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Weekly Technical Market Insight: Week Ending 27th May 2022

Weekly Technical Market Insight: Week Ending 27th May 2022, FP Markets

Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index (Daily Timeframe):

Snapping a six-week winning streak, the US dollar unearthed a near-full-bodied weekly bearish candle last week and concluded lower by 1.4 per cent. Resistance-turned support from 102.95 welcomed price action at the tail end of the week, following a healthy rejection of the decision point at 105.61-104.87 on 13th May. Territory south of current support unmasks resistance-turned support at 100.92, which is accompanied by a 50-day simple moving average at 100.99 and an ‘acceleration’ trendline support, extended from the low 95.17.

Trend studies remain unchanged as we head into the final week of May. Direction has exhibited well-defined upward movement since price made contact with support from 89.69 in May 2021, which may help reinforce 102.95 support and appeal to dip-buyers this week. The upside bias is also shown through the 50-day simple moving average crossing above the 200-day simple moving average in August 2021 (‘Golden Cross’).

Through the relative strength index (RSI), the widely followed momentum gauge overthrew indicator trendline support on Thursday, drawn from the low 35.04, and shifted focus to support between 40.00-50.00: a ‘temporary’ oversold region since August 2021. Support around the 50.00ish neighbourhood is common in strong upward facing markets, similar to what we’re experiencing at present.

Technical Outlook:

The RSI submerging trendline support is considered a bearish signal (negative momentum), yet given the indicator is on the doorstep of long-term support between 40.00-50.00, momentum could discover a floor and pivot higher. With that being the case, price support coming in from 102.59 may be a platform buyers make a show from this week.

Dethroning price support, on the other hand, could encourage a short-term bearish scenario, aiming for support around 100.92.

Weekly Technical Market Insight: Week Ending 27th May 2022, FP MarketsEUR/USD:

Shaped by way of a textbook bullish engulfing candlestick pattern (real bodies are the main focus) on the weekly timeframe, EUR/USD bulls entered an offensive phase last week just north of 2nd January low at $1.0340 (2017). Increasing by 1.5 per cent, this throws light on a possible approach to weekly Quasimodo support-turned resistance at $1.0778. If the aforesaid level is eventually challenged, this could unlock a ‘sell-on-rally’ theme in a market decisively trending lower since 2021 with a clear series of lower lows and lower highs. Adding to this, seen from the monthly timeframe, the overall vibe has been to the downside since topping in April 2008.

Lower on the curve, the daily timeframe reveals price is closing in on the underside of the pandemic low of $1.0638 (March 2020), a level that served as firm resistance at the beginning of May. This follows a recovery from Quasimodo support at $1.0377, closely shadowed by a 1.272% Fibonacci projection at $1.0305. Bolstering a potential response from $1.0638 is the daily timeframe’s relative strength index (RSI) seen closing in on the lower side of the 50.00 centreline. If the aforementioned line delivers indicator resistance, this emphasises negative momentum.

Trendline resistance on the H4 timeframe, extended from the high $1.1185, entered the fight in the second half of the week. Overcoming the said trendline resistance draws attention to H4 prime resistance at $1.0680-1.0640, which happens to reside 2 pips north of daily resistance mentioned above at $1.0638. Downstream, support calls for attention at $1.0483.

Out of the H1 timeframe, Friday turned the technical radar in the direction of the $1.05 neighbourhood after pulling back from $1.06. Positioned just north of $1.05 is a Fibonacci cluster between $1.0509 and $1.0516, composed of 61.8% and 38.2% retracements as well as a 1.618% Fibonacci projection, which intersects with a trendline support, pencilled in from the low $1.0349.

Technical Outlook:

Long term:

In order to observe follow-through buying develop from the bullish engulfing candlestick pattern on the weekly timeframe, daily price must overcome resistance in the form of the pandemic low of $1.0638 (March 2020).

Trend direction supports a reaction from $1.0638.  

Short term:

H4 trendline resistance remained intact at the close of trade; this may be enough to pressure H1 to test trendline support, pencilled in from the low $1.0349. Given the technical confluence surrounding the trendline, a short-term recovery could emerge and might be sufficient to pull price towards $1.0638 on the daily scale this week to allow longer-term sellers into the market, in line with the current trend.   

 Weekly Technical Market Insight: Week Ending 27th May 2022, FP Markets

AUD/USD:

The Australian dollar outperformed against the US dollar last week, adding 1.5 per cent.

Meanwhile, price action on the weekly chart is threatening to engulf prime support at $0.6948-0.7242. This, in a market demonstrating a downside bias since early 2021, brings to light support structure between $0.6632 and $0.6764, made up of a 100% Fibonacci projection, a price support, and a 50% retracement.

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 viewed as a DEEP pullback, with recent downside therefore potentially seen as a move to explore lower over the coming weeks.

A closer reading on the daily timeframe shows the currency pair rebounded from Quasimodo support at $0.6901. Upstream this week casts light on resistance at $0.7170, which happens to accommodate a 78.6% Fibonacci retracement at $0.7174 and a 38.2% Fibonacci retracement at $0.7149. Joining current resistances is the relative strength index (RSI); the indicator is poised to retest the lower side of the 50.00 centreline which may provide resistance and reaffirm negative momentum.

The H4 timeframe had buyers and sellers battle for position between trendline resistance, extended from the high $0.7661, a Quasimodo support-turned resistance at $0.7055 and a 50% retracement at $0.7051 late last week. What’s interesting is that within the H4 resistance zone, a H1 double-top pattern occurred just ahead of H1 resistance between $0.7122 and $0.7088 (100% Fibonacci projection, together with $0.71 and a 1.618% Fibonacci projection). The pattern’s neckline is stationed at $0.7002 (just above $0.70), which if a break happens to come to fruition, the profit objective resides beneath Quasimodo resistance-turned support from $0.6953 at $0.6932.

Technical Outlook:

Long term:

Despite recent buying, this remains a sellers’ market according to trend direction.

This places a favourable light on daily resistance at $0.7170, which, as highlighted above, accommodates a 78.6% Fibonacci retracement at $0.7174 and a 38.2% Fibonacci retracement at $0.7149.

Short term:

Despite daily price suggesting a pop higher to bring in resistance at $0.7170, short-term technical flow indicates sellers could take the wheel in early trading this week. Reinforced by H4 resistance around the $0.7055ish region, H1 price conquering the double-top pattern’s neckline around $0.70 could guide the currency pair as far south as $0.6932.

 Weekly Technical Market Insight: Week Ending 27th May 2022, FP Markets

USD/JPY:

Chalking up a second consecutive week in the red, the US dollar against the Japanese yen wrapped up lower by 1.0 per cent. Month to date, USD/JPY is 1.5 per cent lower, on track to trim a portion of April’s mammoth 6.7 per cent advance.

As sellers strengthen their grip, weekly support is on the radar this week at ¥125.54, a resistance-turned support drawn from as far back as 2002. To the upside on the weekly scale, 28th January high (2002) is evident at ¥135.16. Longer-term trend studies has displayed a clear upside bias since 2021; this for many technicians will be considered the primary trend. Note that the recent correction represents the largest retracement visible within the current trend, down more than 400 pips (high to low).

Price action derived from the daily timeframe demonstrates that buyers have been on the ropes since price action made contact with supply at ¥131.93-131.10. The obvious downside objective resides at weekly support from ¥125.54. Space south of the weekly base, nevertheless, is starved of support on the daily chart until a decision point coming in from ¥121.16-122.51. Another key note on the daily scale is the relative strength index (RSI) departing from overbought territory and subsequently breaching a double-top pattern’s neckline stationed around the 66.93 31st March low (peaks were established from indicator resistance at 87.52). Familiar indicator support is now active at 40.00-50.00 (a temporary oversold zone since May 2021) which holds the double-top profit objective within at 45.93.

Focus remains directed towards the double-top formation at ¥131.26 on the H4 chart, displaying a neckline at ¥128.62 which, as you can see, ceded position on 12th May. Should Quasimodo support from ¥127.44 break this week, the pattern’s profit objective demands attention at ¥126.00, located a touch north of the current weekly support level.

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

Scope to discover deeper water on weekly and daily timeframes, in addition to H4 price on the verge of dethroning Quasimodo support from ¥127.44, a test of H1 supply at ¥128.35-128.12 may be an area sellers draw to. Note that this zone is positioned directly above ¥128, therefore also marking the possibility of a ‘stop-run’.

As evident from the H1 timeframe, supply at ¥128.35-128.12 (accompanied by a 50% retracement at ¥128.40 and a 61.8% Fibonacci retracement at ¥128.21) made a show on Friday and capped upside efforts in all three major trading sessions: Asia, London, and New York. Downriver, Quasimodo support deserves attention at ¥127.02, a level merging with the ¥127 psychological figure; area above current supply, nonetheless, highlights ¥129 as a visible upside objective.

Technical Outlook:

Long term:

The secondary correction on the weekly timeframe demonstrates room to extend losses to support from ¥125.54.

Short term:

Having noted scope to discover deeper water on the bigger picture, H1 supply at ¥128.35-128.12 is anticipated to reject additional upside attempts this week. This paves the way for a short-term bearish scene south of ¥128, targeting the ¥127 neighbourhood.

 Weekly Technical Market Insight: Week Ending 27th May 2022, FP Markets

GBP/USD:

Sterling outperformed versus the US dollar last week, shattering a four-week losing streak. Adding 1.9 per cent—the currency pair’s largest one-week advance since mid-2020—price movement on the weekly timeframe gifted technicians with a textbook bullish engulfing candle (real bodies are the main focus with engulfing patterns), formed a whisker north of Quasimodo support at $1.2164. However, it’s important to remain aware that this market has been entrenched within a strong primary downtrend since early 2021, emphasising weekly resistance at $1.2719 as a possible ceiling should price test the base this week.

The technical perspective on the daily timeframe has price bordering on the lower side of a bearish flag pattern formed in early May, made up between $1.2411 and $1.2614. Beyond here, a Quasimodo support-turned resistance is seen around $1.2762, whereas additional weakness draws attention to support from $1.2018. In terms of the daily timeframe’s relative strength index (RSI), bullish divergence recently took hold with the indicator poised to retest the underside of the 50.00 centreline. Bear in mind, however, that the RSI can register oversold signals for extended periods in a downward facing market, therefore, 50.00 could provide resistance.

Interest on the H4 timeframe remains at resistance from $1.2650, a horizontal level benefitting from a Quasimodo resistance at $1.2614, a 100% Fibonacci projection at $1.2686, a 200% Fibonacci extension at $1.2677 as well as a channel resistance, etched from the high $1.2499. Harmonic traders will acknowledge the 100% Fibonacci projection represents an AB=CD bearish formation. Before reaching the above noted resistance levels, a decision point around $1.2580-1.2517 (blue arrow) is worth noting as it joins the lower side of the daily bearish flag.

Early Asia Friday watched short-term flow on the H1 timeframe cross swords with a decision point at $1.2408-1.2437 and maintain position into the close. Located just above $1.24, we can also see a trendline support close by, taken from the low $1.2156. Overhead, supply awaits at $1.2569-1.2541, which shares chart space with the H4 decision point at $1.2580-1.2517.

Technical Outlook:

Long term:

The lower side of the daily bearish flag is likely a concern for any longs based off the weekly timeframe’s bullish engulfing pattern.

Another potential headwind, together with the clear downward facing trend, is weekly and daily resistance levels at $1.2719 and $1.2762, respectively.

Short term:

The H1 decision point at $1.2408-1.2437 is likely to hold position in early trading this week, with an immediate upside target set at H1 supply from $1.2569-1.2541. Note that this supply merges with the H4 decision point at $1.2580-1.2517, and the lower edge of the daily bearish flag. So, although the weekly timeframe eyes higher levels until resistance at $1.2719, traders are urged to pencil in the possibility of a bearish development from H1 supply.

 Weekly Technical Market Insight: Week Ending 27th May 2022, FP Markets

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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