on a daily basis is the USD/JPY.
You can see in the chart above how we have tested short-term Fibonacci support at 119.65 and, as I write, we have not closed below this level over the past week. Yesterday we tested the two-month trendline and you can see when we spiked a little bit below before we recovered very sharply to close above 119.65. This price action yesterday looks positive to me going forward. The trendline this week is around the 119.50/40 area, so only a daily and preferably a weekly close below here would convince me that further losses are likely. However, you can see that we are becoming oversold and, even if we do break lower, we have good 100-day moving average support at the 118.75 area. I think therefore that any downside moves will be quite limited.
I’m going to finish with a quick look at gold. This has also benefited from weakness in the dollar over the past week with a move back up to resistance at 1193/1195.
This market is also becoming overbought and there is a good chance this strong resistance level can hold the recovery. Again, we are in a bear market – but I want to end by saying there are some indications that we are in the process of a longer-term bottoming pattern for gold. I am watching carefully for confirmation and a break above 1200 would certainly turn the short-term outlook more positive. I don’t think we will see that this week, but I would not rule it out in the weeks ahead.
Jason Sen – Technical Analyst & Trader
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