Currency

Weekly Technical Market Insight: 7th – 11th June 2021

Charts: Trading View

US Dollar Index (Daily Timeframe):

In the shape of back-to-back doji candles, the US dollar—measured by the US dollar index (ticker: DXY)—extended its indecisive atmosphere last week, ranging between 90.63 and 89.66 session extremes. Although doji candles allude to indecision, a doji pattern, subject to its location, can also be interpreted as a reversal signal.

The previous weekly market insight cast light upon a descending wedge pattern (a shape exhibiting a decrease in downside momentum within its walls [91.43/90.42]). The report observed that since the DXY topped out at the 93.43 31st March peak, and cooked up reasonably decisive downside movement, the recent pattern formation and subsequent upside breach is perhaps regarded as a reversal signal. As you can see, Tuesday retested the upper boundary of the wedge and developed support which led the way to fresh three-week peaks at 90.62, despite Friday’s session finishing on the ropes.

The pattern’s upside target rests beneath resistance at 91.36 (red), stationed just south of the 200-day simple moving average, circling 91.62. Should pattern bids hold the buck higher this week, targeting 91.36 is a reasonably logical approach.

However, as also highlighted in previous writing, it’s important to note a bearish narrative has clouded the greenback since the early months of 2020, by way of well-defined lower lows and lower highs. Many analysts likely refer to this downward movement as a primary trend. Consequently, this unlocks the possibility of fresh lower lows beyond 89.34 support over the coming weeks (see black arrows), with sellers taking aim at Quasimodo support from 88.43.

Momentum studies, through means of the RSI indicator, shows the value failed to find acceptance north of the 50.00 centreline. Some may argue that cementing position above the latter signals the wedge pattern breakout has some muscle behind it, though do note indicator resistance falls in at 55.67.

  • Should an extension to the current pullback (from 89.53) materialise, a bearish scenario, in line with the current downtrend, unfolding off 91.36 resistance is a possible scenario this week. 91.36 is reinforced not only by a nearby 200-day simple moving average (dynamic resistance) at 91.62, but also the wedge pattern’s take-profit target around 91.32. At the same time, nonetheless, failure to explore higher levels shines the technical spotlight back on the possibility of a dip to support at 89.34, a level which echoes some vulnerability.

EUR/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following a three-month retracement, support at 1.1857-1.1352 made an entrance and inspired a bullish revival in April, up 2.4 percent at the close. May also extended recovery gains, trading higher by 1.7 percent. June, however, is off to a rocky start, down 0.5 percent.

April upside—alongside May’s optimism—throws light on the possibility of fresh 2021 peaks in the months ahead, followed by a test of ascending resistance (prior support [1.1641]).

Based on trend studies, the primary uptrend has been underway since price broke the 1.1714 high (Aug 2015) in July 2017. Additionally, price breached major trendline resistance, taken from the high 1.6038, in July 2020.

Daily timeframe:

Friday’s lower-than-expected US non-farm payrolls metric softened US yields and bruised the greenback, consequently elevating EUR/USD off weekly troughs.

Thursday hustling its way through support from 1.2169 had Friday’s bid retest the aforementioned level in the form of resistance. Sellers taking ownership here this week unearths dynamic support around 1.1980: the 200-day simple moving average. Reclaiming the said resistance, on the other hand, shifts interest to Quasimodo resistance at 1.2278.

Movement out of the RSI has the value engaging support at 51.36, which, as aired in previous analysis, follows May’s deterioration from highs at 68.70. Continued downside here unlocks a possible oversold signal this week.

H4 timeframe:

The blend of a 100% Fib projection at 1.2123 and a 61.8% Fib retracement at 1.2094 (green) served as a floor of support Friday. Harmonic traders will recognise the 100% Fib projection established what’s known as an AB=CD pattern; others may have noted the harmonic Gartley formation (however, a valid Gartley should ideally observe price test both the AB=CD level and the 78.6% Fib retracement [the latter was left unchallenged]).

Textbook AB=CD take-profit targets—derived from legs A-D— fell on the 38.2% and 61.8% Fib retracements at 1.2167 and 1.2206, respectively. As you can see, price struck the 38.2% base and formed a shooting star candlestick pattern (bearish signal) on Friday. As such, this could be all the upside buyers receive from the AB=CD move, throwing light on a potential move to familiar demand at 1.2044-1.2071 this week. Fibonacci traders will also view the close connection with a 1.618% Fib expansion at 1.2049.

H1 timeframe:

Supporting the ‘H4 AB=CD’ pattern’s 38.2% Fib retracement at 1.2167 is H1 trendline resistance, taken from the high 1.2254. The descending structure made an entrance following Friday’s high-spirited advance a handful of pips ahead of the 1.21 figure, confirmed by RSI bullish divergence within oversold waters.

Upstream, nonetheless, somewhat muscular resistance comes in between 1.2211 and the 1.22 figure, combined with the ‘H4 AB=CD’ pattern’s 61.8% Fib retracement at 1.2206. Lower, technical elements reveal support at 1.2132.

The RSI is seen toying with space just beneath overbought conditions around 60.00ish. Indicator resistance remains positioned at 78.97.

Observed Levels:

Long term:

The technical setting on the monthly timeframe underlines scope to shake hands with 2021 pinnacles at 1.2349.

Before achieving higher levels, daily movement concluded the week addressing a support-turned possible resistance from 1.2169, action that may lead to a bearish phase unfolding this week, targeting the 200-day simple moving average around 1.1980.

Short term:

Meanwhile, shorter-term charts highlight resistance on the H4 and H1 timeframes. The H4 timeframe, after rebounding from a 100% Fib projection at 1.2123, bumped heads with a 38.2% Fib retracement at 1.2167, a level hardened by H1 trendline resistance, taken from the high 1.2254.

Therefore, the daily timeframe, the H4 timeframe, and the H1 timeframe echo resistance, confluence perhaps unbolting the door to a bearish theme early week, taking aim at H1 support from 1.2132, closely followed by the 100% Fib projection at 1.2123 on the H4 and then 1.21 (H1).

AUD/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Since the beginning of 2021, buyers and sellers have been battling for position south of trendline resistance (prior support – 0.4776 low) and supply from 0.8303-0.8082. Should a bearish scenario unfold, support at 0.7394 is featured to the downside, with additional downside pressure targeting demand at 0.7029-0.6664 (prior supply).

Trend studies (despite the trendline resistance [1.0582] breach in July 2020) show the primary downtrend (since mid-2011) remains in play until breaking 0.8135 (January high [2018]).

Daily timeframe:

Since April 20th, resistance at 0.7816 and support from 0.7699 have established a defined range (yellow).

The tail end of the week, however, witnessed price whipsaw the lower edge of the said range, initiating what’s known as a bear trap (a false breakout deceiving sellers).

Support at 0.7563 remains in view as a potential objective should sellers attempt to take the wheel this week, a level deriving additional (dynamic) support from the 200-day simple moving average circling 0.7530. Above 0.7816, supply falls in around 0.8045-0.7985.

With respect to trend, as noted in previous analysis, we have been higher since the early months of 2020. However, we must also take into account that the currency pair has been mostly directionless since the beginning of 2021.

Out of the RSI, the 50.00 centreline was taken on Friday, a move which brings light to support at 37.92.

H4 timeframe:

FRESH demand at 0.7632-0.7653 received price in the second half of the week, welcoming a sharp U-turn on Friday amidst NFP-induced USD softness. This is a demand the research team voiced as particularly significant, having it form a decision point to break 0.7661 and 0.7676 tops.

Overhead resistance falls on peaks around 0.7769 and Quasimodo resistance from 0.7782, shadowed by daily resistance noted above at 0.7816.

H1 timeframe:

For those who read Friday’s technical briefing you may recall the following (italics):

Key developments on the H1 scale on Thursday was price touching gloves with demand at 0.7634-0.7649—an area bolstered by Fibonacci confluence: 1.272% Fib expansion at 0.7645, 1.272% Fib extension at 0.7649 and a 100% Fib projection at 0.7654. As you can see, buyers have made a show from the aforementioned demand area.

As evidenced from the chart, AUD/USD bulls, persuaded by Friday’s disappointing NFP number, run above 0.77 as well as the 100-period simple moving average at 0.7724. Supply now calls for attention at 0.7783-0.7771, sheltered under the 0.78 figure.

With reference to the RSI indicator, we finished the week within the overbought range, threatening a potential test of resistance at 80.85. This essentially shows momentum to the upside is at a point where it may slow and form a retracement.

Observed levels:

Long term:

The daily timeframe’s consolidation between 0.7816 and 0.7699 remains centre stage for the time being. A decisive breakout forming here will command attention, outlining either daily support at 0.7563 or supply at 0.8045-0.7985.

Short term:

In the wake of Friday’s upside pressure, intraday action is tipped to perhaps lock horns with H1 supply at 0.7783-0.7771 early week, which houses H4 Quasimodo resistance at 0.7782. Prior to this, technicians will be watching for H1 to retest the 100-period simple moving average around 0.7724, an event likely to stir lower timeframe dip-buying.

USD/JPY:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following January’s bullish engulfing candle and February’s outperformance, March concluded up by 3.9 percent and cut through descending resistance, etched from the high 118.66.

Although April finished lower by 1.3 percent and snapped the three-month winning streak, May (+0.2 percent) held the breached descending resistance, echoing potential support for the month of June, currently trading unchanged.

Daily timeframe:

Technical structure largely unchanged from previous analysis.

The lower border of long-term resistance at 110.94-110.29 (posted under supply at 111.73-111.19), in cooperation with Friday’s USD weakness in response to the latest US employment situation report, watched sellers make a show and reclaim the entire portion of Thursday’s advance.

108.60ish lows (green oval) represent a logical roadblock to the downside, followed by supply-turned demand at 107.58-106.85.

Trend studies reveal the pair has been trending higher since the beginning of 2021.

The RSI, a popular gauge of momentum, struggled to gain approval above resistance at 57.00 last week, an S/R level that’s been in play since March 2020. Above this base shifts attention to the possibility of further upside momentum into overbought terrain and resistance at 83.02, whereas below we’ll be looking at a possible test of oversold and support at 28.19.

H4 timeframe:

The technical setting on the H4 scale is interesting.

Through the lens of a price action trader, demand at 109.02-109.20—a decision point to initially push above 109.71 tops—will be on the radar, aligning with a trendline support, drawn from the low 107.48. What’s important to recognise is the higher low formed at 109.33 and subsequent higher high at 110.33. This activity draws the attention of trend traders (buyers) who may now have protective stops under the noted higher low. Knowing this, and by identifying demand nearby at 109.02-109.20, we could see a stop run form early this week.

Slipping through 109.33 not only triggers buyers’ protective stop-loss orders (sells), the move also fills breakout sellers’ sell-stop orders, and collectively helps fuel moves into bids at 109.02-109.20 (remember bids/offers represent liquidity, and market orders attempt to consume this liquidity).

H1 timeframe:

In the aftermath of Friday’s sell-off, H1 tested a pocket of bids at support from 109.45. This followed a muscular push through a number of supports, including the 110 psychological hurdle and trendline support, taken from the low 108.56.

Should sellers tunnel through 109.45, 109.07-109.19 demand inhabits territory above the 109 figure. A 109.45 recovery, on the other hand, reignites interest at 110—dovetails closely with resistance at 109.95 and trendline support-turned resistance.

Supporting a recovery, the RSI indicator settled the week within the walls of oversold and came within reach of support at 18.76.

Observed levels:

Long term:

Technical structure largely unchanged from previous analysis.

Long term, we have somewhat conflicting signals: monthly price attempting to forge support off a recently breached descending resistance line, and daily price touching gloves with the underside of resistance at 110.94-110.29.

Higher timeframe action tends to take precedence over lower timeframes, therefore rising through the aforesaid daily resistance base could be in store.

Short term:

Across the page, the short-term view places interest on H4 demand at 109.02-109.20. Aside from sharing chart space with H4 trendline support, the area encloses H1 demand from 109.07-109.19. With the monthly timeframe displaying support, and available stops below the H4 timeframe’s higher low at 109.33, the H4 demand is an area buyers may be drawn to this week.

GBP/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

The pendulum swung in favour of buyers following December’s 2.5 percent advance, stirring major trendline resistance (2.1161). February subsequently followed through to the upside (1.7 percent).

May, despite diminished volatility during March and April, traded firmly on the front foot, up by 2.8 percent. June, however, is somewhat depressed, albeit recording fresh YTD peaks at 1.4250.

Despite the trendline breach (which could serve as support if retested), primary trend structure has faced lower since early 2008, unbroken (as of current price) until 1.4376 gives way (April high 2018).

Daily timeframe:

Technical structure largely unchanged from previous analysis.

Quasimodo resistance at 1.4250 and support at 1.4003 are pivotal barriers on the daily chart.

Demand at 1.3857-1.3940—an important technical area where a decision was made to break above 1.4003 resistance—is also perhaps on the radar this week.

Interestingly, trend in this market has remained to the upside since March 2020.

Trendline support, taken from the low 36.14 on the RSI, gave up position last week and witnessed the value mildly bottom ahead of the 50.00 centreline.

H4 timeframe:

Since mid-May, the H4 chart has been busy carving out a consolidation between 1.4096 and 1.4219. In spite of a handful of whipsaws (fakeouts beyond range extremes are common), the range remains intact as we move into the first full week of June.

Technical structure above the current consolidation has daily Quasimodo resistance from 1.4250 in place; below the range, the chart points to trendline support, drawn from the low 1.3668, and support priced in at 1.4007.

H1 timeframe:

The British pound received a healthy bid on Friday after weaker-than-anticipated US jobs data placed the greenback on the backfoot. This, coupled with technical buying off 1.41, as well as the supporting 61.8% Fib at 1.4099 and 1.272% Fib extension at 1.4087, saw the unit breach the 100-period simple moving average at 1.4159 and challenge 1.42. Going into US hours, nevertheless, a bout of profit taking surfaced and persuaded price to reclaim position under the aforementioned SMA value into the close.

The picture drawn from the RSI shows momentum pulled away from oversold resistance and ended the week poised to challenge the 50.00 centreline.

Observed levels:

Long term:

Aside from the monthly and daily timeframes showing us price trades near 2021 highs at 1.4250, immediate technical structure is limited for the time being.

In spite of the above, traders are urged to keep an eye on daily Quasimodo resistance at 1.4250 and daily support at 1.4003 this week.

Short term:

The H4 timeframe’s range between 1.4096 and 1.4219 is likely on the radar for medium-term traders this week, looking to fade range extremes.

It’s also worth pointing out the technical convergence existing between H4 support at 1.4007 and the key figure 1.40 on the H1 (below current structure—not visible on the screen). The 1.40 zone could actually prove a solid platform to help facilitate a fakeout through H4 trendline support seen just above it around 1.4030ish.

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