Charts: Trading View
(Italics: Previous Analysis)
A bearish narrative fell across US equities on Thursday amidst rising US Treasury yields. Against a basket of six major currencies, the US Dollar Index (USDX) also welcomed a bullish phase, reclaiming a portion of recent USD downside and weighing on Europe’s shared currency.
EUR/USD, technically speaking, has buyers and sellers squaring off at a weekly Quasimodo support at $1.0778, complemented by channel support (extended from the low $1.1186). Despite efforts to hold the aforementioned levels, buyers are somewhat hindered by the visible downtrend, dominant since the beginning of 2021. Voyaging beneath weekly supports calls on another Quasimodo formation at $1.0517.
A closer reading of price movement on the daily timeframe reveals the currency pair chalked up a shooting star candlestick pattern in recent trading. Echoing a bearish vibe, this may be sufficient to discourage any remaining upside interest from the ascending line, drawn from the $1.0340 3rd January low 2017. Out of the relative strength index (RSI), the indicator’s value continues to explore sub-50.00, informing traders and investors that this timeframe’s momentum remains negative and could soon head for oversold territory.
Joined by H4 local resistance at around $1.0925ish (marked yellow), short-term movement on the H1 timeframe passionately rejected Quasimodo support-turned resistance at $1.0931. Fibonacci enthusiasts will note the level was strengthened by a H1 100% Fibonacci projection at $1.0929 and a longer-term 38.2% Fibonacci retracement at $1.0922 (the 100% value also represents a bearish AB=CD pattern). To the downside, we can see the $1.08 figure and trendline resistance-turned support, drawn from the high $1.1185.
Having noted that buyers appear fragile off weekly supports and the daily timeframe printed a bearish candlestick pattern, in a market trending lower, this may encourage a bearish scenario lower on the curve. Downside targets rest at the $1.08 level on the H1, positioned nearby H1 trendline resistance-turned support.
Sellers strengthened their grip on Thursday, erasing Wednesday’s gains and effectively establishing a ‘2-day shooting star’ on the daily timeframe. Trendline resistance-turned support, extended from the high $0.8007, is therefore under the spotlight on the daily scale, with a break lower shining light on the 200-day simple moving average at $0.7293 and neighbouring 61.8% Fibonacci retracement at $0.7234. This followed the earlier drop from the 100% Fibonacci projection at $0.7645 at the beginning of April.
Lacklustre buying from the daily trendline support should not surprise, given the weekly timeframe rotating lower from prime resistance at $0.7849-0.7599 following a reaction from the area in early April by way of a shooting star candlestick formation. Longer term, the trend has been lower since August 2011, therefore further bearish action could materialise towards weekly prime support at $0.6948-0.7242.
H4 resistance at $0.7451, plotted nearby a decision point at $0.7492-0.7466, served well, leading the candles back to H4 trendline support, etched from the low $0.6968, and nearby Quasimodo resistance-turned support at $0.7349. Crossing under the aforesaid supports shows H4 Quasimodo support at $0.7246. From the H1 timeframe, price nudged under $0.74 and is now within reach of a familiar decision point at $0.7331-0.7346, which if breached opens the door to $0.73.
In light of the bearish tone from the weekly timeframe, and soft demand derived from daily trendline support, breaking through H4 Quasimodo resistance-turned support at $0.7349 is in the offing. This may extend to a break of the H1 timeframe’s decision point at $0.7331-0.7346 and possible follow-through to $0.73.
Demand for the Japanese yen lost its shine on Thursday, pressured by rising US Treasury yields and a strong USD bid. The currency pair is higher by 5.4 per cent MTD, following March’s 5.8 per cent rise. Weekly support is noticeable nearby at ¥125.54, with scope to reach as far north as ¥135.16: 28th January high (2002) on the weekly scale.
The ¥128.66-127.64 supply area on the daily timeframe remains a questionable zone after having its upper edge stripped in recent movement. Neighbouring daily supply at ¥130.65-129.57 resides above should buyers refresh YTD tops. Adding to the daily timeframe’s technical picture, we can see the relative strength index (RSI) peaked around 87.52 resistance again on Tuesday (a level boasting historical significance as far back as 2014). Note that this is technically the early stages of a double-top within the RSI. Exiting overbought space is considered a bearish indication by many technicians. However, in upward facing markets, such as the one we’re clearly in now, false bearish signals are common. If the RSI value does eventually tunnel lower, the 40.00-50.00 area of support may be targeted (served as a ‘temporary oversold’ base since May 2021).
Across the page, short-term action is seen engaging ¥128 on the H1, a level delivering clear support amid early London on Thursday. However, intraday resistance around ¥128.64 is proving a tough nut to crack, with ¥129 left unchallenged for the time being. Sub ¥128.00 swings the technical pendulum towards H1 trendline support, derived from the low ¥121.28. Also of technical relevance is ¥127, a psychological base accompanied by a number of H1 key Fibonacci ratios between ¥126.73 and ¥126.91.
¥128 is a key technical barrier on the H1. Respecting the level indicates bullish muscle and draws attention to ¥129. Considered alone, the noted level provides little in the way of technical confluence as a resistance, and therefore a move higher in this market is expected to rupture ¥129 to take on the lower side of daily supply at ¥130.65-129.57.
Alternatively, a ¥128 breach calls for a short-term bearish scene to H1 trendline support, followed by the ¥127ish region.
Sterling eked out marginal losses versus the US dollar on Thursday, hauling GBP/USD back to within striking distance of the widely watched $1.30 psychological area. In previous writing, research highlighted additional support by way of the 100% H1 Fibonacci projection at $1.2985. Having seen recent movement pull under H1 support at $1.3051, which is now serving as resistance, revisiting $1.30 is likely to be seen, according to chart studies. In the event price eventually cracks $1.30, H4 Quasimodo support is seen at $1.2950, together with a nearby H4 trendline resistance-turned support, extended from the high $1.3620.
Against the backdrop of lower timeframes, you may recall recent analysis noted the following in terms of trend direction and technical structure on the weekly timeframe:
Long-term trend direction on the weekly chart has been southbound since late 2007 tops at $2.1161. As a result, the 25 percent move from pandemic lows ($1.1410) in March 2020 to February 2021 might be viewed as a pullback within the larger downtrend. This, of course, places a question mark on the 8.5 percent ‘correction’ from February 2021 ($1.4241) to April 2022, suggesting the possibility of continuation selling. The bearish trend, in addition to price rejecting the lower side of prime resistance at $1.3473-1.3203 with room to push towards weekly support at $1.2719, adds to the bearish environment.
Recent analysis also went on to highlight the following on the daily scale:
Space to move lower on the daily timeframe to support at $1.2862 (and channel support taken from the low $1.3160) and the daily timeframe’s relative strength index (RSI) holding beneath the 50.00 centreline (negative momentum) could hinder further buying.
There is clearly a bearish cloud over this market with each timeframe analysed suggesting the currency pair could pursue deeper water in the not-so-distant future. Short term, a dip to the $1.30ish area is possible today (H1). A move under the aforementioned level would also help validate bearish technical studies and perhaps call for a drop towards H4 Quasimodo support at $1.2950.
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