Weekly Technical Market Insight: 18th – 22nd May 2020

Weekly Technical Market Insight: 18th – 22nd May 2020

US Dollar Index:

Over the course of last week, the US dollar index, or DXY, gained speed, recording its second successive weekly gain and adding 1.27%.

Double-top resistance (blue arc) at 100.88, particularly after having its neckline broken at 98.82 (April 15 low), has likely lured sellers into play. Unfortunately, with price action concluding the week within the upper border of the pattern, sellers appear vulnerable heading into the new week.

Traders short the double-top pattern will have protective stop-loss orders sited a few points above the peak (100.88). Supply at 101.79/101.00, therefore, is positioned in an ideal location to help facilitate a fakeout scenario above pattern tops this week. Sellers will likely target the 61.8% Fib level at 101.21 as a point of merging resistance, perhaps tucking protective stop-loss orders above 101.79.

With reference to the RSI indicator, since April the index has been fluctuating around its 50.00 mid-way value.


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 supply at 1.1857/1.1352 (intersects with a long-term trendline resistance [1.6038]) 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. Below 1.0488/1.0912 re-opens the risk of a move to another demand at 0.9581/1.0221.

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

Daily timeframe:

The technical picture on the daily chart deserves notice.

Locally, we have a bearish flag pattern forming between 1.0766/1.0875. Also noteworthy is a large potential bearish pennant pattern between 1.1147/1.0635.

A convincing daily close out of the current bearish flag and nearby pennant pattern structure might give rise to a fresh wave of selling this week. Breaking lower entails tipping a 78.6% Fib level at 1.0745 and ultimately competing with demand at 1.0526/1.0638, an area extended from March 2017.

H4 timeframe:

After crossing paths with trendline support (1.0635) Thursday, EUR/USD found itself attempting to regain footing, reaching highs at 1.0850 on Friday.

Supply at 1.0906/1.0878, an area aligning with a 50.0% level at 1.0892, remains a dominant base to the upside. Any sustained move beneath the current trendline this week, on the other hand, will see support at 1.0727 initially calling for attention (April’s swing low).

H1 timeframe:

US retail sales tumbling by a record 16.4% from March to April, according to a government report released Friday, led EUR/USD northbound off 1.08 in robust fashion. The move ousted the 100-period simple moving average at 1.0821 and bumped into supply at 1.0853/1.0840 (and 1.0850), which, as you can see, put a cap on further gains and guided the pair back beneath the 100-period SMA into the close.

Downside targets place 1.08 in sight, followed by a trendline support (1.0774) and a demand at 1.0760-1.0775.

Traders with a focus on indicators will note the RSI has been positioned within an ascending channel, though Friday marginally breached its lower limit.

Structures of Interest:

Long term:
The slower timeframes indicate interest to the downside, particularly if we break through the daily bearish flag this week.

Short term:
H4 trendline support (1.0635) appears vulnerable following Friday’s retreat from 1.0850, suggesting a decline to support at 1.0727 may unfold.

H1 price probing levels beneath its 100-period SMA, together with the RSI indicator showing signs of breaking lower, could have 1.08 and trendline support (1.0774) put in an appearance in early trade. As a result of higher timeframes pointing to lower levels this week, 1.08 is unlikely to offer much. Intraday breakout sellers, therefore, may find interest in the space under 1.08 to H1 demand at 1.0760-1.0775 as an initial target.


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 series of lower lows and lower highs has been present since mid-2011.

Daily timeframe:

Closing out April, traders saw price address supply at 0.6618/0.6544. Following a dip to lows at 0.6372, buyers regained consciousness and revisited the noted supply, which, despite early indecision, capped upside for a second time.

It should also be emphasised the current supply 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 seen around 0.6664.

An extension to the downside this week faces possible support from 0.6372, with a break unmasking 0.6253 (April 21 low).

H4 timeframe:

After forming an early peak out of supply from 0.6581/0.6545, the week shaped what appears to be a falling wedge between 0.6561/0.6432, closing the week out ahead of demand at 0.6356/0.6384.

Technically, the aforementioned demand is also encased within 0.6351/0.6395, a zone 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:

Despite a modest recovery heading into US hours, bolstered by an unprecedented drop in US retail sales, intraday action finished lower Friday, mildly paring losses ahead of 0.64. Surfacing a few pips under 0.64, we also have a trendline support (0.6372), with a break uncovering demand at 0.6332/0.6348.

Levels to keep a tab on to the upside early week can be seen at 0.6450, the 100-period simple moving average at 0.6460 and supply at 0.6483/0.6472.

Structures of Interest:

Long term:
In order to bring in monthly supply at 0.7029/0.6664, daily supply at 0.6618/0.6544 will need to be overturned.

As featured above, an extension to the downside on the daily timeframe this week faces possible support from 0.6372, with a break uncovering 0.6253 (April 21 low).

Short term:
H4 flow demonstrates room to approach demand at 0.6356/0.6384. What’s interesting here is not only does the H4 base carry additional Fib supports, the current H1 trendline support intersects with the area.

Conservative confirmation out of H4 demand will likely be a H4 close out of the falling wedge.


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 remains subdued, ranging between 107.76/105.98.

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:
Since registering a top from 109.38 at the beginning of April, USD/JPY moulded a falling wedge pattern, which had its upper limit breached early last week in strong fashion. The take-profit target out of the said pattern, traditionally measured by taking the value of the base and adding this to the breakout point (purple), sets a target of around 109.30.

Demand at 105.70/106.66 also remains a feature on this timeframe, with resistance expected to emerge off the 200-day simple moving average at 108.23.

H4 timeframe:

Partially altered from previous analysis.

Support at 106.91, a level uniting with a 50.0% ret level at 106.86 and trendline support (106.35), restricted downside from Wednesday last week.

Having seen 106.91 offer a ‘floor’, supply at 108.10/107.79 may re-enter the fold this week. Note this area capped upside on a number of occasions since mid-April.

Yet, a push for lower levels could see an approach towards demand at 105.75/105.17 (prior supply).

H1 timeframe:
US retail sales plunging to a record 16.4% Friday whipsawed price action through 107, likely tripping sell-stops, before reclaiming the round number and reaching highs posted above the 100-period simple moving average at 107.19.

107 remains a noted level on the H1 timeframe, as does demand at 106.63/106.76 (prior supply) and the 106.50 base. Areas of interest to the upside fall in at 107.50, through to supply marked at 107.67/107.57.

Structures of Interest:

Long term:
After a pronounced move out of the falling wedge pattern on the daily timeframe, the pair is tipped to potentially march higher this week, with the 200-day SMA at 108.23 on the radar as initial resistance.

Short term:
H4 support at 106.91, and its local confluence, remains of interest, though a break may trigger intraday breakout selling through the round number 107 on the H1 timeframe.


Monthly timeframe:

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

Though under pressure, support at 1.1904/1.2235 remains in motion in May. A violation of this area, nevertheless, puts forward a 127.2% Fib ext. level at 1.1297. Neighbouring resistance, should we see an attempt at recovery, can be found 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:

A few pips south of supply at 1.2649/1.2799 (prior demand), we recently saw a double-top pattern form at 1.2647, with Wednesday consuming the neckline (April 21 1.2247) and establishing a potential take-profit target (purple) around 1.1855.

With respect to the RSI indicator, we are trekking under 50.00 right now, suggesting the possibility of registering oversold conditions this week.

H4 timeframe:

Partially altered from previous analysis –

Demand at 1.2147/1.2257 had a hard time containing sellers last week, resulting in a break lower on Friday.

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

The violation of the current demand area, assuming we pass channel support, could lay the basis for additional downside this week towards fresh demand found at 1.1771/1.1886.

H1 timeframe:

Technicians observed a small-scale recovery off 1.2150 Friday, deriving impetus from US retail sales data. Leaving 1.22 unchallenged, however, price action resumed downside, taking out 1.2150 and reaching 1.21 at the close of trade.

Below 1.21, we not only have channel support established on the H4 timeframe, we also have a local H1 channel support (1.2282).

Indicator traders may find interest in noting the RSI recently nudged into oversold territory.

Structures of Interest:

Long term:
Having noted a double-top pattern in motion on the daily timeframe, with a downside target plotted around 1.1855, monthly price may have eyes on levels beyond the current support at 1.1904/1.2235.

Short term:
Although H1 price recently gripped 1.21, it’s unlikely we’ll see this level produce much to the upside this week, with H4 overturning demand at 1.2147/1.2257 and showing room to approach demand at 1.1771/1.1886.

Therefore, although H4 and H1 channel supports could hamper downside, traders will likely be watching for a break of 1.21 in early trade to secure a breakout play.

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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