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May 10th 2022: ¥130 Support on USD/JPY?

May 10th 2022: ¥130 Support on USD/JPY?, FP Markets

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD:

Risk aversion gripped financial markets on Monday; equities were entrenched in a broad sell-off which elevated volatility and permitted the US dollar, as measured by the US Dollar Index (USDX), to refresh multi-year tops heading into London hours.

Ultimately, as of current prices on EUR/USD, modest upside materialised in US trading.

Recent technical research highlighted the following in regards to the weekly timeframe:

Quasimodo supports between $1.0467 and $1.0517 warrant attention on the weekly timeframe, following the end-of-month (April) 2.4 per cent decline. However, the noted levels have offered little to persuade buyers to commit. One factor likely discouraging any meaningful buying is the current downtrend, dominant since the beginning of 2021. Adding to this, seen clearly from the monthly timeframe, the overall vibe has been to the downside since topping in April 2008. Territory beneath current weekly supports calls attention towards the $1.0340 2nd January low (2017).

Adding to the weekly timeframe’s technical setting, we had the following to say on the daily and H4 timeframes in recent writing:

Aiding the bearish setting is price action on the daily timeframe retesting the lower side of the pandemic low of $1.0638 (March 2020) which established resistance. Consequent to this, the currency pair revisited two 100% Fibonacci projections between $1.0494 and $1.0526. Between the noted support and resistances, therefore, is the battlefield we’re presented with, shaped by way of a bearish flag ($1.0471/$1.0593). Despite sellers having the edge (on the basis of the downtrend) which could lead the currency pair to Quasimodo support at $1.0377, traders are urged to acknowledge resistance north of current resistance in the event of upside movement: an ascending resistance, drawn from a low of $1.0340, as well as a 50.0% retracement at $1.0834 and a 38.2% Fibonacci retracement at $1.0867. In terms of the relative strength index (RSI), the indicator’s value exited oversold territory, following a near-test of support at 21.87 late April. Interestingly, traders may acknowledge early regular bullish divergence forming; a bullish failure swing would likely be a welcomed formation to help confirm the divergence.

Price action on the H4 timeframe is seen interacting with space between prime resistance from $1.0680-1.0640 (an area accompanied by a 38.2% Fibonacci retracement at $1.0649 and a 1.272% Fibonacci projection at $1.0646) and Quasimodo support stationed at $1.0483. This area essentially marks the outer boundaries of the daily timeframe’s bearish flag.

From the H1 timeframe, activity is concentrated between $1.05 and $1.06: two widely watched psychological levels. Interestingly, the recent EUR/USD bid underpinned a move to within striking distance of $1.06, which happens to be accompanied with two 100% Fibonacci projections at $1.0613 and $1.0596, respectively.

Technical Outlook:  

Focus is on $1.06. Aside from sharing chart space with two 100% Fibonacci projection ratios on the H1, the upper side of the daily timeframe’s bearish flag unites with the psychological base, in a market decisively facing southbound. Therefore, despite weekly price reacting from Quasimodo supports between $1.0467 and $1.0517, $1.06 echoes a strong bearish vibe.

 May 10th 2022: ¥130 Support on USD/JPY?, FP Markets

AUD/USD:

The risk-sensitive Australian dollar fell victim to downbeat risk sentiment on Monday, consequently unleashing a heavy-handed daily bearish candle which confronted a familiar daily decision point at $0.6964-0.7040. Recent technical research labelled the aforementioned area as the ‘last line of defence’ for the weekly timeframe’s prime support at $0.6948-0.7242. Undeniably, latest movement has placed the weekly prime support in a vulnerable location, potentially reopening the risk of a return to weekly support at $0.6673 and neighbouring 50.0% retracement at $0.6764.

Supporting the possibility of further bearish pressure is long-term trend direction. The monthly timeframe has portrayed a downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is likely to be viewed as a DEEP pullback, with recent downside therefore potentially seen as a move to explore lower over the coming weeks.

Should the currency pair engulf the current daily decision point, Quasimodo support at $0.6901 is likely to be watched. According to the relative strength index (RSI), the indicator is now within reach of oversold space after failing to shake hands with the underside of the 50.00 centreline. Indicator support also remains sketched in at 21.38.

As a result of Monday’s decline, the key figure $0.70 was overrun to the downside and, in recent hours, retested as resistance. According to the H1 scale, support is not seen until the Quasimodo formation at $0.6926, which aligns closely with H4 support at $0.6924 (a level brought to light should H4 cross below 28th January low at $0.6968).

Technical Outlook:

Longer term, the daily timeframe’s decision point at $0.6964-0.7040 is vulnerable, with follow-through downside looking at Quasimodo support from $0.6901.

This is supported on the H1 timeframe after reclaiming space south of $0.70, and indicates H4 might overthrow 28th January low at $0.6968. Should this come to fruition, H1 Quasimodo support is seen at $0.6926, which is connected with H4 support at $0.6924.

 May 10th 2022: ¥130 Support on USD/JPY?, FP Markets

USD/JPY:

Monday finished off best levels, moulding what many candlestick traders would consider a shooting star pattern on the daily timeframe: a bearish signal at tops and around resistance. Despite the shooting star forming from the lower side of daily supply at ¥131.93-131.10, it’s unlikely to garner much attention for two reasons. Firstly, the shooting star formed close to neighbouring price action, and secondly the trend in this market is aggressively to the upside (trending higher since the beginning of 2021).

In terms of technical structure, here’s where we left the weekly timeframe:

Weekly support remains obvious at ¥125.54 and scope for further gains to as far north as ¥135.16 is seen: 28th January high (2002). With that, traders and investors are still urged to pencil in the possibility of a retest of ¥125.54 prior to viewing a ¥135.16 attempt.

Based on the daily timeframe, we also noted the following in Monday’s weekly technical briefing:

The daily timeframe reveals price action ruptured the upper boundary of a flag pattern on 28th April, drawn from a high of ¥129.41 and a low of ¥127.80. Assuming price overcomes neighbouring supply at ¥131.93-131.10, traders will be looking to a take-profit objective circa ¥136.63 (drawn by extending the pole’s distance and adding this to the breakout point). Note that this profit objective sits above the weekly timeframe’s ¥135.16 high. Also of interest, the relative strength index (RSI) has been attempting to exit overbought territory in recent weeks. It’s important to recognise that any decisive departure from the overbought area triggers a double-top pattern (neckline stationed around the 66.78 31st March low and peaks were established from indicator resistance at 87.52) and could lead the RSI to familiar support at 40.00-50.00 (a temporary oversold zone since May 2021). Yet, an important caveat to be aware of is the RSI can remain overbought for prolonged periods in uptrends and initiate a number of false bearish signals.

Concerning the short-term picture, following efforts to find acceptance above ¥131, H1 price movement recoiled lower and is consequently within range of ¥130. This is a psychological level complemented by two trendline supports (¥128.62/¥131.25) and a support from ¥129.89.

Technical Outlook:

The H1 area of technical confluence between ¥129.89 and ¥130 may entice dip buyers if challenged. This is in line with higher timeframe direction on the weekly timeframe and could see the currency pair fire back at ¥131.

 May 10th 2022: ¥130 Support on USD/JPY?, FP Markets

GBP/USD:

The British pound concluded Monday somewhat hesitant against the US dollar, as buyers and sellers square off at the daily timeframe’s Quasimodo support level from $1.2334. This follows last week’s action tunnelling south of a daily bearish flag pattern, made up between $1.2411 and $1.2614 (the profit objective can be plotted as far south as $1.18).

What’s technically interesting on the weekly chart is the absence of clear support until reaching a Quasimodo formation at $1.2164, in a market demonstrating a clear downside bias from February 2021 tops ($1.4241) as well as a long-term downtrend since late 2007 tops at $2.1161 (check monthly timeframe). This supports a break of current support on the daily scale and subsequent drop to Quasimodo support on the weekly timeframe. Analysis of the relative strength index (RSI) on the daily has the indicator attempting to leave oversold conditions but failing to find acceptance above 37.19. Bear in mind that the RSI can register oversold signals for extended periods in a downward facing market.

Attention on the H4 scale is fixed on Quasimodo support at $1.2186 and a resistance base at $1.2441. From the H1 timeframe, we can see the currency pair recovered from $1.23 and is now looking back up to $1.24 and neighbouring Quasimodo support-turned resistance at $1.2421, which happens to be positioned closely with a 100% Fibonacci projection from $1.2443 (red zone).

Technical Outlook:

$1.24 represents an interesting level on the H1. Engaging with this level again might have price whipsaw above the barrier to test nearby H1 resistance between $1.2443 and $1.2421. This—coupled with the higher timeframes indicating sellers have the upper hand—may be interpreted as a bearish zone.

 May 10th 2022: ¥130 Support on USD/JPY?, FP Markets

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