USD/JPY Rangebound Ahead of Next Week’s Fed Decisions

The Dollar/Yen is trading mixed early Thursday as investors continue to assess the potential impact of the widely expected Federal Reserve interest rate increase in March on the spread between U.S. Government bond yields and Japanese Government bond yields. Fundamental data aside, it’s the interest rate differential that drive the price action.

At 03:31 GMT, the USD/JPY is trading 114.318, up 0.004 or +0.00%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $82.15, up $0.26 or +0.32%.

Wednesday Recap:  Yields and the Fed’s Next Move

The U.S. Dollar slid against the Japanese Yen on Wednesday, with U.S. Treasury yields retreating as well after hitting roughly two-year peaks on 2-year and 10-year notes, but the greenback remains well-supported as investors prepared for the widely telegraphed rate hike at the Fed meeting in March.

U.S. 10-year Treasury yields touched a new two-year high of 1.902% on Wednesday, but was down 4 basis points at 1.8271%.

The Fed will meet next week and will likely provide clarity and details on the end of quantitative easing (QE), possibly in March. The U.S. central bank could also signal it will raise interest rates in March as well, right after ending QE.

Fed funds futures have fully priced in a rate hike in March and four in all for 2022.

Dollar Reacts to US Homebuilding Data

The greenback trimmed losses after data showed U.S. homebuilding unexpectedly increased in December amid unseasonably mild weather. Housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 million units last month.

U.S. homebuilding rose to a nine-month high in December amid a surge in multi-family housing projects, but soaring prices for materials after the government nearly doubled duties on imported Canadian softwood lumber could hamper activity later this year, Reuters reported.

The report from the Commerce Department on Wednesday also showed the housing construction backlog surged to a record high last month, underscoring the challenges builders are facing from supply strains, including labor shortages. Completions tumbled as well. Rising mortgage rates could also restrain homebuilding.

Housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 million units last month, the highest level since March. Economists polled by Reuters had forecast starts falling to a rate of 1.650 million units.

Japan’s December Exports Grew Faster than Expected

Japan’s exports rose faster than expected in December to mark the 10th straight month of year-on-year growth, data showed on Thursday, as supply bottlenecks continued to ease toward the end of 2021.

Exports increased 17.5% in December from a year earlier, Ministry of Finance data showed, compared with a 16.0% gain expected by economists in a Reuters poll and following a 20.5% increase in the previous month.

Imports by value surged 41.1% on higher raw material costs and a weak yen, compared with expectations of a rise of 42.8% and growth of 43.8% in November.

This led to a trade deficit of 582.4 billion Japanese Yen ($5.09 billion) in December, compared with expectations for a gap of 784.1 billion Yen. November’s trade deficit totaled 955.6 billion Yen.

Short-Term Outlook

Despite the short-term setback, the USD/JPY is expected to remain well-supported as we advance through 2022. The current price action suggests traders are taking profits and lightening up ahead of next week’s Federal Reserve monetary policy decisions.

Traders could also be looking for guidance, which could come next week when the Fed is likely to explain when it will end quantitative easing and when it will make its first rate hike. The timetable on future rate hikes could also be released.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data Puts the EUR and the Greenback in Focus

Earlier in the Day:

It is a busy start to the day on the economic calendar this morning. The Japanese Yen and the Aussie Dollar were in focus in the early hours. Later this morning, the PBoC will also be in action.

For the Japanese Yen

In December, Japan’s trade deficit narrowed from ¥955.6bn to ¥582.4bn. Economists had forecast a narrowing to 784.1bn.

According to figures released by the  Ministry of Finance,

  • Year-on-year, exports rose by 17.5%, while imports were up by 41.1%.
  • Exports to China increased by 10.8%, with exports to the U.S up by 22.1%.
  • From China, imports rose by 20.5%, with imports from the U.S increasing by 39.6%.
  • Imports from Australia surged by 95.7% when compared with December 2020.

The Japanese Yen moved from ¥114.350 to ¥114.359 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.02% to ¥114.310 against the U.S Dollar.

For the Aussie Dollar

Employment figures were in focus this morning.

According to the ABS,

  • Employment increased by 64.8k in December, following a 366.1k jump in November.
  • Full employment rose by 41.5k after having risen by 128.3k in the previous month.
  • As a result, Australia’s unemployment rate fell from 4.6% to 4.2%. This was the lowest unemployment rate since August 2008.
  • The participation rate held steady at 66.1% in the month.

The Aussie Dollar moved from $0.72207 to $0.72267 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.24% to $0.7228.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.13% to $0.6775.

The Day Ahead

For the EUR

It’s a busier day ahead on the economic calendar. Finalized December inflation figures for the Eurozone and German wholesale inflation figures are due out later today. Expect both sets of numbers to draw interest as market jitters over inflation continue to drive the markets

On the monetary policy front, the ECB monetary policy meeting minutes are also due out and will be key. The markets will be looking for any chatter on inflation and interest rates.

At the time of writing, the EUR was up by 0.07% to $1.1351.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no major stats due out of the UK to provide the Pound with direction.

At the time of writing, the Pound was up by 0.05% to $1.3619.

Across the Pond

It’s a busier day ahead. Key stats include the weekly jobless claims and Philly FED Manufacturing Index numbers for January. Another rise in jobless claims could test support for riskier assets.

At the time of writing, the U.S Dollar Spot Index was up by 0.05% to 95.562.

For the Loonie

It’s a quiet day ahead, with no major stats due out of Canada to provide the Loonie with direction. The lack of stats will leave the Loonie in the hands of crude oil prices on the day.

At the time of writing, the Loonie was up by 0.09% to C$1.2504 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

January 20th 2022: Technical Outlook

Charts: Trading View

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

Long-standing resistance from $1.1473-1.1583 (active S/R since late 2017) entertained a bearish showing last week, with this week currently underwater by 0.6 percent. Familiar support resides at $1.1237-1.1281. Made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237, this area, as you can see, delivered a floor heading into the close of 2021. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D leg).

Strengthening the aforementioned resistance area’s presence, EUR/USD took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s long-term (some would say ‘primary’) downtrend since mid-2008.

Daily timeframe:

Joining the lower edge of weekly resistance at $1.1473-1.1583, price recently whipsawed above a 7-month trendline resistance, extended from the high $1.2254, established by way of a bearish engulfing candle (a reversal pattern in which focus is directed to the real candle body rather than upper and lower shadows). Despite a mild recovery attempt on Wednesday, sellers continue to have the upper hand. Should bearish follow-through emerge, Quasimodo support offers an obvious target at $1.1213.

Momentum studies, taken from the relative strength index (RSI), has the indicator’s value hugging the 50.00 centreline, following a near-test of resistance at 63.66 last week. Crossing under the 50.00 centreline (average losses outweighing average gains: negative momentum) will help validate the near-term bearish landscape.

Trend on this scale has also been lower since June 2021.

H4 timeframe:

Discovering a floor ahead of 11th January low $1.1313, and two neighbouring trendline supports (drawn from the low $1.1186 and $1.1235), subsequent movement led the candles to resistance at $1.1354-1.1379—a prior decision point positioned a handful of pips beneath resistance at $1.1382.

Although $1.1354-1.1379 is in ‘agreement’ with higher timeframe direction, traders are urged to consider the possibility of a whipsaw to resistance at $1.1382 (or even the decision point located between $1.1435 and $1.1399) before sellers attempt to make a show.

H1 timeframe:

The technical framework out of the H1 chart exposes demand-turned supply from $1.1363-1.1375 and intersecting trendline resistance, extended from the high $1.1483. Couple this area with H4 resistance underlined above at $1.1354-1.1379, a bearish narrative may develop from here.

In terms of where we stand on the relative strength index (RSI) at the moment, the value is circling the 50.00 centreline after rebounding from oversold. Resistance derived from this mid-point adds confluence to the aforementioned price resistances.

Observed Technical Levels:

The weekly timeframe coming from resistance at $1.1473-1.1583, together with the daily timeframe holding south of trendline resistance, throws positive light on H4 resistance at $1.1354-1.1379 which holds H1 supply within at $1.1363-1.1375.

Downside targets from the noted H4 and H1 zones is $1.13 on the H1, followed by the upper edge of weekly support at $1.1281.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, embraced a modestly bullish stance into the close of 2021. 2022, on the other hand, has been undecided so far. Should buyers continue pressing higher, resistance is formed at $0.7501. Manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a modest downside bias has been seen. This followed higher prices since pandemic lows of $0.5506 (March 2020). However, it is important to note that from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Following the near-test of resistance between $0.7416 (the 200-day simple moving average) and $0.7315 (a 100% Fibonacci projection), the unit clocked a low of $0.7170 on Tuesday and printed a noticeable comeback on Wednesday.

Aside from the $0.7130 low (7th January) and the $0.7082 (20th December [2021]) low, obvious support at $0.7021 calls for attention in the event sellers regain control.

The relative strength index (RSI) continues to circle the 50.00 centreline. $0.7416-0.7315 sellers, therefore, will likely be watching for the indicator to secure position beneath the 50.00 neighbourhood, movement informing market participants that average losses exceed average gains.

H4 timeframe:

AUD/USD bulls entered an offensive phase out of $0.7169-0.7187 demand yesterday (sat just above Quasimodo support from $0.7146), elevating the currency pair to within close proximity of resistance at $0.7250. Beyond resistance, price is likely to readdress prime resistance at $0.7323-0.7308.

H1 timeframe:

Leaving Quasimodo support at $0.7168 unchallenged, London’s morning session on Wednesday witnessed price reclaim $0.72+ status and whipsaw above local (double-top) peaks at $0.7229 to touch gloves with a moderate decision point at $0.7254-0.7238 as we entered US trading. Note that this area houses the H4 resistance at $0.7250 within its upper boundary.

The relative strength index (RSI), in line with price movement greeting the decision point, touched overbought space and, as of writing, is attempting to drop through 60.00.

Observed Technical Levels:

The H1 decision point at $0.7254-0.7238 and converging H4 resistance from $0.7250 are likely to offer sellers something to work with, targeting $0.72 on the H1 and the upper limit of H4 demand at $0.7187. The bearish reading is largely based on the lack of buying out of weekly prime support at $0.6968-0.7242 and recent reaction from daily resistance between $0.7416-0.7315.

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09 in the shape of a shooting star and refreshing multi-year pinnacles, USD/JPY tumbled 1.2 percent last week. While modest recovery efforts developed in recent trading, sellers remain at the wheel with the path of least resistance towards support at ¥112.16.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61. In consideration of the trend, a dip-buying theme from ¥112.16 is a reasonable assumption.

Daily timeframe:

Tuesday settling in the shape of a shooting star candlestick formation attracted a bearish following on Wednesday.

The technical framework to be mindful of on this chart has Quasimodo resistance to target at ¥116.33, whereas downstream shines light on demand at ¥112.66-112.07, tailed closely by a decision point from ¥111.18-111.79 and the 200-day simple moving average at ¥111.40.

In terms of the relative strength index (RSI), support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May) remains active.

Much like the weekly timeframe, trend on the daily scale points to the upside.

H4 timeframe:

Quasimodo support-turned resistance at ¥114.71 elbowed into the frame Tuesday and, held a bearish vibe on Wednesday. Pursuing lower prices highlights a familiar decision point at ¥113.54-113.78, set a few pips above Quasimodo support at ¥113.22.

H1 timeframe:

The ¥115 reaction shows limited support until reaching ¥114. However, ¥114 also advertises itself as a weak level exhibiting little confluence to write about. Beyond the round number, Quasimodo support sits at ¥113.64, closely shadowed by two support levels at ¥113.34 and ¥113.56.

Also worth noting is the relative strength index (RSI) nearing oversold terrain after retesting the lower side of the 50.00 centreline.

Observed Technical Levels:

Keeping it simple, chart studies indicate a ¥114 breach on the H1 timeframe. Short-term players are likely to take aim at H1 Quasimodo support at ¥113.64, and perhaps support at ¥113.34 and ¥113.56.

GBP/USD:

Weekly timeframe:

The current 4-week bid—initiated ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes)—is echoing a mildly weaker tone this week, down 0.3 percent. ‘Consumed supply’ (blue area) is nearby between $1.4001 and $1.3830. Considering this, candle action may still be guided as far north as resistance from $1.4371-1.4156 in the coming weeks.

In regards to trend, the weekly timeframe’s position shows higher prices since early 2020. However, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

Daily timeframe:

Three back-to-back daily bearish candles delivered the currency pair to support at $1.3602, deriving technical impetus from the lower side of the 200-day simple moving average at $1.3731. Drawing a bid from current support on Wednesday knocked some of the wind out of the GBP decline and underscores the prospect of a bullish challenge.

Below $1.3602 re-opens the door for a return to neighbouring trendline resistance-turned support, taken from the high $1.4250.

Momentum, according to the relative strength index (RSI), is seen attempting to regain some poise around the 60.00ish region. Though rupturing this number casts light on the 50.00 centreline.

H4 timeframe:

Wednesday settled around resistance at $1.3622-1.3646—plotted just south of resistance at $1.3668—and provided candlestick enthusiasts a shooting star formation, generally recognised as a bearish signal. If sellers take control, aside from a number of ‘local’ lows, demand is visible at $1.3428-1.3444.

However, by entering short at this point, traders are effectively selling into daily support from $1.3602. Conservative traders, therefore, may elect to wait for a price close beneath $1.36.

H1 timeframe:

Following a whipsaw under $1.36, Quasimodo support stepped in at $1.3580 and encouraged a bid back over $1.36 and also pulled the relative strength index (RSI) above the 50.00 centreline. Note the latter is set to be retested as support.

Resistance calls for attention around $1.37, a psychological barrier that’s served well as support and resistance since early November 2021.

Observed Technical Levels: 

The daily timeframe is seen testing support at $1.3602; the H4 timeframe is seen testing a resistance area at $1.3622-1.3646, and the H1 appears poised to revisit $1.36.

The above presents a difficult trading picture, technically speaking. As a result, traders are likely to wait and see if H1 can punch through $1.36 and H1 Quasimodo support at $1.3580 before taking a bearish position, targeting H1 support at $1.3533 and $1.35 (aligns closely with the daily timeframe’s trendline resistance-turned support, taken from the high $1.4250).

In terms of long positions, technicians are likely to want to see a price close above H4 resistance at $1.3668 form, clearing space to $1.37 on the H1.

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US Dollar Continues to Grind Against Japanese Yen

The US dollar has fallen during the trading session on Wednesday to reach down towards the 50 day EMA. We had seen a certain amount of support in that area, thereby causing the market to bounce again. At this point, it looks as if the market is trying to figure out whether or not we will continue to have enough momentum to go higher. The 50 day EMA is of course an indicator that a lot of people pay attention to, so it is worth noting.

USD/JPY Video 20.01.22

To the upside, the ¥115 level will be important as well, as it is a large, round, psychologically significant figure and an area where we had seen a bit of selling pressure as of late. If we can break above there, not only would we break above the top of the shooting star that formed just Tuesday, but we would also clear an area that previously had been thought of as a significant barrier. Because of this, I think that more money would flow into this market if that does in fact happen, and thereby could cause a little bit of a rush.

To the downside, if we break down below the 50 day EMA, we will probably go looking towards the bottom of that hammer from last Friday to see whether or not there will be support for buyers in that general vicinity. With US rates rising, it does make a certain amount of sense that we will continue to see the US dollar strengthen against the Japanese yen.

For a look at all of today’s economic events, check out our economic calendar.

Dollar/Yen Lower Amid Global Stock Market Weakness

The Dollar/Yen is under pressure early Wednesday as investors moved money into the safe-haven Japanese Yen amid a global equity market sell-off. Traders are shrugging off the surge in U.S. Treasury yields that tends to drive up demand for the U.S. Dollar.

At 05:21 GMT, the USD/JPY is trading 114.304, down 0.282 or -0.25%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $81.88, down $0.27 or -0.32%.

Tuesday Recap

The USD/JPY rose to a one-week high on Tuesday following a jump in benchmark U.S. Treasury yields. The Japanese Yen steadied after initially sliding as the Bank of Japan said it would stick to its ultra-loose monetary policy.

The U.S. Federal Reserve meets next week and likely will signal that it will raise rates in March for the first time since the start of the coronavirus pandemic. The Fed funds have priced in four rate hikes in 2022.

As investors prepared for the possibility of the Fed being more hawkish than expected, Treasury yields jumped, with two-year yields – which track short-term rate expectations – crossing 1% for the first time since February 2020. The U.S. 10-year yield hit a two-year peak close to 1.890% overnight.

Safe-Haven Buying Boosts Demand for Yen Early Wednesday

Asia-Pacific markets fell on Wednesday following an overnight sell-off on Wall Street. The move may have spooked investors enough to seek protection in the Japanese Yen. This type of price action could pressure U.S. Treasury yields if investors decide to buy government bonds for protection.

The Nikkei 225 in Japan dropped 2.22%, while the Topix was lower by 2.33%. South Korean shares also tumbled:  the KOSPI gave up earlier gains and fell 0.65% and the KOSDAQ was down 0.83%.

Hong Kong’s Hang Seng Index traded near flat while the tech-focused Hang Seng Tech Index fell 0.14%.

Chinese mainland shares struggled for gains:  The Shenzhen component was down 1.6% while the Shanghai Composite fell 0.29%.

In Australia, the ASX 200 dropped 0.9% as most sectors traded lower. The heavily weighted financials subindex declined 1.37% as the country’s major bank names sold off.

In the U.S. on Tuesday, the Dow Jones Industrial Average lost more than 540 points after Goldman Sachs shares sold off as the investment bank missed analysts’ expectations for earnings. The S&P 500 as well as the NASDAQ Composite, which comprises technology stocks sensitive to interest rates, also declined sharply.

Daily Forecast

At 13:30 GMT, the U.S. will release reports on Building Permits and Housing Starts. These reports are important because they are the first to come out after the Fed informed the world of its aggressive hawkish intentions to raise interest rates.

Traders will be keeping an eye on U.S. Treasury yields and the stock market.

The USD/JPY could bounce back if the stock market stabilizes, but if equities continue to plummet then we could see more movement into the safe-haven Japanese Yen on Wednesday.

For a look at all of today’s economic events, check out our economic calendar.

UK Inflation and Central Bank Chatter Puts the Pound back in the Spotlight

Earlier in the Day:

It is a relatively busy start to the day on the economic calendar this morning. The Kiwi Dollar and the Aussie Dollar were in action in the early hours.

For the Kiwi Dollar

Electronic card retail sales increased by a modest 0.4% in December, following a 9.6% jump in November.

According to NZ Stats,

  • Easing COVID-19 restrictions and the Christmas holidays supported another increase in card spending.
  • While total retail card spending rose by just 0.4%, spending on services jumped by 16.6%.
  • Within the retail industries, spending on fuel led the way, rising by 4.2%.
  • Spending on durables and consumables bucked the trend, however, falling by 7.2% and by 0.1% respectively.
  • The sharp fall in durable spending was attributed to higher spending in November that had coincided with Black Friday sales.

The Kiwi Dollar moved from $0.67695 to $0.67668 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.06% to $0.6766.

For the Aussie Dollar

The Westpac Consumer Sentiment Index fell by 2% to 102.2 in January. In December, the Index had fallen by 1.0% to 104.3. Economists had forecast a 0.3% decline.

According to the latest Westpac Report,

  • The 2% decline, attributed to the Omicron strain, was modest when compared with the Delta strain driven 5.2% slide.

Looking at the sub-components:

  • Family finances vs a year ago increased by 7.5% to 95.6, while family finances next 12-months fell by 2.8% to 108.1. In spite of the decline the sub-index held above a long run average of 107.5.
  • Economic conditions next 12-months fell by 9.6% to 94.8, with economic conditions next 5-years falling 6.1% to 103.6. Both continued to sit above their long run averages of 91.1 and 91.9 respectively.
  • In spite of the negative sentiment, the time to buy a major household item rose by 2.8% to 108.9. (Long run average: 126.5).
  • The time to buy a dwelling sub-index rose by 6.3% to 87.0, while the Unemployment Expectations Index increased 8.2% to 112.7.

The Aussie Dollar moved from $0.71871 to $0.71850 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.10% to $0.7178.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.08% to ¥114.700 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a quieter day ahead on the economic calendar. Finalized December inflation figures for Germany are due out later today. Expect any revisions to prelim figures to influence. On the monetary policy front, ECB McCaul is scheduled to speak.

At the time of writing, the EUR was up by 0.01% to $1.1326.

For the Pound

It’s another particularly busy day ahead on the economic calendar. December inflation figures are due out today. Persistent inflationary pressures could force the BoE to signal a 2nd rate hike in the coming months. The stats precede scheduled speeches from BoE Governor Bailey and MPC member Cunliffe who are due to speak late in the day.

At the time of writing, the Pound was down by 0.05% to $1.3589.

Across the Pond

Housing sector figures for December are due out. We don’t expect the numbers to influence, however.

On Tuesday, the U.S Dollar Spot Index rose by 0.50% to end the day at 95.732.

For the Loonie

Inflation figures for December are due out later today. Expect plenty of interest in the numbers.

The IEA’s monthly report and crude oil inventories will also draw interest, however.

At the time of writing, the Loonie was up by 0.06% to C$1.2507 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

January 19th 2022: Technical Outlook Ahead of UK Inflation Data

Charts: Trading View

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

Long-standing resistance from $1.1473-1.1583 (active S/R since late 2017) entertained a bearish showing last week, with price currently down by 0.8 percent so far this week.

Downstream, familiar support resides at $1.1237-1.1281. Made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237, this area, as you can see, delivered a floor heading into the close of 2021. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D leg).

Strengthening the aforementioned resistance area, the pair took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s primary downtrend since mid-2008.

Daily timeframe:

Following Friday’s whipsaw above a 7-month trendline resistance, extended from the high $1.2254, established by way of a bearish engulfing candle (a reversal pattern in which focus is directed to the real candle body rather than upper and lower shadows), Europe’s single currency plunged south against a broadly stronger dollar yesterday.

Should bearish follow-through emerge, Quasimodo support offers an obvious target at $1.1213.

Momentum studies, derived through the relative strength index (RSI), supports additional downside on this timeframe, marginally crossing under the 50.00 centreline (average losses outweighing average gains: negative momentum).

Trend on this scale has been lower since June 2021.

H4 timeframe:

Support from $1.1382 and the decision point at $1.1354-1.1379 experienced a one-sided breach Tuesday, leaving behind clear resistance areas to be mindful of. This was a noted move to be aware of, given higher timeframe technical structure (see above).

Knocking on the door of Quasimodo support at $1.1272 is now on the table if sellers strengthen their grip. Yet, before rotating lower, retesting the aforementioned resistances could be seen.

H1 timeframe:

A dominant USD bid, supported by rising US Treasury yields and major US equity indexes plunging, guided EUR/USD through a number of pivotal demand areas on Tuesday. Upbeat economic data out of Europe as well as soft US economic numbers had limited effect.

Consequently, short-term action is on the doorstep of $1.13, while any upside attempts must confront demand-turned supply at $1.1344-1.1332 and $1.1363-1.1375.

Out of the relative strength index (RSI), the value is shaking hands with indicator support within oversold territory at 18.00. This is a location some chartists will anticipate a slowing of downside momentum. Exiting oversold, therefore, may be watched.

Observed Technical Levels:

H1 price movement approaching $1.13 unlocks the door to a potential whipsaw into the upper wall of weekly support at $1.1281. A subsequent H1 price close back above $1.13, therefore, may be viewed as a bullish signal. Prior to this, watch for possible retests of demand-turned supply at $1.1344-1.1332 and $1.1363-1.1375 on the H1.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, embraced a modestly bullish stance into the close of 2021. 2022, on the other hand, has been undecided so far. Should buyers continue pressing higher, resistance is formed at $0.7501. Manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a modest downside bias has been seen. This followed higher prices since pandemic lows of $0.5506 (March 2020). However, it is important to note that from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Following the near-test of resistance between $0.7418 (the 200-day simple moving average) and $0.7315 (a 100% Fibonacci projection at $0.7315), continuation selling unfolded. Aside from the $0.7130 low (7th January) and the $0.7082 (20th December [2021]) low, obvious support at $0.7021 calls for attention.

The relative strength index (RSI) continues to circle the 50.00 centreline. $0.7418-0.7315 sellers, therefore, will likely be watching for the indicator to secure position beneath the 50.00 neighbourhood, movement informing market participants that average losses exceed average gains.

H4 timeframe:

$0.7169-0.7187 demand put in an appearance on Tuesday and, within the lower range of the aforementioned area, has begun to show some ‘bullish life’. Unlikely sufficient to fuel buyer confidence, traders are urged to pencil in the possibility of dipping lower and connecting with neighbouring Quasimodo support at $0.7146. In the event buyers gain footing, resistance can be seen at $0.7250.

H1 timeframe:

Early hours Tuesday witnessed a decisive decline through the lower boundary of a pennant formation ($0.7223 and $0.7196) and $0.72. Shortly following a retest of $0.72, recent hours clocked a low just ahead of Quasimodo support at $0.7168. Territory beneath the latter shines the technical spotlight on demand at $0.7126-0.7141, arranged a handful of pips under H4 Quasimodo support mentioned above at $0.7168.

As for the relative strength index (RSI), we remain exploring waters south of the 50.00 centreline after failing to find acceptance above the latter early trade.

Observed Technical Levels:

Subdued buying within prime support at $0.6968-0.7242 on the weekly timeframe and scope to navigate lower on the daily timeframe places a question mark on H4 demand at $0.7169-0.7187. As a result, $0.72 drawing resistance should not surprise.

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09 in the shape of a shooting star and refreshing multi-year pinnacles, USD/JPY tumbled 1.2 percent last week. While modest recovery efforts developed in recent trading, the path of least resistance remains to the downside towards support at ¥112.16.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61. In consideration of the trend, a dip-buying theme from ¥112.16 is a reasonable assumption.

Daily timeframe:

Tuesday settled in the shape of a shooting star candlestick formation. This follows Friday’s hammer pattern and Monday’s subsequent bullish follow-through.

The technical framework to be mindful of on this chart has Quasimodo resistance to target at ¥116.33, whereas downstream shines light on demand at ¥112.66-112.07, tailed closely by a decision point from ¥111.18-111.79 and the 200-day simple moving average at ¥111.37.

In terms of the relative strength index (RSI), support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May) remains active.

Much like the weekly timeframe, trend on the daily scale points to the upside.

H4 timeframe:

Quasimodo support-turned resistance at ¥114.71 elbowed into the frame Tuesday and, albeit not to the pip, held back buyers. The whipsaw above resistance topped within a stone’s throw of trendline resistance, taken from the high ¥116.35, and a decision point from ¥115.49-115.24.

Pursuing lower prices highlights a familiar decision point at ¥113.54-113.78, set a few pips above Quasimodo support at ¥113.22.

H1 timeframe:

Ahead of the close, USD/JPY leaves behind a subdued tone, in spite of rising US Treasury yields and healthy USD demand, together with a dovish Bank of Japan (BoJ).

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

Between H4 Quasimodo support-turned resistance at ¥114.71 and H1 Quasimodo support-turned resistance at ¥114.83, sellers could be drawn to this area (some traders are likely to include the ¥115 figure in this resistance zone).

As evident from the H1 chart, price did indeed welcome a ¥115 test on Tuesday and resigned to lows of ¥114.50ish. Support calls at ¥114.32, with a break shifting attention to the ¥114 figure. Note, ¥115 was accompanied by an overbought signal; the indicator has since crossed swords with the 50.00 centreline, threatening possible movement in the direction of oversold levels.

Observed Technical Levels:

Short term, H4 Quasimodo support-turned resistance at ¥114.71 holding, together with the ¥115 figure also serving well as resistance, could influence a bearish scene towards H1 support at ¥114.32 and, with a little ‘oomph’, ¥114.

GBP/USD:

Weekly timeframe:

The current 4-week bid—initiated ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes)—is echoing a weaker tone this week, down 0.6 percent.

‘Consumed supply’ (blue area) is nearby between $1.4001 and $1.3830. Considering this, candle action may still be guided as far north as resistance from $1.4371-1.4156 in the coming weeks.

In regards to trend, the weekly timeframe’s position shows higher prices since early 2020. However, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

Daily timeframe:

Three back-to-back daily bearish candles materialised after touching the lower side of the 200-day simple moving average at $1.3732.

Observed support at $1.3602 has consequently come under attack. Ceding ground here unbolts the technical space for neighbouring trendline resistance-turned support to make a show, taken from the high $1.4250.

The relative strength index (RSI) recorded overbought conditions in line with price testing the noted SMA and has since exited the area. This—coupled with the value fast approaching the 50.00 centreline—is considered by many technicians as a sign upside momentum is beginning to slow. Crossing under the 50.00 zone helps confirm a bearish stance.

H4 timeframe:

The decision point at $1.3622-1.3646 put up little fight on Tuesday, leaving nearby resistance at $1.3668 unopposed. Below the decision point, aside from a number of ‘local’ lows, demand is at $1.3428-1.3444.

Ultimately, this timeframe exhibiting scope to travel lower works alongside the daily timeframe recently cracking support at $1.3602.

H1 timeframe:

The latest round of downside movement on GBP/USD, amidst demand for the US dollar on the back of rising US Treasury yields, watched candle action pull through $1.36 to test nearby Quasimodo support at $1.3580. Under the latter, assuming $1.36 maintains resistance, chart studies show price could zero in on support from $1.3533 and maybe $1.35.

The relative strength index (RSI) rose from oversold space and is nearing 40.00. Note that the indicator has chalked up a ‘temporary’ overbought zone between 50.00 and 40.00, given the markets immediate downside bias since last Thursday.

Observed Technical Levels: 

The daily timeframe threatening to dethrone support at $1.3602, in association with H4 price pushing under $1.3622-1.3646 and the H1 kissing the lower side of $1.36, opens up a bearish theme. Conservative traders are likely to wait for H1 price to close below Quasimodo support at $1.3580 before committing, targeting H1 support at $1.3533 and $1.35 (aligns closely with the daily timeframe’s trendline resistance-turned support, taken from the high $1.4250).

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

 

US Dollar Reaches Resistance but Pulls Back

The US dollar has rallied during the trading session on Tuesday to reach towards the ¥115 level before pulling back a bit to form a bit of a shooting star. That being said, I do think that this market will probably continue to rally over the longer term but pay close attention to whether or not the market is moving based upon interest rates in America, or perhaps a fear-based trade. That being said, it is interesting to see that the market gave back his quickly as it did, and the Japanese yen is starting to strengthen against multiple currencies. Because of this, it suggests that we are more or less that this is a fear-based trade more than anything else, so once things calm down a bit, I do believe that we will turn back around.

USD/JPY Video 19.01.22

With that in mind, I prefer this as a “buy on the dips” situation. Ultimately, this is a market that I do think will eventually try to reach the highs again, but I am not necessarily sold on the idea of jumping “all in” right away. Full disclosure: I have already closed my long position in this pair and will more than likely look to find some type of dip in order to take advantage of any type of value. I think there is plenty of support extending all the way down to the lows of the Friday session last week. With that in mind, I am simply looking to short-term charts in order to take advantage of any type of value that occurs.

For a look at all of today’s economic events, check out our economic calendar.

US Dollar Index Short-Covering Rally Targets 95.755 – 96.020

The U.S. Dollar is edging higher against a basket of major currencies early Tuesday as U.S. Treasury yields hit a new two-year high on their return from a long weekend break. The strength in the greenback was fueled as the short-end of the yield curve hit new pandemic highs, which is supportive for the U.S. currency.

At 08:27 GMT, March U.S. Dollar Index futures are trading 95.295, up 0.134 or +0.14%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $25.49, up $0.06 or +0.24%.

Two-year yields rose above 1% for the first time since February 2020 at the open in Asia, as trading returned after a U.S. holiday, and five-year yields rose 3.6 bps to 1.5960%, the highest since January 2020.

Yields have been rising this year, with traders expecting the Federal Reserve to begin hiking interest rates as soon as March, but the dollar index, which measures the greenback against six peers has lost 0.52% year to date.

This suggests investors have fully-priced in the Fed’s expected rate hikes. Given this outlook and the current downtrend, the index is likely going through a correction, which means we can expect to see new short-sellers once it reaches resistance.

Daily March U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has been trending higher since the formation of the closing price reversal bottom on Friday.

A trade through 94.610 will negate the closing price reversal bottom and signal a resumption of the downtrend. A move through 96.475 will change the main trend to up.

The main range is 93.200 to 96.895. Its retracement zone at 95.050 to 94.610 is support. It stopped the selling at 94.610 on January 14.

The next two minor resistance levels is a pair of 50% levels at 95.360 and 95.545.

The short-term range is 96.895 to 94.610. Its retracement zone at 95.755 to 96.020 is the primary upside target. Since the main trend is down, we’re looking for sellers to come in on a test of this area.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index on Tuesday is likely to be determined by trader reaction to 95.360.

Bullish Scenario

A sustained move over 95.360 will indicate the presence of buyers. This could fuel a labored rally into a series of retracement levels at 95.545, 95.755 and 96.020.

Since the main trend is down, look for sellers to return on a test of 95.755 to 96.020. They will be trying to produce a potentially bearish secondary lower top.

Bearish Scenario

A sustained move under 95.355 will signal the presence of sellers. This could trigger a retest of 95.050 to 94.610.

If 94.610 fails to hold as support then look for an acceleration to the downside with 93.810 the first downside target, followed by 93.200.

For a look at all of today’s economic events, check out our economic calendar.

A Busier Economic Calendar Puts the Pound in the Spotlight

Earlier in the Day:

It is a quiet start to the day on the economic calendar this morning. The Kiwi Dollar was in focus in the early hours. Later this morning, the Bank of Japan will be in action, with finalized industrial production figures from Japan also due out.

For the Kiwi Dollar

In the 4th quarter, the NZIER Business Confidence Index slumped by 28%. The Index had tumbled by 11% in the 3rd quarter.

According to the NZIER Survey,

  • COVID-19 lockdown measures and international border restrictions weighed on business confidence and demand.
  • A net 34% of firms expect deterioration in general economic conditions in the months ahead, up from 11%.
  • There was also a net 1% of firms reporting weaker demand in their own businesses.
  • The manufacturing sector was most affected, with a net 34% of manufacturers expecting a worsening in the economy. Things were not much better for the services sector, however.
  • On the labor front, labor shortages and a sharp pickup in inflationary pressures were also negatives.
  • A net 61% reported increased costs, the highest since June 2008.
  • Significantly, a net 65% of businesses plan to increase prices in the next quarter.

The Kiwi Dollar moved from $0.67942 to $0.67933 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.09% to $0.6795.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.11% to $0.7209, while the Japanese Yen was up by 0.02% to ¥114.610 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a busier day ahead on the economic calendar. German and Eurozone ZEW Economic Sentiment figures for January will be in focus. Since the start of the pandemic, EUR sensitivity to the ZEW numbers has seen a marked increase. Expect any weak numbers to test support for the EUR.

At the time of writing, the EUR was down by 0.02% to $1.1406.

For the Pound

It’s particularly busy day ahead on the economic calendar. December claimant count figures and November’s unemployment rate will be the key stats of the day. With the markets expecting a more hawkish BoE in the coming months, upbeat stats would support another near-term rate hike.

At the time of writing, the Pound was down by 0.02% to $1.3644.

Across the Pond

NY Empire State Manufacturing numbers are due out of the U.S. Baring particularly dire numbers, however, the stats should have a muted impact on the Dollar.

On Monday, the U.S Dollar Spot Index rose by 0.10% to end the day at 95.258.

For the Loonie

Housing start figures for December are due out later today. We don’t expect the numbers to have a material impact on the Loonie.

We will expect market reaction to the OPEC’s monthly report and the impact on crude oil prices, however.

At the time of writing, the Loonie was down by 0.02% to C$1.2518 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

January 18th 2022: Technical Position Ahead of Tuesday’s Session

Charts: Trading View

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

Long-standing resistance from $1.1473-1.1583 (active S/R since late 2017) entertained a bearish showing last week. Downstream, familiar support resides at $1.1237-1.1281. Made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237, this area, as you can see, delivered a floor heading into the close of 2021. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D leg).

Strengthening the aforementioned resistance area, the pair took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s primary downtrend since mid-2008.

Daily timeframe:

Technical observations on the daily timeframe reveal the currency pair forming a potential whipsaw above a 7-month trendline resistance, extended from the high $1.2254. Note also that price movement established a bearish engulfing candle (a reversal pattern in which focus is directed to the real candle body rather than upper and lower shadows). Should bearish follow-through emerge, Quasimodo support offers an obvious target at $1.1213.

Momentum studies, derived through the relative strength index (RSI), shows the indicator spun lower ahead of resistance at 63.66 and is threatening a move back to the 50.00 centreline.

Trend on this scale has been lower since June 2021.

H4 timeframe:

Fibonacci resistance between $1.1506 and $1.1476 served this market well at the tail end of last week, welcoming a one-sided decline on Friday and throwing light on support at $1.1382, closely followed by a decision point at $1.1354-1.1379. Harmonic traders (much like the weekly timeframe) will acknowledge that the 1.272% Fibonacci projection at $1.1476 forming the lower side of the noted resistance is commonly referred to as an ‘alternate’ AB=CD formation (extended D leg).

What also gave credibility to the Fibonacci resistance (underlined in previous writing) is the area overlapping the lower edge of weekly resistance from $1.1473-1.1583.

The technical framework on this chart, therefore, shines light on a possible test of support at $1.1382 and neighbouring decision point at $1.1354-1.1379.

H1 timeframe:

Thin US holiday trading on Monday witnessed Europe’s single currency slip beneath trendline support, drawn from the low $1.1285, and shake hands with $1.14. Despite the psychological figure arranging a modest floor heading into US hours, the currency pair is tipped for additional underperformance (according to higher timeframe structure).

Having noted $1.14 offering support, protective stop-loss orders will be present south of the number (sell-stops). Additionally, a break lower may encourage breakout selling (additional sell-stops). With that being the case, a whipsaw to prime support at $1.1360-1.1383 (houses demand within at $1.1363-1.1375 and shares a connection with H4 support and the decision point) could arise as larger short-term players attempt to take advantage of the stop run.

The technical picture drawn out of the relative strength index (RSI) reveals bullish divergence, with the indicator’s value tipped to perhaps join the lower side of the 50.00 centreline.

Observed Technical Levels:

While weekly, daily and H4 timeframes display scope to navigate lower, short-term flow (H1) highlights the possibility of a whipsaw through $1.14 to prime support at $1.1360-1.1383. A rebound from here, followed by a subsequent H1 price close above $1.14 is likely to pull in an intraday bullish move higher.

Though do remain aware that a trade long is counter to higher timeframe direction, therefore the move north could be short-lived.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, embraced a modestly bullish stance into the close of 2021. 2022, on the other hand, has been undecided so far. Should buyers continue pressing higher, resistance is formed at $0.7501. Manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a modest downside bias has been seen. This followed higher prices since pandemic lows of $0.5506 (March 2020). However, it is important to note that from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Resistance—made up of a 61.8% Fibonacci retracement at $0.7340, a 100% Fibonacci projection at $0.7315, an ascending resistance, drawn from the low $0.7106, trendline resistance, drawn from the high $0.7891, and the 200-day simple moving average at $0.7421—came within a pip of making an entrance last week and finished the week by way of a shooting star candle (bearish configuration).

Aside from the $0.7130 low (7th January) and the $0.7082 (20th December [2021]) low, obvious support at $0.7021 calls for attention.

The relative strength index (RSI) continues to circle the 50.00 centreline. $0.7421-0.7315 sellers, therefore, will likely be watching for the indicator to secure position beneath the 50.00 neighbourhood, movement that informs market participants that average losses exceed average gains.

H4 timeframe:

Prime resistance drawn from $0.7323-0.7308 received price action late last week. Thursday’s response and Friday’s additional softness manoeuvred through support at $0.7250 (now a marked resistance level). The $0.7169-0.7187 demand is next in the line of fire for sellers, with Quasimodo support residing a touch below at $0.7146.

H1 timeframe:

Despite joining hands with the $0.72 figure, Monday’s holiday-induced session had price action congregate between two merging trendlines ($0.7223 and $0.7196) to form a potential pennant formation (continuation pattern). Should the unit breakout to the downside and take on $0.72, Quasimodo support calls for attention at $0.7168 (set a pip beneath H4 demand at $0.7169-0.7187), followed by demand at $0.7126-0.7141.

Any upside attempts on this timeframe unlocks resistance at $0.7273.

The relative strength index (RSI) is seen within striking distance of the lower side of the 50.00 centreline, following movement out of oversold territory.

Observed Technical Levels:

The H1 timeframe’s potential pennant pattern is likely to welcome a bearish breakout, to which traders will observe price dip beneath $0.72. While H1 traders will likely target Quasimodo support at $0.7168, H4 demand at $0.7169-0.7187 could prove troublesome. Therefore, $0.72 breakout sellers are urged to adopt a cautious stance south of the round number.

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09 in the shape of a shooting star and refreshing multi-year pinnacles, USD/JPY tumbled 1.2 percent last week. While a modest recovery developed in recent trading, the path of least resistance remains to the downside towards support at ¥112.16.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61. In consideration of the trend, a dip-buying theme from ¥112.16 is a reasonable assumption.

Daily timeframe:

Friday pencilled in a hammer pattern and, despite being void of an obvious technical floor, attracted a bullish following on Monday. Upstream has Quasimodo resistance to target at ¥116.33, whereas downstream shines light on demand at ¥112.66-112.07, tailed closely by a decision point from ¥111.18-111.79 and the 200-day simple moving average at ¥111.35.

In terms of the relative strength index (RSI), support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May) remains active.

Much like the weekly timeframe, trend on the daily scale points to the upside.

H4 timeframe:

After clipping the lower edge of a decision point at ¥113.54-113.78 (leaving Quasimodo support at ¥113.22 unchallenged) last week, subsequent price movement climbed to within a stone’s throw from Quasimodo support-turned resistance at ¥114.71.

North of ¥114.71 is trendline resistance, taken from the high ¥116.35, and the decision point from ¥115.49-115.24.

H1 timeframe:

Early London hours watched price action retest support at ¥114.32 on Monday and produce a hammer pattern (bullish signal). This led the currency pair higher and directs attention to Quasimodo support-turned resistance at ¥114.83 and the ¥115 figure. Technicians will note that ¥114.83 converges closely with the H4 timeframe’s Quasimodo support-turned resistance at ¥114.71.

RSI (relative strength index) analysis shows moderate bearish divergence forming on the doorstep of overbought space. This informs traders that average losses are beginning to exceed average gains on this timeframe over a 14-period calculation: negative momentum.

Observed Technical Levels:

Both weekly and daily timeframes display room to work lower until connecting with daily demand at ¥112.66-112.07. As a result, between H4 Quasimodo support-turned resistance at ¥114.71 and H1 Quasimodo support-turned resistance at ¥114.83, sellers could be drawn to this area (some traders are likely to include the ¥115 figure in this resistance zone).

GBP/USD:

Weekly timeframe:

The current 4-week bid—initiated ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes)—continues to echo a muscular tone, in line with the weekly timeframe’s current uptrend since early 2020. However, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

Nevertheless, ‘consumed supply’ (blue area) is nearby between $1.4001 and $1.3830. Considering this, candle action may be guided as far north as resistance from $1.4371-1.4156 in the coming weeks.

Daily timeframe:

Counter to the weekly timeframe is the daily timeframe bonding with the lower side of the 200-day simple moving average at $1.3733 last week. Thursday assembled a shooting star candle formation (bearish signal) and Friday sailed to a low of $1.3653 with Monday extending the retracement slide.

Observed support falls in at $1.3602, aided by neighbouring trendline resistance-turned support, taken from the high $1.4250.

The relative strength index (RSI) recorded overbought conditions in line with price testing the noted SMA and has since exited the area. This is considered by many technicians a sign upside momentum is beginning to slow in which bears could take the wheel.

H4 timeframe:

Following the near-test of supply from $1.3782-1.3758 and a deep 88.6% Fibonacci retracement at $1.3758 last week, price dipped beneath trendline support, drawn from the low $1.3173, and a Quasimodo resistance-turned support at $1.3668 (now marked resistance).

You will note that although the aforesaid supports have been absorbed, a nearby decision point at $1.3622-1.3646 made its way into the spotlight. Below the decision point, aside from a number of ‘local’ lows, demand is at $1.3428-1.3444.

H1 timeframe:

Monday’s subdued setting, brought on by a lack of tier-1 data and a bank holiday in the US, left behind a dip into demand from $1.3628-1.3643 (underpinned by support at $1.3627 and placed within the H4 decision point at $1.3622-1.3646).

Below the noted demand and support, the $1.36 figure is visible, accompanied by demand from $1.3580-1.3600.

In terms of the relative strength index (RSI), the value formed bullish divergence out of oversold territory yesterday, a move telling short-term traders that downside momentum is currently slowing.

Observed Technical Levels: 

The daily timeframe connecting with the 200-day simple moving average at $1.3733 brings light to support at $1.3602. With this being the case, further losses could emerge on the H1 scale until $1.36, though this entails overthrowing noted H4 structure (and H1 demand at $1.3628-1.3643 and H1 support from $1.3627).

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

Speculators Rotate Towards Crude Oil and Natgas

A week that saw continued stock market weakness and rising bond, albeit at a much reduced pace after Jerome Powell pledged to do what’s necessary to reduced inflation while at the same time prolonging the economic expansion. The dollar traded weaker ahead of last Wednesday’s, thereby supporting a strong rally in commodities led by energy and industrial metals.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Index jumped 2.2% during the reporting week to January 11 with a 6.3% gain in energy and 1.2% in industrial metals offsetting weakness across the agriculture sector which with the exception of coffee and cocoa saw broad losses led by sugar and hogs. Responding to these developments, money managers accumulated fresh longs across the energy sector, not least in crude oil, while cutting back on exposure across all other sectors.

In crude oil, the combined net long in Brent and WTI jumped by the most since November 2020 to reach 538k lots or 538 million barrels, still well below the most recent peak at 737k lots from last June. A US cold blast helped send natural gas up by 14% and the net long up by 30% to 163k lots.

In the other sectors of metals and agriculture, speculators opted to reduce their exposure with the few exceptions being soybeans, cocoa and coffee. Rangebound HG copper as an example saw its net long reduced by 15% to 22.2k lots, primarily due to increased short selling, some of which were probably stopped out during the failed breakout attempt above $4.47 towards the end of last week. Gold and silver both saw net selling , while the platinum short jumped 86%.

In agriculture, speculators increased their long positions in all three soybeans contract, the corn long was cut by 6% while the CBOT wheat short jumped by 40% to an 18-month high. In softs, the sugar long continued to be cut, this time by 61.6k lots to 76.5k lots, and since hitting a cycle peak last August the net long has now been reduced by 72% to a near 18 month low. Cocoa flipped back to a small net long, the coffee long rose 4% while the cotton long was cut by a similar percentage.

Market comments from today’s Market Quick Take:

Crude oil (OILUSFEB22 & OILUKMAR22) trades mixed with Brent crude oil briefly challenging the double-top at $86.75, a seven-year high, before having a rethink as China GDP and retail sales slowed amid ongoing measures to curb the spreading of the omicron variant.

The prompt spreads in WTI and Brent remain elevated at 63 and 74 cents per barrel, thereby signaling rising tightness. Later this week monthly Oil Market Reports from OPEC on Tuesday and IEA on Wednesday will shed some further light on the current situation. Speculators, a little late to the recent rally, boosted bullish oil bets in WTI and Brent bets by the most in 14 months last week.

Copper (COPPERMAR22) slid the most in seven weeks on Friday as weaker-than-expected U.S. economic data (see below) together with weakness in China added to concerns that global growth may slowing amid rising inflation and the spreading virus. High Grade’s drop back below $4.50 triggered some stop loss selling from recently established longs before stabilizing overnight after China, the world’s top consumer, cut rates to support its economy. The worry over tight supplies, however, has not gone away and should cushion any short-term weakness.

Gold (XAUUSD) remains resilient despite Friday’s renewed surge in bond yields as the market continues to price in the prospect of rising US interest rates, potentially at a more aggressive pace than previously expected. Support continues to build in the $1800-area while a break above $1830 could see it target $1850 ahead of the November peak at $1877.

Forex

In forex, the major flow was selling of JPY, where the net short increased by 25.3k lot or the equivalent of $2.7bn. Additional selling of AUD (-2.1k lots) took the net short to a fresh record short at 91.5k lots. The EUR position flipped back to a net long after speculators bought 7.6k lots while the GBP short was reduced by 26%. Overall, the dollar long against ten IMM currency futures and the Doller Index rose by a small 1% to $23.5 billion.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

US Dollar Recovers Against Japanese Yen

The US dollar has seen a bit of strength against the Japanese yen during the trading session on Monday, although it should be said that it was Martin Luther King Jr. Day in America. That being said, the move actually happen before US trading, so it does make a certain amount of sense that perhaps technical traders have stepped back into the market in order to pick up this market after a nice pullback.

USD/JPY Video 18.01.22

The size of the candlestick was rather impressive, but at the end of the day it is interesting that the market bounced exactly where it did. Friday ended up showing signs of stability as we formed a nice looking hammer, which also happened to be right there at the 50 day EMA. Because of this, it looks as if we tried to recover from the bigger pullback, and it certainly looks as if there is a little bit of follow-through in both Europe and Asia during the Monday session.

At this point, the market is very likely to see a lot of noisy behavior, but it looks like we are going to see a continuation of the longer-term uptrend that we had seen previously. Because of this, I think the market is more likely than not going to continue to the upside, with the ¥115 level being an area of interest, as large, round, psychologically significant figures come back into the picture and throw things around. Nonetheless, we are still very much in an uptrend, so I think value has come back into the picture for longer-term traders.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD and USD/JPY Elliott Wave Cycles Point Lower

Notice that pair broke the trendline support of a base channel last week which normally occurs within wave three of an impulse, thus we think there can be more weakness coming, firstly to around 1.2450 and then possibly even to 1.2250-1.23 area. The short-term invalidation level is now at 1.2625; as long it holds the bearish impulse is expected to resume lower within wave 3/C.

USDCAD 4h Elliott Wave Analysis

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USDJPY has been very bullish through 2021 but now it may face a limited upside since we are seeing a fifth wave trying to complete wave c of a higher degree wave d) that can belong to a multi-year triangle. However, calling a top can be too soon since we are not seeing a completed five waves down from recent high when looking at the 4h chart, but so far it looks promising with recent extensions below the base channel support line.

If pair will rise back above 115.05 then market may stay sideways for a big triangle.

USDJPY 4h Elliott Wave Analysis

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Will Inflation Hit the Markets?

With US inflation at a 40-year high, in this week’s market update XTB’s market analyst Przemysław Kwiecień examines what this could mean for stocks, commodities and forex, the impact this will have on investors, and how the Fed might react. Expect to find answers to questions such as:

  • What does elevated inflation mean for stocks and commodities?
  • Are investors unprepared for monetary tightening?
  • What is the key data and levels for the pound this week?

Don’s miss our latest market update: Watch now!

For a look at all of today’s economic events, check out our economic calendar.

Key Events This Week: Busy Week of Asian policy Meetings Amid Policy Tightening Angst

Here are the key economic events and data releases to look out for this week:

Monday, January 17

CNH: China 4Q GDP, December industrial production and retail sales
US markets closed for Martin Luther King Jr. holiday

Tuesday, January 18

JPY: Bank of Japan decision
EUR: Germany ZEW survey expectations
GBP: UK November jobless claims, December unemployment
Goldman Sachs Q4 earnings

Wednesday, January 19

EUR: Germany December inflation
GBP: UK December inflation
GBP: Bank of England Governor Andrew Bailey speech
Bank of America Q4 earnings
Morgan Stanley Q4 earnings

Thursday, January 20

CNY: PBOC loan prime rate decision
JPY: Japan December external trade
AUD: Australia December unemployment
EUR: European Central Bank publishes Dec meeting account
USD: US weekly initial jobless claims
US crude oil: EIA inventory report
Netflix Q4 earnings

Friday, January 21

JPY: Japan December inflation
GBP: BOE policy maker Catherine Mann speech, UK December retail sales
EUR: Eurozone January consumer confidence

The potential for the removal of the liquidity punchbowl (aka monetary policy tightening) is dominating the market’s thinking at present.

The strong US CPI report released last week added more pressure on the US Federal Reserve to stat lifting rates earlier than once thought, potentially as soon as March. We’ve had numerous FOMC members recently marking a more hawkish bias to the committee’s views, including notably, the fabled dove Brainard in her Fed chair nomination appearance before the Senate.

Another Fed official, Waller, also mentioned the chance of five rates hikes this year, although he doesn’t favour a 50bp hike in March. It’s worth remembering that it is a US holiday on Monday, so their markets are closed, and the blackout period has started before the next Fed meeting on 26 January so there won’t be any more Committee members to listen out for on the wires.

Company earnings also continue with more bulge bracket US banks releasing their fourth quarter results. US stocks notched their second straight weekly decline, pushed lower by disappointing earnings from financial industry bellwether JPMorgan Chase which has clouded an already mixed outlook for the US economy.

S&P 500 daily chart

Asian policymakers in focus

We kick off the week with Chinese fourth quarter GDP (4% y/y vs. 3.3% est.), as well as December’s industrial production (4.3% vs. 3.7% est.) and retail sales (1.7% vs. 3.8% est.). The full-year GDP came in at 8.1%, slightly above the median estimate by economists but well above the government’s 2021 target of over 6%. Still, the data confirmed that the final quarter was losing momentum but the real test for the domestic economy will come in the first quarter of this year, due to current regional lockdowns on top of the ongoing woes in the property sector.

With this in mind, the PBoC lowered both the one-year medium-term lending facility rate abd the seven-day reverse repurchase rate by 10 basis points respectively, a move not seen in nearly two years, and also injected more liquidity into the financial system via US$110 billion in loans.

The Bank of Japan meeting on Tuesday is also getting some airtime after “sources” said it is thinking of a rate hike at some point beyond this year and debating how to manage the messaging. Inflation is picking up and possibly risks to prices may now be described as “balanced” but hitting the 2% inflation target is still a long way off.

USD/JPY daily chart

UK data to add pressure to the BoE

We get the usual mid-month data dump in the UK with signals about labour market strength, the pace of consumer price inflation and retail sales. These are the last official updates before the BoE meeting on 3 February, with CPI expected to rise above the forecast 5% going forward and a labour marker remaining tight.

GBP/USD daily

By Lukman Otunuga Senior Research Analyst

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

BOJ Rate Hike Hardly Imminent with CPI Below Target

The new week begins with the Bank of Japan (BOJ) becoming the first major central bank to meet in 2022.  The good news for BOJ policymakers meeting January 17-18:  inflation is creeping higher and the economy is picking up. The bad news?  Inflation is rising for the wrong reasons and this poses a problem for central bank officials.

On Friday, the USD/JPY settled at 114.205, up 0.039 or +0.03%. Also on Friday, the Invesco CurrencyShares Japanese Yen Trust finished at $82.15, down $0.05 or -0.06%.

Consumer prices rose at their fastest pace in nearly two years in November. Even Japan’s giant of affordable attire, Uniqlo says it has no choice but to raise prices – a change in a nation where deflation is the norm and firms deal with any rise in costs by tightening belts rather than passing them on, Reuters wrote.

The problem is, instead of being the fruit of nearly a decade of super-charged monetary stimulus, rising prices are being driven by surging energy prices and a weakening Japanese Yen.

Central bank officials face the challenge of preventing rising living costs from hurting weak household spending and a fragile recovery. So we’ll be watching to see if the BOJ will start discussing how it can start telegraphing a rate hike while maintaining its ultra-easy policy this year.

BOJ under Pressure to Make a Move after Consumer Inflation Jumps to Nearly 2-Year High

Japan’s November consumer inflation marked the biggest year-on-year rise in nearly two years on surging fuel costs, a sign that the fallout from global commodity price gains is broadening.

The data released in late December highlights the fresh challenge policymakers face in preventing rising costs of living from hurting already weak household spending and Japan’s fragile economic recovery.

Meanwhile, BOJ Governor Haruhiko Kuroda is on record saying that a weak yen could be inflicting bigger pain on households than before by pushing up prices of imported goods.

Japan’s core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, rose 0.5% in November from a year earlier, government data showed, exceeding a median market forecast for a 0.4% gain. It was the biggest increase since February 2020 and followed a 0.1% rise in October.

Short-Term Outlook

Back in December, most analysts said the rise in inflation is unlikely to prompt the BOJ to withdraw monetary stimulus any time soon, with inflation still distant from the central bank’s 2% target.

However, that won’t stop policymakers from debating how soon they can start telegraphing an eventual interest rate hike, which could come even before inflation hits the bank’s target, sources told Reuters, emboldened by broadening price rises and a more hawkish Federal Reserve.

For a look at all of today’s economic events, check out our economic calendar.

Fourth Quarter GDP Numbers from China to Dictate Risk Sentiment

Earlier in the Day:

It is a particularly busy start to the day on the economic calendar this morning, with the Chinese economy in focus. While fixed asset investments, industrial production, and retail sales will draw attention, 4th quarter GDP numbers will be the key stats of the day. Economists are expecting a sharp pickup in 4th quarter economic activity. Anything less will test risk appetite as the economies tackle the spread of Omicron.

The Majors

At the time of writing, the Aussie Dollar was up by 0.07% to $0.7213, while the Japanese Yen was down by 0.12% to ¥114.330 against the U.S Dollar. The Kiwi Dollar was up by 0.03% to $0.6806.

The Day Ahead

For the EUR

It’s a quiet day ahead on the economic calendar. Economic data is limited to finalized December inflation figures for Italy. Barring any marked revision from prelim figures, we don’t expect too much influence on the EUR, however.

At the time of writing, the EUR was down by 0.04% to $1.1406.

For the Pound

It’s particularly quiet ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction. While it is a quiet day ahead, it’s a big week ahead for the Pound, with key stats likely to dictate BoE monetary policy through the quarter.

At the time of writing, the Pound was down by 0.04% to $1.3669.

Across the Pond

There are no stats to consider, with the U.S markets closed today.

At the time of writing, the U.S Dollar Spot Index was up by 0.04% to 95.201.

For the Loonie

Foreign securities purchases and manufacturing sales figures for November will be in focus. Barring dire numbers, we don’t expect the numbers to influence. The BoC Business Outlook Survey due out later in the day will draw plenty of interest, however. With the markets the Bank of Canada to lift rates this year, business sentiment will need to be upbeat.

At the time of writing, the Loonie was up by 0.02% to C$1.2549 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – Earnings, Central Bank Chatter and a Busy Economic Calendar in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 63 stats in focus in the week ending 21st January. In the week prior, 44 stats had been in focus.

For the Dollar:

Key stats include Philly FED Manufacturing and initial jobless claims due out on Thursday.

Other stats include NY Empire State Manufacturing and housing sector data. These stats should have a muted impact on the markets, however.

In the week ending 14th January, the Dollar Spot Index fell by 0.58% to 95.165.

For the EUR:

ZEW Economic Sentiment figures for Germany and the Eurozone will be the key stats early in the week.

Finalized December inflation figures for member states and the Eurozone in the week will also draw interest.

At the end of the week, however, expect Eurozone consumer confidence figures to also influence. The markets will be looking for the effects of rising consumer prices on sentiment.

On the monetary policy front, the ECB monetary policy meeting minutes are due out on Thursday, with ECB President Lagarde scheduled to speak on Friday.

For the week, the EUR rose by 0.44% to $1.1411.

For the Pound:

It’s an important week ahead on the economic calendar.

On Tuesday, claimant counts and the UK’s unemployment rate will be in focus.

Inflation and retail sales figures due out on Wednesday and Thursday will also be key, however.

The stats through the week should give the BoE the numbers it needs to decide what’s next on the policy front.

On the monetary policy front, BoE Gov. Bailey is scheduled to speak on Wednesday.

The Pound rose by 0.64% to end the week at $1.3675.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

Inflation figures will be in focus on Tuesday, ahead of retail sales and employment figures on Friday.

With the markets expecting a hawkish BoC, this week’s stats could seal the fate of the Loonie near-term.

The Loonie ended the week up 0.72% to C$1.2552 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Westpac consumer sentiment and employment figures will be in focus. While consumer sentiment is important, expect the employment numbers to be key. Another sharp pickup in hiring could force the RBA to reconsider its current stance on cash rates.

The Aussie Dollar rose by 0.36% to $0.7207.

For the Kiwi Dollar:

Business confidence figures for the 4th quarter get things started on Tuesday. We have seen business confidence wane recently, so the markets will be expecting some weak numbers.

Of greater significance will be electronic card retail sales figures due out on Wednesday.

At the end of the week, Business PMI numbers will also draw interest, however.

The Kiwi Dollar ended the week up by 0.37% to $0.6804.

For the Japanese Yen:

It’s a relatively quiet week ahead. Key stats are limited to trade data on Thursday and inflation figures on Friday. We don’t expect the numbers to move the dial, however.

On Tuesday, the BoJ also delivers its first monetary policy decision of the year. No surprises are expected…

The Japanese Yen rallied by 1.19% to ¥114.190 against the U.S Dollar.

Out of China

It’s a big week, with 4th quarter GDP numbers due out on Monday. Expect the numbers to set the tone for the week. Disappointing growth figures could bring into question market optimism towards the global economic outlook.

Other stats on Monday include fixed asset investments, industrial production, and retail sales figures. Barring dire numbers, however, these should have a limited impact on the markets.

On the monetary policy front, the PBoC will also be setting loan prime rates on Thursday.

The Chinese Yuan ended the week up by 0.39% to CNY6.3528 against the U.S Dollar.

Geo-Politics

Nothing new to consider in the week ahead, with China and Capitol Hill and Russia continuing to be the key areas of focus.

COVID-19

COVID-19 news updates will remain a key area focus. Risk aversion could hit should a new strain of the virus appear in a developed economy.

Corporate Earnings

It’s also corporate earnings season, with a number of big names releasing results that could test support for riskier assets.

Weekly Technical Market Insight: 17th – 21st January 2022

Charts: Trading View

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

As anticipated, long-standing resistance from $1.1473-1.1583 (active S/R since late 2017) entertained a bearish showing last week. Downstream, familiar support resides at $1.1237-1.1281. Made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237, this area delivered a floor heading into the close of 2021. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D leg).

Strengthening the aforementioned resistance area, the pair took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s primary downtrend since mid-2008.

Daily timeframe:

Technical observations on the daily timeframe reveal the currency pair forming a potential whipsaw above a 7-month trendline resistance, extended from the high $1.2254. Note also that price movement established a bearish engulfing candle (a reversal pattern in which focus is directed to the real candle body rather than upper and lower shadows). Should bearish follow-through emerge this week, Quasimodo support offers an obvious target at $1.1213.

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

Long term, we’re at the lower boundary of weekly resistance at $1.1473-1.1583, structure perhaps hindering further buying beyond the daily timeframe’s 7-month trendline resistance, extended from the high $1.2254.

Momentum studies, derived through the relative strength index (RSI), shows the indicator spun lower ahead of resistance at 63.66 and is threatening a move back to the 50.00 centreline.

Trend on this scale has been lower since June 2021.

H4 timeframe:

Fibonacci resistance between $1.1506 and $1.1476 served this market well at the tail end of the week, welcoming a one-sided decline on Friday and throwing light on support at $1.1382, closely followed by a decision point at $1.1354-1.1379. Harmonic traders (much like the weekly timeframe) will acknowledge that the 1.272% Fibonacci projection at $1.1476 forming the lower side of the noted resistance is commonly referred to as an ‘alternate’ AB=CD formation (extended D leg).

What also gave credibility to the Fibonacci resistance (underlined in previous writing) was the area overlapping the lower edge of weekly resistance from $1.1473-1.1583.

The technical framework on this chart, therefore, shines light on a possible test of support at $1.1382 and neighbouring decision point at $1.1354-1.1379 early week.

H1 timeframe:

A closer reading of price action on the H1 shows Friday led the currency pair under support at $1.1452, which was subsequently retested and established resistance. Merging trendline support, drawn from the low $1.1285, and the psychological base at $1.14 was later tested and held into the close. $1.14 failing to hold places demand at $1.1363-1.1375 in view.

As you would expect, the relative strength index (RSI) dipped a toe in oversold waters, but departed the range prior to the close.

Observed Technical Levels:

Long term:

Weekly resistance at $1.1473-1.1583 elbowing its way into the spotlight and the daily timeframe chalking up a bearish engulfing candle around trendline resistance, extended from the high $1.2254, promotes a bearish climate this week.

Short term:

The higher timeframe’s bearish opinion, and some elbow room on the H4 to support at $1.1382 and the decision point at $1.1354-1.1379, $1.14 bids are fragile early week on the H1. On this account, two potential scenarios are seen:

  • A short-term dip through $1.14 to H1 demand at $1.1363-1.1375 (shares space with the H4 decision point at $1.1354-1.1379).
  • Continuation bidding off $1.14 to test H1 resistance at $1.1452 to bring in sellers.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, embraced a modestly bullish stance into the close of 2021. 2022, on the other hand, has been undecided so far. Should buyers continue pressing higher, resistance is formed at $0.7501. Manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a modest downside bias has been seen. This followed higher prices since pandemic lows of $0.5506 (March 2020). However, it is important to note that from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Resistance—made up of a 61.8% Fibonacci retracement at $0.7340, a 100% Fibonacci projection at $0.7315, an ascending resistance, drawn from the low $0.7106, trendline resistance, drawn from the high $0.7891, and the 200-day simple moving average at $0.7423—came within a pip of making an entrance on Thursday and finished by way of a shooting star candle (bearish configuration). Friday answered with a near-full-bodied bearish candle, erasing 1.0 percent.

Aside from the $0.7130 low (7th January) and the $0.7082 (20th December [2021]) low, obvious support at $0.7021 calls for attention.

The relative strength index (RSI) continues to circle the 50.00 centreline. $0.7423-0.7315 sellers, therefore, will likely be watching for the indicator to secure position beneath the 50.00 neighbourhood this week, movement that informs market participants that average losses exceed average gains.

H4 timeframe:

Prime resistance drawn from $0.7323-0.7308 was a highlighted area in recent analysis, receiving price action on Thursday.

Thursday’s response and Friday’s additional softness manoeuvred through support at $0.7250 (now a marked resistance level). The $0.7169-0.7187 demand is next in the line of fire for sellers, with Quasimodo support residing a touch below at $0.7146.

H1 timeframe:

Following a whipsaw north of $0.73 (into H4 prime resistance at $0.7323-0.7308) and a subsequent head and shoulders top pattern forming ($0.7293, $0.7314, $0.7294), the euro plunged against the buck on Friday—taking out $0.7273 support—and eventually butted heads with $0.72.

South of the psychological base, Quasimodo support is visible at $0.7168, accompanied by a nearby demand at $0.7126-0.7141.

Supporting the modest $0.72 ‘bounce’ is the relative strength index (RSI) poking oversold space. A decisive exit from this range informs short-term traders that average gains are beginning to outweigh average losses on this timeframe: positive momentum. Indicator support rests nearby at 19.17.

Observed Technical Levels:

Long term:

The near-test of daily resistance between $0.7423 and $0.7315 commanded the attention of bearish players in the second half of last week. Although weekly price remains within prime support at $0.6968-0.7242, daily flow may take aim at lows around $0.7130 and $0.7082, followed by support forged from $0.7021.

Short term:

Having noted space for sellers to zero in on H4 demand at $0.7169-0.7187, dipping under $0.72 to test H1 Quasimodo support at $0.7168 (plotted just beneath H4 demand) is a possible situation this week. Alternatively, H1 bids may remain off $0.72, looking at a potential run back to H1 resistance at $0.7273. Holding $0.72 is also bolstered by the RSI testing oversold and (from a higher timeframe perspective) weekly price inhabiting prime support.

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09 and refreshing multi-year pinnacles, movement probed resistance-turned support from ¥114.38 last week. Assuming sellers secure position south of the latter, support at ¥112.16 warrants attention.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61. In consideration of the trend, a dip-buying theme forming between ¥112.16 and ¥114.38 is a reasonable assumption.

Daily timeframe:

Technically aiding bearish action last week was Quasimodo resistance at ¥116.33 on the daily timeframe, seated above the weekly timeframe’s 1.272% Fibonacci projection from ¥116.09. Following two decisive bearish days, Friday pencilled in a hammer pattern, void of an obvious technical floor. Note that the real body colour of hammer formations (and shooting stars) are irrelevant.

Despite the technical candle, added bearish pressure developing this week guides attention towards demand at ¥112.66-112.07, tailed closely by a decision point from ¥111.18-111.79 and the 200-day simple moving average at ¥111.32.

In terms of the relative strength index (RSI), support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May) remains active.

H4 timeframe:

Shortly after clipping the lower edge of another decision point at ¥113.54-113.78 (leaving Quasimodo support at ¥113.22 unchallenged), resistance is featured at ¥114.50, joined by trendline support-turned resistance, extended from the low ¥112.56, a decision point from ¥114.72-114.51 and additional trendline resistance nearby, taken from the high at ¥116.35.

H1 timeframe:

Downside momentum slowing (showed through bullish divergence on the relative strength index) in the second half of the week, in spite of breaching (and retesting as resistance) the ¥114 psychological figure, EUR/USD bulls consequently adopted an offensive phase off support at ¥113.56 and finished the week settling above ¥114 in the form of a shooting star bearish candle pattern.

Resistance is seen above at ¥114.32; subsequent bullish moves target Quasimodo support-turned resistance at ¥114.83 and the ¥115 figure.

Further RSI analysis shows the indicator’s value crossed above the 50.00 centreline: positive momentum until either re-entering -50.00 territory or testing overbought space.

Observed Technical Levels:

Long term:

Weekly price modestly stabbing through resistance-turned support from ¥114.38 and open space to journey lower on the daily timeframe to demand at ¥112.66-112.07 submits a potential bearish play this week.

Should lower prices take form, a dip-buying phase remains on the table between the said daily demand and a decision point from ¥111.18-111.79 (joined by weekly support at ¥112.16).

Short term:

In line with the bearish perspective on the bigger picture, the H4 decision point from ¥114.72-114.51 and associated H4 technical levels is a possible target area for sellers early week. In order to reach the above area, nevertheless, a H1 resistance breach at ¥114.32 must come about.

GBP/USD:

Weekly timeframe:

The current 4-week bid—initiated ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes)—continues to echo a muscular tone, in line with the weekly timeframe’s current uptrend since early 2020. However, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

Nevertheless, ‘consumed supply’ (blue area) is nearby between $1.4001 and $1.3830. Considering this, candle action may be guided as far north as resistance from $1.4371-1.4156 in the coming weeks.

Daily timeframe:

Counter to the weekly timeframe is the daily timeframe bonding with the lower side of the 200-day simple moving average at $1.3733 last week. Thursday assembled a shooting star candle formation (bearish signal) and Friday sailed to a low of $1.3653.

Observed support falls in at $1.3602, aided by neighbouring trendline resistance-turned support, taken from the high $1.4250. Conquering the SMA this week, on the other hand, sets the technical stage to as far north as Quasimodo resistance at $1.3892.

The relative strength index (RSI) recorded overbought conditions in line with price testing the noted SMA and exited the area into the week’s close. This is considered by many technicians a sign upside momentum is beginning to slow and bears could take the wheel.

H4 timeframe:

Following the near-test of supply from $1.3782-1.3758 and a deep 88.6% Fibonacci retracement at $1.3758, the unit retested a merging steep trendline support, drawn from the low $1.3173, and Quasimodo resistance-turned support at $1.3668. You will note the aforesaid supports are toughened by a nearby decision point at $1.3622-1.3646.

Below the decision point, aside from a number of local lows, demand is seen at $1.3428-1.3444.

H1 timeframe:

Quasimodo resistance-turned support at $1.3667 embraced price action in the final hours of trade Friday, backed by the relative strength index (RSI) dropping in on oversold terrain to a low of 25.09. This followed a decisive decline from Quasimodo support-turned resistance at $1.3739 earlier in the session.

Demand at $1.3628-1.3643 warrants attention this week, rooted just ahead of support at $1.3627, followed by $1.36 and additional demand from $1.3580-1.3600.

Observed Technical Levels: 

Long term:

The daily timeframe connecting with the 200-day simple moving average at $1.3733 brings light to support at $1.3602 this week, and trendline resistance-turned support, taken from the high $1.4250.

Short term:

The higher timeframe stance places a bearish cloud over H4 trendline support, drawn from the low $1.3173, and Quasimodo resistance-turned support at $1.3668, as well as the decision point at $1.3622-1.3646. With the daily timeframe perhaps targeting support at $1.3602, driving through the above noted H4 structure (and H1 demand at $1.3628-1.3643 and H1 support from $1.3627) could take shape to the $1.36ish neighbourhood on the H1.

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