US Dollar FX Empire

Technical View for 18th August 2022: Dollar Bid Weighing on Peers

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD:

From a technical perspective, chart studies indicate additional selling could materialise.

The weekly and daily timeframe’s longer-term structure remains unchanged. As a result, the following text serves as a reminder of where I left the bigger picture in recent writing (italics):

The weekly timeframe shows price action rejecting resistance at $1.0298, in a market decisively trending south since 2021. Many chartists will label this movement a primary bear trend, with pullbacks few and far between. Combine this with daily flow topping a whisker south of resistance at $1.0377 (and intersecting trendline resistance, drawn from the high $1.1495), and scope to explore as far south as the weekly timeframe’s 1.272% Fibonacci projection at $0.9925 and daily support from $0.9919, EUR/USD is a bearish market. In terms of where I stand on the daily chart’s relative strength index (RSI), we are south of the 50.00 centreline (negative momentum), further supporting softening demand for the euro.

Lackluster trading of late has seen buyers and sellers establish a potential bearish pennant pattern on the H4 scale, forged between $1.0122 and $1.0195. Note also that we have neighbouring support fixed just south of the formation at $1.0125. Should a breakout north emerge, resistance at $1.0279 is visible, coupled with an ascending support-turned-resistance level, pencilled in from the low $0.9952.

A closer examination of price action on the H1 timeframe has the unit circling beneath $1.02. The surrounding timeframes indicate we might continue to work under the aforementioned round number, targeting H1 Quasimodo support at $1.0108 (and $1.01), yet traders are encouraged to pencil in the possibility of a break above $1.02 and subsequent moves toward resistance at $1.0275.

Technical Expectation:

The clear downtrend, the weekly resistance at $1.0298, the daily resistance at $1.0377, the daily trendline resistance, and the possible H4 bearish pennant pattern signals sellers still have the upper hand.

As a result, a break of the lower side of the H4 pennant pattern could form to take on H4 support at $1.0125, pointing to at least the H1 Quasimodo support at $1.0108.

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AUD/USD:

The risk-sensitive Australian dollar was on the ropes on Wednesday, weighed by a lower-than-expected labour price index reading, a clear risk-off tone and upbeat year-over-year US retail sales for July, which ultimately reinforced the buck.

Hopes of holding above support on the weekly timeframe at $0.6996 were dashed amid the one-sided decline yesterday, swaying emphasis in the direction of weekly support between $0.6632 and $0.6763. Lower, price movement on the daily timeframe is on the doorstep of support from $0.6901; splitting the aforesaid support swings the pendulum in favour of reaching support at $0.6678. The recent downside follows a near-test of the 200-day simple moving average at $0.7144.

Moving across to the lower timeframes, H4 is on the verge of shaking hands with the supply-turned-demand area at $0.6901-0.6862. Note that the upper edge of this area represents the daily timeframe’s support ($0.6901). Submerging the aforementioned H4 demand highlights space to approach Quasimodo supports at $0.6761 and $0.6710, respectively.

In terms of where I stand on the H1 scale, $0.69 calls for attention to the downside and resistance is at $0.6947. You will note that $0.69 boasts strong support from the upper edge of the H4 demand, together with daily support ($0.6901). Climbing above resistance shows limited resistance until $0.70 and trendline resistance, extended from the high $0.7123.

Technical Expectation:

Attention is centred on $0.69 at the moment. A H1 rejection demonstrates bullish curiosity from the H4 demand at $0.6901-0.6862, and daily support at $0.6901. A break lower, on the other hand, places a question mark on the noted areas and unlocks the gate to continuation selling opportunities.

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USD/JPY:

It was another positive session for USD/JPY on Wednesday, adding 0.5 per cent.

Higher timeframe technical structure remains unchanged (italics):

According to the weekly and daily timeframes, technical evidence suggests further buying. The daily timeframe responded well to supply-turned demand at ¥131.93-131.10, with a decisive push likely to throw light on Quasimodo support-turned resistance at ¥139.55. Note that ¥131.93-131.10 is an area that is glued to the upper boundary of a weekly decision point coming in at ¥126.40-131.30 with weekly resistance plotted at ¥137.23, set below the noted daily resistance.

As I said in previous writing, until the weekly decision point at ¥126.40-131.30 is overthrown, I do not expect to see much call for USD/JPY shorts. A break of the daily timeframe’s supply-turned demand at ¥131.93-131.10, however, would likely be a talking point for technical analysts as limited support is observed until reaching support at ¥125.54 (a weekly support level positioned just south of the current weekly decision point). Therefore, ¥131.93-131.10 is likely to be monitored closely.

But for now, buyers remain in the driving seat.

The H4 timeframe is watching the AB=CD bearish pattern at ¥136.95 (a 100% Fibonacci projection), accompanied by a 78.6% Fibonacci retracement at ¥137.48, an ascending support-turned resistance, taken from the low ¥134.27, and trendline resistance, drawn from the high ¥139.38. On the H1 timeframe, prime resistance at ¥136.21-135.87 is overhead, with any downside attempts likely to take aim at ¥134 and trendline support, etched from the low ¥131.73.

Technical Expectation:

Given the space to move higher on the weekly and daily timeframes, a test of the H4 AB=CD bearish pattern at ¥136.95 could be seen. Before buyers attempt to trade higher, however, a retest of ¥134 on the H1 timeframe may unfold to attract buyers to target the H4 pattern.

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GBP/USD:

In the 12 months to July, UK inflation clocked an eye-watering 10.1 per cent, climbing from 9.4 per cent in June, according to the Office for National Statistics on Wednesday. Short-dated gilt yields rallied in response to the latest inflation figures, amid heightened expectations that the Bank of England (BoE) will continue to aggressively increase its Bank Rate to stem soaring consumer prices.

Sterling immediately spiked to a high of $1.2142 against the US dollar following the inflation data, rallying to within a whisker of H1 trendline resistance (drawn from the high $1.2277) before declining throughout European and US trading. This directed the currency pair through $1.21 to within a stone’s throw of the widely watched $1.20 psychological figure.

Price action on the weekly timeframe echoes a vulnerable setting around support at $1.1958, in a market trending lower since 2021. Interest to the upside casts light on weekly resistance at $1.2719 while clearing $1.1958 unearths the pandemic low of $1.1410. However, in order to navigate south, daily flow must confront (and engulf) trendline resistance-turned support, taken from the high $1.3639, as well as the H4 inverted head and shoulder’s pattern ($1.1876; $1.1760; $1.1890) neckline (from the high $1.2056).

Technical Expectation:

GBP/USD is technically exposed.

Short-term action indicates at least a test of $.20, while snapping under this level could trigger breakout selling and draw price towards H4 support at $1.1933 which shares a close connection with the daily timeframe’s trendline support.

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