May 14th 2020: Dollar Index Cruises Above 100.00 After Powell Comments

May 14th 2020: Dollar Index Cruises Above 100.00 After Powell Comments

EUR/USD:

Monthly timeframe:

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

March, evident from the monthly chart, left behind a long-legged doji indecision candle, with its extremes crossing paths with heavyweight demand-turned supply at 1.1857/1.1352 (intersects with a long-term trendline resistance [0.6038]) and demand at 1.0488/1.0912.

April, as you can see, spent the best part of the month feasting on the top edge of 1.0488/1.0912, squeezing out a Japanese hammer candlestick pattern, typically viewed as a bullish reversal signal.

May, on the other hand, is tunnelling back into the said demand, so far disregarding April’s candlestick pattern.

With reference to the primary trend, price has exhibited clear lower peaks and troughs since 2008.

Daily timeframe:

Partially altered from previous analysis –

Since the later stages of last week, daily price, by way of a bearish flag pattern between 1.0784/1.0875, has been seesawing between gains/losses ahead of a 78.6% Fib level at 1.0745.

Another constructive development is the formation of a bearish pennant pattern between 1.1147/1.0635. It is also worth pointing out the 200-day simple moving average (SMA) circles the upper portion of our pennant configuration around 1.1022.

A convincing daily close out of the current bearish flag and pennant pattern structure might give rise to a fresh wave of selling. Breaking lower entails tipping 1.0745 and ultimately competing with demand at 1.0526/1.0638, an area extended from March 2017.

H4 timeframe:

The US dollar index unseated 100.00 on Wednesday after Federal Reserve Chair Jerome Powell dismissed negative rates. The euro dived 0.3% as a result, following a top within the walls of a supply at 1.0906/1.0878, which aligns with a 50.0% level at 1.0892 and a 127.2% Fib ext. level at 1.0906.

This may see price action cross paths with trendline support (1.0635).

H1 timeframe:

As US banks unlocked their doors Wednesday, buyers took a back seat after nudging into channel resistance (1.0875 – this essentially marks the upper edge of the daily bearish flag). 1.0850 and the 100-period simple moving average (1.0835) offered little respite, with EUR/USD subsequently addressing lows plotted a few pips ahead of 1.08.

Structures of Interest:

1.08 deserves notice on the H1 timeframe, as the round number intersects beautifully with channel support (1.0766).

However, a break through the psychological number could lead to demand (prior supply) at 1.0760-1.0775 welcoming price. Notably, this area converges with H4 trendline support (1.0635).

AUD/USD:

Monthly timeframe:

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

Overwhelmed by the effects of the coronavirus pandemic, the month of March scored seventeen-year lows at 0.5506 ahead of demand pencilled in from 0.5219/0.5426, before staging an impressive recovery.

April’s 370-pip advance has, as you can see, landed May within striking distance of supply fixed at 0.7029/0.6664, an area intersecting with a long-term trendline resistance (1.0582).

Regarding the market’s primary trend, a downtrend has been present since mid-2011.

Daily timeframe:

Partially altered from previous analysis –

Since addressing supply at 0.6618/0.6544 Friday, the daily candles have been languishing south of the said zone. It should also be emphasised the current supply area comes with a 127.2% Fib ext. level at 0.6578 and a nearby 161.8% Fib ext. level at 0.6642. Traders may include the 200-day simple moving average (SMA) here seen around 0.6667.

Despite sellers attempting to make a show off current supply, the fact we failed to print fresh lows out of this zone at the end of April, as well as price action forming a series of higher highs/lows since testing 0.5506, may fuel buyers.

H4 timeframe:

Brought forward from previous analysis –

Demand at 0.6356/0.6384 along with supply formed from 0.6581/0.6545 remain dominant fixtures on the H4 timeframe. Technically, the aforementioned demand is encased within 0.6351/0.6395, an area made up of 161.8% and 127.2% Fib ext. levels. Fibonacci followers will also note a 61.8% Fib level resides within the said demand at 0.6373.

H1 timeframe:

As the US dollar index voyaged back above 100.00, a wave of intraday selling unfolded after whipsawing through buy-stop liquidity above 0.65. Heading into Thursday’s session, buyers and sellers are seen squaring off around 0.6450. Risk of further decline is high, with demand at 0.6411/0.6423 on the radar and the 0.64 handle which aligns with trendline support (0.6372).

Structures of Interest:

Additional selling today is likely to overwhelm buyers at H1 demand from 0.6411/0.6423, in favour of the more appealing 0.64 handle.

0.64 not only joins closely with H1 trendline support, the psychological boundary also merges closely with the 127.2% Fib ext. level at 0.6395 on the H4 timeframe.

USD/JPY:

Monthly timeframe:

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

Since kicking off 2017, USD/JPY has been busy carving out a descending triangle pattern between 118.66/104.62. The month of March concluded by way of a long-legged doji candlestick pattern, ranging between 111.71/101.18, with extremes piercing the outer limits of the aforementioned descending triangle formation.

April was pretty uneventful, ranging between 109.38/106.35. May also trades flat, as of writing.

Areas outside of the noted pattern can be seen at supply from 126.10/122.66 and demand coming in at 96.41/100.81.

Daily timeframe:

Partially altered from previous analysis –

The US dollar eked out marginal losses against the Japanese yen Wednesday, extending Tuesday’s slide from near-three-week tops at 107.76.

While this may see price embrace demand at 105.70/106.66 again, we cannot rule out the possibility of fresh upside attempts to the 200-day simple moving average (SMA) at 108.23. Directly above here, traders will also note April 6 high at 109.38 as a feasible resistance point.

H4 timeframe:

Partially altered from previous analysis –

Supply at 108.10/107.79, an area that’s capped upside since mid-April, came within a few pips of making an entrance Monday. As you can see, this has been enough to knock the wind out of the dollar’s run as Wednesday tackles support at 106.91, a level converging with a 50.0% ret level at 106.86 and trendline support (106.35).

H1 timeframe:

US trading Wednesday had price action dip through 107 and knock into trendline support (105.99). Technically, this, along with H4 support off 106.91, was enough to rejuvenate a modest USD bid into the close, with price action settling a pip above 107.

Local supply at 107.18/107.11 may hinder upside today, while a H1 close above this barrier could ignite further buying, given a lack of visible supply until addressing 107.67/107.57.

Structures of Interest:

Traders interested in longs off H4 support at 106.91 are likely waiting for a H1 close above supply at 107.18/107.11, as right now buyers appear to lack follow-through.

As underlined above, in terms of upside targets north of 107, H1 supply at 107.67/107.57 appears a logical option.

GBP/USD:

Monthly timeframe:

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

Although March clocked levels not seen since the 1980s, ahead of a 127.2% Fib ext. level at 1.1297, price staged an impressive recovery and regained approximately 80% of the month’s losses.

Support at 1.1904/1.2235 remains in motion in May, with price action currently testing its upper boundary. Neighbouring resistance can be seen in the form of a trendline (1.7191).

Concerning the primary trend, lower peaks and troughs have decorated the monthly chart since early 2008.

Daily timeframe:

Partially altered from previous analysis –

Upside momentum diminished as the pair crossed paths with the 200-day simple moving average (SMA) at 1.2649, a value that boasts a connection to a demand-turned supply at 1.2649/1.2799.

Squeezing out its third successive daily loss, sterling faces demand coming in from 1.2212/1.2075, an area successfully capping downside at the beginning of April.

With respect to the RSI indicator, we are trekking under 50.00 right now, suggesting a bearish tone on this timeframe.

H4 timeframe:

Partially altered from previous analysis –

Recent downside delivered the H4 candles into the parapets of demand at 1.2147/1.2257. This area has held price action higher on a number of occasions since the start of April, and comes with a 38.2% Fib level at 1.2176.

What’s also notable from a technical point of view is the candlesticks trade within a descending channel formation (1.26421.2266).

As you can see, a violation of the current demand area could lay the basis for additional downside towards fresh demand found at 1.1771/1.1886.

H1 timeframe:

Since the beginning of the week we have been compressing within what appears to be a reasonably large falling wedge between 1.2467/1.2285. Pattern traders will also note a potential bearish flag forming between 1.2210/1.2242.

In terms of structure, 1.22 is seen nearby, with 1.2250 located above as resistance.

Interestingly, the RSI indicator is producing bullish divergence.

Structures of Interest:

Longer term, we could eventually see a recovery take shape, as both monthly support at 1.1904/1.2235 and daily demand at 1.2212/1.2075 are in motion.

Shorter term, we have the H1 candles forming a bearish flag, which if a break lower comes to pass, 1.22 could enter play and potentially even give way. Note, take-profit targets out of bearish flags are formed by taking the preceding move and adding the value to the breakout point. However, selling the H1 bearish flag is tricky. Not only are monthly and daily timeframes displaying support, we also see H4 price chewing on demand at 1.2147/1.2257. Therefore, sellers have their work cut out for them.

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.

 

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