Dollar and euro bank notes on the table

Weekly Technical Market Insight: 9th – 13th August 2021

Charts: Trading View

US Dollar Index (Daily Timeframe):

Against a basket of six foreign currencies, the US dollar index (ticker: DXY) advanced 0.8 percent last week and retrieved a hefty share of the previous week’s downside.

Friday’s 0.6 percent climb seats 21st July high at 93.19 and 31st March high at 93.44 in the firing range this week, with continued interest to the upside directed towards Quasimodo resistance from 93.90. Notably, this level is accompanied by several Fibonacci ratios between 94.07 and 93.90. Commanding attention here is the 100% Fib projection at 93.90. Harmonic traders will acknowledge this level as an AB=CD barrier, a base also bringing a 1.13% BC Fib extension at 94.03 to the table.

To the downside, focus is on the 200-day simple moving average at 91.31, grouped together with substantial support at 90.64-91.40 which is parked on top of demand at 90.32-90.70.

Trend studies, as noted in previous weekly writing, reveal the greenback has echoed a recovery phase since the beginning of 2021, following a sizeable decline during 2020. After realising support at 89.34 (a level displaying historical significance), 2021 trades higher by 3.2 percent year to date.

In terms of momentum, the relative strength index (RSI) rebounded from support at 40.76-47.49 at the beginning of August and wrapped up last week toying with space ahead of overbought. Of note within this range is resistance at 73.00.

  • The index reveals resistance between 93.44 and 93.19 tops this week, though overpowering this area shines light on Quasimodo resistance from 93.90—an area active sellers likely inhabit. Therefore, bullish interest could be seen until around the 94.00 neighbourhood.

EUR/USD:

Monthly timeframe:

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

Thanks to June’s 3.0 percent loss, support at $1.1857-1.1352 entered the frame. A bullish revival shines light on 2021 peaks at $1.2349; additional enthusiasm welcomes ascending resistance (prior support [$1.1641]).

Month to date, August trades 0.9 percent lower.

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

Daily timeframe:

Upbeat US non-farm payrolls kept the US dollar and US Treasury yields on the winning side of the table Friday, weighing on EUR/USD.

The one-sided decline (0.6 percent) has the currency pair within range of retesting the upper edge of a breached falling wedge (between $1.1847 and $1.1975), which happens to be set just north of Quasimodo support at $1.1688. It’s important to recognise 31st March low at $1.1704 is arranged above the Quasimodo—sell-stops are likely positioned below here.

With regards to long-term trend, we have been somewhat directionless since the beginning of the year, despite healthy gains in 2020.

The technical picture out of the relative strength index (RSI) shows the value shook hands with resistance at 51.36 as we transitioned into August and subsequently ruptured trendline support, taken from the low 27.11. This unlocks a bearish scene and possible movement to oversold space.

H4 timeframe:

Friday, as you can see, stepped through Quasimodo support at $1.1800 and landed the unit within striking distance of two Quasimodo supports at $1.1720 and $1.1749.

Earlier in the week, price rejected resistance between a 38.2% Fib retracement and a 61.8% Fib retracement at $1.1903 and $1.1889, respectively, and established supply at $1.1857-1.1831.

H1 timeframe:

Prior to sweeping through $1.18 on Friday, price action generated supply at $1.1809-1.1800—a decision point. The day concluded with the pair touching gloves with Quasimodo support at $1.1757 (plotted above a 1.618% Fib projection at $1.1744), a move that was accompanied by a deep oversold signal within the relative strength index (RSI), off support at 16.14.

Observed levels:

Long term:

From the monthly timeframe, price is engaging support at $1.1857-1.1352, a technical zone that may motivate a bullish scenario between Quasimodo support at $1.1688 and the upper edge of a breached falling wedge (between $1.1847 and $1.1975) on the daily timeframe this week.

Short term:

From a short-term perspective, technical flow on the H1 shows support forming between a 1.618% Fib projection at $1.1744 and Quasimodo support at $1.1757. Note this base houses H4 Quasimodo support at $1.1749.

Therefore, a bullish scene emerging from $1.1744-1.1757 early week, targeting at least H1 resistance at $1.1783, should not surprise.

AUD/USD:

Monthly timeframe:

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

Following June’s 3.0 percent decline, and July tumbling 2 percent, this positions demand at $0.7029-0.6664 in sight.

Month to date, August is up 0.1 percent.

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

Daily timeframe:

July carving a bottom ahead of a 1.272% Fib projection at $0.7273 has placed resistance at $0.7453-0.7384 in the frame in early August. Territory above brings light to the 200-day simple moving average at $0.7598, a dynamic value sheltered south of resistance at $0.7626.

Friday observed sellers step forward, boosted on the back of optimistic US non-farm payrolls data. This could lead to a test of $0.7273 this week.

With respect to trend, 2021 is underwater right now, emphasised by the close below the 200-day simple moving average at the beginning of July.

In terms of momentum, the relative strength index (RSI) remained under the 50.00 centreline last week, and is currently testing the mettle of support at 41.63.

H4 timeframe:

Technical elements on the H4 scale recently forged a head and shoulder’s top formation around the underside of a 38.2% Fib retracement at $0.7408. Technicians will note the head and shoulder’s neckline was absorbed on Friday, consequently unlocking downside towards the pattern’s profit objective at $0.7328.

Fibonacci structure between $0.7293 and $0.7315 is visible just south of $0.7328 (green base). This is an area housing a 100% Fib projection at $0.7313 which is a level harmonic traders recognise as an AB=CD bullish formation. Harmonic AB=CD traders commonly set take-profit targets at 38.2% and 61.8% Fib retracement levels, derived from legs A-D. The 38.2% Fib retracement at $0.7408, as you can see, has proven stubborn resistance.

H1 timeframe:

Following an earlier retest of $0.74, downside gained speed and linked with trendline support, taken from the low $0.7289. Dethroning the aforementioned trendline support, as the H4 timeframe suggests, directs awareness to Quasimodo support at $0.7323, closely followed by $0.73.

Meanwhile, the relative strength index (RSI) welcomed oversold status on Friday, bumping heads with support at 27.02. Oversold is considered a range where selling interest could diminish.

Observed levels:

Long term:

Scope to navigate deeper water on the monthly timeframe places daily resistance at $0.7453-0.7384 in a favourable light, technically speaking. As a result, bearish flow targeting the daily timeframe’s 1.272% Fib projection at $0.7273 is potential movement to be mindful of this week.

Short term:

The H4 timeframe dropping through the head and shoulder’s neckline on Friday—revealing the pattern’s profit objective at $0.7328—suggests H1 trendline support, drawn from the low $0.7289, may be fragile.

A trendline breach, therefore, opens up possible moves to H1 Quasimodo support at $0.7323, stationed just under the head and shoulder’s pattern objective at $0.7328 on the H4.

USD/JPY:

Monthly timeframe:

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

Since April retested descending resistance-turned support, etched from the high ¥118.66, price action has maintained moderate support. Pursuing higher levels could eventually strive for long-term supply at ¥ 126.10-122.66.

Month to date, August trades 0.5 percent in the green.

Daily timeframe:

A mid-week bullish outside reversal off support at ¥108.75 (and 61.8% Fib retracement at ¥109.07), followed by Friday’s healthy USD bid—influenced by strong US employment numbers—absorbed local trendline resistance, forged from the high ¥111.66.

Charging higher this week throws resistance at ¥111.88-111.20 back into the mix, which happens to merge closely with neighbouring supply at ¥112.68-112.20.

When it comes to trend, USD/JPY has been higher in 2021.

Momentum studies out of the relative strength index (RSI) shows the value elbowed above the 50.00 centreline last week, a move displaying average gains outweigh average losses. Despite this, the indicator has resistance around 54.00 to overcome before reaching for overbought territory. As such, 54.00 should be monitored this week.

H4 timeframe:

Mid-week watched price movement whipsaw through demand at ¥109.02-109.20 and test Quasimodo support at ¥108.83 as well as trendline resistance-turned support, extended from the high ¥111.66. This was a textbook stop run to seize sell-stops to fuel ¥108.83 bids.

Demand at ¥109.42-109.68 resides to the downside, while upstream has stacked supply between ¥110.99-110.80 and ¥110.73-110.58 on the list. However, it must be noted that each supply has already been tested and are susceptible to breaking.

H1 timeframe:

Early US hours on Friday welcomed a high-spirited advance, shifting price action above ¥110 and shaping a clear-cut demand area from ¥109.77-109.84. Upstream, resistance exists at ¥110.38, accompanied by Quasimodo resistance at ¥110.65.

Noted demand at ¥109.77-109.84 is in a unique position, from a technical standpoint. Not only is it located south of ¥110—a psychological level prone to whipsaws—it’s situated in line with market direction (each higher timeframe analysed displays scope to navigate higher terrain).

From the relative strength index (RSI), however, the indicator exited overbought space on Friday after making contact with resistance at 78.38. This shows that despite Friday ending on the front foot, momentum to the upside has begun to slow and could be a red flag for buyers at current prices.

Observed levels:

Long term:

The monthly timeframe unveiling space to climb higher after April retested the descending resistance-turned support, taken from the high ¥118.66, and Friday ousting local trendline resistance, forged from the high ¥111.66, signals bulls have the advantage going into the new week.

Short term:

In conjunction with the bigger picture, the H4 timeframe also displays air space until stacked supply between ¥110.99-110.80 and ¥110.73-110.58.

With the above, two bullish scenarios may surface this week:

  1. H1 forms a breakout above resistance at ¥110.38 and targets H1 Quasimodo resistance at ¥110.65, which is plotted within H4 supply underlined above at ¥110.73-110.58.
  2. H1 extends Friday’s mild retracement, whipsaws through ¥110 and connects with demand at ¥109.77-109.84 to possibly chalk up a bullish theme.

GBP/USD:

Monthly timeframe:

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

Since February, GBP/USD has echoed an indecisive environment south of $1.4377: April high 2018. This follows December’s (2020) trendline resistance breach, taken from the high $2.1161, a descending barrier possibly serving as support if retested.

Month to date, August trades 0.3 percent lower.

Primary trend structure has faced lower since early 2008, unbroken (as of current price) until $1.4377 gives way.

Daily timeframe:

The technical landscape on the daily chart is interesting.

Quasimodo support at $1.3609 welcoming buyers on 21st July not only elevated the currency pair above the 200-day simple moving average at $1.3747, technicians will also note price elbowed under a double-top pattern neckline at $1.3670 (double top formed between 24th Feb high at $1.4241 and June 1st high at $1.4250). Therefore, subsequent recovery gains have likely drawn in sellers in search of better pattern entry levels.

The flipside, of course, is last week introduced the possibility of a bullish pennant, formed between two converging descending lines taken from $1.3983 and $1.3888.

With reference to trend on this chart, the pair has been somewhat rangebound since late February.

As for momentum studies, we’re seeing upside momentum diminish north of the 50.00 centreline. This is understandable given price spent last week carving out a potential pennant formation. Ultimately, pennant traders will be watching for the RSI 50.00 centreline to hold ground.

H4 timeframe:

Aiding the lower wall of the daily timeframe’s bullish pennant is Quasimodo support at $1.3862 on the H4 scale. Technical observations also show a 100% Fib projection close by at $1.3851 and a corresponding 1.27% BC Fib extension at 1.3852. Interestingly, south of here we can see an additional gathering of Fibonacci ratios between $1.3813 and $1.3826.

In the event the aforesaid supports collapse this week, demand at $1.3687-1.3723 is likely on the hit list. While any upside attempts from current supports could take aim at 38.2% and 61.8% Fib retracement levels drawn from $1.3983 (this can only be applied once a firm bottom has materialised between $1.3813 and $1.3862).

H1 timeframe:

Friday, after breaking through the 100-period simple moving average at $1.3908, dropped through support at $1.3875 and subsequently retested the latter as resistance into the close. Lower on the curve, support can be found at $1.3840, fixed above demand at $1.3803-1.3827—a decision point to push north of $1.38 and take local highs at $1.3833.

Regarding the relative strength index (RSI), the indicator recently rebounded from oversold space and might form what’s known as a bullish failure swing if we hold above 30.00.

Observed levels:

Long term:

Based on the daily timeframe’s technical position: trading above the 200-day simple moving average at $1.3747 and in the process of forming a bullish pennant pattern, buyers could take control this week and approach resistance at $1.4003.

Short term:

Support between $1.3813 and $1.3862 on the H4 may generate interest early week, positioned alongside the lower edge of the daily timeframe’s bullish pennant pattern.

Additional areas to be mindful of are H1 demand at $1.3803-1.3827, which happens to unite with the lower part of H4 support at $1.3813.

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