Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index:

It was another lousy week for the US dollar, shedding 0.7 per cent against a basket of six major currencies, including the euro. Despite two successive weeks of downside for the US Dollar Index, the greenback finished July higher by 1.0 per cent, though considerably off best levels that moulded a monthly shooting star candlestick pattern [bearish signal]).

Unquestionably, trend direction on the monthly and daily timeframes is north. Aside from a 7-year range (forming a pennant chart pattern, taken from 103.82 and 88.25), monthly movement has been higher since early 2008. This is reinforced by the uptrend visible on the daily timeframe, exhibiting well-defined upward movement since price made contact with support from 89.69 in May 2021. The upside bias is also shown through the 50-day simple moving average (current: 104.85) crossing above the 200-day simple moving average (current: 99.44) in August 2021 (‘Golden Cross’).

Supporting the noted uptrends, of course, is price action on the monthly timeframe breaking out of the long-term pennant formation—considered a continuation signal. Additionally, I see the daily timeframe’s relative strength index (RSI) shaking hands with support between 40.00 and 50.00, an area delivering a temporary oversold region since August 2021 (common in uptrends).

On the other side of the technical fence, the bearish side deserves notice. The monthly timeframe remains within the walls of prime resistance at 109.77-104.96, together with the RSI demonstrating early negative divergence within overbought status (note that the weekly timeframe also shows negative divergence). Furthermore, on the daily timeframe, resistance structure recently made a show between 109.14 and 108.58, made up of a 1.272% Fibonacci projection, a 1.618% Fibonacci expansion, and a Quasimodo resistance level. Downside targets on the daily scale fall in at the 50-day simple moving average, followed closely by an ‘acceleration trendline support’, taken from the low 95.17.

Technical Expectation:

Technically, monthly prime resistance at 109.77-104.96, RSI negative divergences across the higher timeframes, and daily resistance between 109.14 and 108.58 has provoked a bearish development in recent weeks. The current uptrend, however, places a question mark on a bearish narrative. Consequently, dip-buying is still likely to be in the minds of many this week (and for good reason, given the trend), perhaps eyeing the area between the daily timeframe’s 50-day simple moving average and the acceleration trendline support’.

It will only be if a decisive breach of the said daily support zone occurs will sellers possibly gain sufficient conviction to commit and maybe target the upper edge of the monthly timeframe’s pennant pattern around 102.30ish.

EUR/USD:

Europe’s shared currency ended another month on the ropes against the US dollar, down 2.5 per cent. Out of the last seven months, six months witnessed losses for the EUR/USD.

Visible from the weekly timeframe, the currency pair has been lower since the beginning of 2021. Establishing a series of lower lows and lower highs, the general direction in this market reflects a primary bear trend, with prolonged pullbacks (or sometimes referred to as ‘secondary trends’) in short supply. Additionally, the monthly timeframe has been to the downside since topping in April 2008. Resistance on the weekly timeframe resides at $1.0298 and might call for attention this week. On the assumption that sellers remain in command, the weekly timeframe’s next downside objective rests at a 1.272% Fibonacci projection from $0.9925.

Strengthening $1.0298 on the weekly scale is resistance on the daily timeframe at $1.0377 and neighbouring trendline resistance, extended from the high $1.1495. Further analysis on the daily chart shows the relative strength index (RSI) holding south of the 50.00 centreline (negative momentum), following a rebound from oversold space in mid-July. However, you will note that the indicator crossed above trendline resistance, drawn from the high 58.91, suggesting an invasion of 50.00.

The H4 decision point at $1.0276-1.0235 has been a major focal point since 19^th July. As you can see, though, sellers have offered a non-committal tone, therefore traders are urged to pencil in the possibility of an approach to H4 Quasimodo support-turned resistance at $1.0354. Heading lower this week, on the other hand, swings the pendulum in favour of challenging Quasimodo support at $0.9998 and also potentially shaking hands with a 1.618% Fibonacci projection at $0.9926 (‘alternate’ AB=CD bullish pattern taken from $1.0786).

Early London hours on Friday watched H1 price voyage above $1.02 and cross swords with a 100% Fibonacci projection at $1.0252 (an AB=CD bearish formation according to harmonic traders), which is nestled under a deep 88.6% Fibonacci retracement at $1.0257. Despite a brief spell under $1.02, the currency pair ended north of the number into the close. Below $1.02, eyes are likely to still be on Quasimodo support from $1.0108 and $1.01.

Technical Expectation:

I still see substantial resistance on the bigger picture (weekly and daily timeframes) between $1.0377 (daily) and $1.0298 (weekly), which could be tested this week. This—coupled with the distinct downtrend—suggests sellers likely have the upper hand going forward. This also indicates the weekly timeframe’s $0.9925 Fibonacci support, joined by the daily support from $0.9919, may make a show in the coming weeks.

From a shorter-term perspective, the higher timeframe resistance zone might mean the H1 price may touch gloves with $1.03 this week before sellers attempt to make a show. As such, Friday’s close north of $1.02 on the H1 could foreshadow a run through the H1 Fibonacci resistance ($1.0252) to $1.03ish.

AUD/USD:

July watched the AUD/USD dip as far south as $0.6681 and subsequently recover by 307 pips to $0.6988 to end the month positive, and shape what many traders will consider a monthly hammer candlestick pattern—a bullish signal.

The weekly timeframe welcomed support between $0.6632 and $0.6764 (composed of a 100% Fibonacci projection, a price support, and a 50% retracement) as we transitioned into July, with mid-month trading pulling out a weekly hammer candlestick pattern. As you can see, two weeks of buying unfolded following this candle pattern, leading the currency pair to resistance at $0.6996. Yet, in spite of the end-of-month recovery, trend direction remains on the side of sellers: this market has reflected a downtrend since $0.8007 (22nd Feb high [2021]).

Adding to the trend studies, here’s some research from the previous weekly technical insight (italics):

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 among chartists. Downside from the 2021 February top (a primary bear trend), therefore, is potentially seen as a move to explore lower over the coming weeks/months.

Friday, according to the daily chart, delivered a long-legged doji indecision candle (with a slight edge to the bulls I might add). This, together with weekly price addressing resistance at $0.6996, and daily flow on the doorstep of a support-turned resistance level from $0.7039 (complemented by a 38.2% Fibonacci retracement at $0.7051) implies that sentiment has changed and a downside move may be in the offing this week. Daily support at $0.6901, therefore, could admit defeat and unearth daily support at $0.6678.

H4 prime resistance at $0.7062-0.7031 (arranged just above weekly resistance at $0.6996) poured cold water on any upside attempt on Friday and produced a shooting star candlestick pattern (bearish signal). A low was later formed ahead of supply-turned demand at $0.6901-0.6862 during US hours. Areas beyond the two noted zones to be aware of this week are prime resistance at $0.7103-0.7081 and prime support at $0.6773-0.6812 (though I would like to see price engulf the current prime resistance [$0.7062-0.7031] before validating the prime support).

Shorter-term action shows H1 price closing in on the lower side of the widely watched $0.70 figure, accompanied by a nearby Quasimodo resistance at $0.7014 (note also that I have the lower edge of H4 prime resistance marked at $0.7031). Lower, technicians will likely be drawn to the lows set around $0.6912 (yellow), closely shadowed by $0.69 and Quasimodo support at $0.6893.

Technical Expectation:

Between daily resistance at $0.7039 and weekly resistance at $0.6996, coupled with the currency pair’s downtrend, the aforementioned resistance zone could be somewhere the charts welcome a bearish scenario this week, targeting a break of daily support at $0.6901.

From the H4 timeframe, trading higher than prime resistance at $0.7103-0.7081 is questionable, in light of the bigger picture at the moment. So, a test of this area might serve as a platform for sellers to work with. More near term, nevertheless, H1 resistance between $0.7014 and $0.70 may call for attention in early trading this week, as it’s bolstered by weekly resistance at $0.6996.

USD/JPY:

Despite recording a high of ¥139.39, the currency pair’s highest level since September 1998, the USD/JPY closed July on the ropes and erased nearly 2.0 per cent. Needless to say, though, the primary bull trend remains in full swing, printing dominant up moves since 2021. As such, the two-week correction from weekly resistance at ¥137.23 could just simply be a dip in which longs will eventually buy into. However, as I wrote in previous writing, two words come to mind when looking at the weekly timeframe: limited support. Weekly support is not visible until ¥125.54; thus, according to this chart, further selling may be on the table in the coming weeks.

Out of the daily timeframe, nonetheless, supply-turned demand at ¥131.93-131.10 is nearby this week. Daily resistance is seen at ¥139.55: a Quasimodo support-turned resistance level that came within a whisker of putting in an appearance in mid-July. Interestingly, the daily timeframe’s relative strength index (RSI) has now overthrown indicator support between 40.00 and 50.00, an area serving as a ‘temporary’ oversold zone since May 2021 (common in strongly trending environments). This adds weight to the lack of support in this market right now and indicates oversold space could be tested this week which is likely to align with a test of ¥131.93-131.10 underlined above.

Support on the H4 timeframe developed from between an 88.6% Fibonacci retracement at ¥132.44 and a 50.0% retracement at ¥132.87 on Friday which opened the door for a test of a decision point from ¥134.70-134.20. North of here, attention shifts to trendline resistance, taken from the high ¥138.88, which is complemented by an ascending support-turned resistance, drawn from the low ¥134.27. Below current support, Quasimodo resistance-turned support is at ¥131.25. Near-term focus on the H1 timeframe, however, centres on ¥134 and ¥133. Outside of these levels, prime resistance warrants consideration at ¥135.31-134.86 and prime support falls in at ¥132.10-132.34.

Technical Expectation:

The daily timeframe’s supply-turned demand at ¥131.93-131.10 will be closely monitored this week. Knowing there’s scope to navigate south on the weekly timeframe to support at ¥125.54, prospective dip-buyers (those looking to join the current uptrend) will likely want to view some form of bottoming formation develop from the daily demand zone before pulling the trigger.

The bigger picture might imply further downside from the H4 decision point at ¥134.70-134.20 to test H4 Quasimodo resistance-turned support at ¥131.25 (set within daily demand) before buyers attempt to make a show. By extension, this may also witness H1 drop beneath ¥133 and unlock a short-term bearish scene that surpasses H1 prime support at ¥132.10-132.34 to test at least ¥132: the upper edge of the daily demand zone (¥131.93), which is another location buyers might obviously attempt to make a show from.

GBP/USD:

The technical picture remains interesting on the GBP/USD and largely favours the bulls for the time being.

The month of July for the currency pair concluded unchanged, despite ranging between $1.2245 and $1.1760 which consequently fashioned a monthly dragonfly doji candlestick formation. Support on the weekly timeframe was certainly a talking point in July at $1.1958 as price staged an end-of-month recovery from the base. Continued interest to the upside calls on a possible approach to weekly resistance at $1.2719. Breaking $1.1958 reopens the risk of a return to the pandemic low of $1.1410.

Here’s where I left the previous weekly research in terms of trend direction (italics):

Trend direction has been unmistakably bearish since February/May’s double-top formation on the weekly timeframe at around $1.4241 (2021). Furthermore, seen through the monthly timeframe, the long-term downtrend has been soft since late 2007 tops at $2.1161.

While a downtrend is in play, price action on the daily timeframe saw buyers strengthen their grip around trendline resistance (taken from the high $1.3639) and modestly engulf the descending line and retest it as support on Friday. If buyers maintain a position north of the trendline, a decision point is seen at $1.2605-1.2465. Chartists will also acknowledge the relative strength index (RSI) ventured above its 50.00 centreline (positive momentum).

Additional support can be seen on the H4 timeframe:

The inverted head and shoulders pattern ($1.1876; $1.1760; $1.1890) had its neckline breached on 25^th July, taken from the high $1.2056. The H4 close above the neckline has likely drawn pattern traders in long; the pattern’s take-profit objective is seen at $1.2335. Aiding a bullish perspective from the H4 chart, of course, is supply-turned demand at $1.2126-1.2098.

From the H1 timeframe, Friday sharply recovered from a Fibonacci cluster between $1.2059 and $1.2072, fixed just north of a trendline support, extended from the low $1.1760. Price ended the day within touching distance of $1.22, with a break of this level shining the technical spotlight on supply from $1.2284-1.2260.

Technical Expectation:

Despite the downtrend, the weekly, daily and H4 timeframes indicate strength on the side of buyers this week: price recovering from weekly support at $1.1958, daily price overrunning trendline resistance, and H4 price on the verge of reaching for an inverted head and shoulders pattern’s take-profit objective at $1.2335.

With the above taken into account, a H1 price close above $1.22, targeting at least H1 supply at $1.2284-1.2260, should not surprise.

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.