Charts: Trading View
(Italics: Previous Analysis)
Despite the US economy shrinking at an annual rate of 1.4 per cent in the first quarter of 2022, Europe’s common currency remained on the ropes against its US counterpart on Thursday. Pencilling in a sixth successive bearish session, EUR/USD has erased 2.6 per cent, week to date.
Recent technical research underlined the following on the weekly timeframe:
The ongoing sell-off led weekly price under Quasimodo support at $1.0778 to weekly Quasimodo support from $1.0517, extended from 2017. How much enthusiasm current support will offer is difficult to estimate at this stage, considering the visible downtrend on the weekly scale—dominant since the beginning of 2021.
Interestingly, aiding current weekly support is a 100% daily Fibonacci projection at $1.0494. Harmonic traders will recognise this as a bullish AB=CD configuration, though these patterns tend to be better placed against the prevailing trend. Nevertheless, voyaging southbound from current price throws light on daily Quasimodo support from $1.0377. Overhead, Quasimodo support-turned resistance calls for attention at $1.0632, accompanied closely by the recently breached pandemic low of $1.0638 (March 2020). Adding to the daily timeframe’s technical picture, the unit has been south of its 200-day simple moving average at $1.1386 since 17th June, and the relative strength index (RSI) nudged under the oversold threshold, threatening a test of indicator support at 21.87.
Since 21st April, the currency pair has been entrenched within a one-sided decline from a high of $1.0936, consequently submerging several key support levels on the H4 timeframe. Most recently, H4 price ventured beneath $1.0517 (weekly level), which in turn was retested as resistance on Thursday. In the event sellers hold position, the daily timeframe’s Quasimodo support at $1.0377 delivers a reasonable downside objective on the H4 scale. Meanwhile out of the H1 timeframe, the $1.05 psychological figure continues to hog the spotlight despite struggling to attract willing buyers at this point. Consequently, trendline resistance is likely to be a watched area in the short term, taken from the high $1.0936.
Lack of buying interest at weekly Quasimodo support from $1.0517, in a market decisively facing south, indicates H4 action may preserve position under $1.0517 and eventually draw H1 below $1.05 to deliver a potentially tradeable bearish scenario. In the event this comes to fruition, the $1.04 figure may be targeted, followed by daily Quasimodo support at $1.0377.
Improved risk sentiment lessened the downside impact in AUD/USD as the buck continued to rage higher Thursday. The US Dollar Index (USDX) touched gloves with a high of 103.93 on Thursday, recording its highest level since 2002.
Recent analysis noted the following on the weekly chart:
Down 2.0 per cent, the week shows price tunnelling into prime support from $0.6948-0.7242 on the weekly timeframe. While this area has capped selling since September 2020, the trend suggests that surpassing the zone could be seen in the coming weeks. The monthly timeframe has portrayed a downtrend since August 2011, indicating the pullback (February 2022 to current) on the weekly timeframe has likely been viewed as a ‘sell-on-rally’ theme and not a ‘dip-buying’ opportunity within the 2020 advance from pandemic lows of $0.5506 (march 2021).
$0.7165 resistance claimed position on the daily timeframe this week. This—coupled with the currency pair making its way south of the 200-day simple moving average at 0.7288 last week and scope for price to approach a nearby daily decision point at $0.6964-0.7040 (fixed within the lower limits of weekly prime support mentioned above at $0.6948-0.7242)—unlocks a bearish viewpoint. Analysis based on the relative strength index (RSI) reveals the indicator’s value touching oversold space—support is also seen close by at 21.38.
Latest technical developments on the H4 chart shows downside momentum slowed considerably since 26th April and led to buyers putting in an appearance yesterday from a 1.272% Fibonacci projection at $0.7057, nestled above a deep 88.6% Fibonacci retracement from $0.7048 (purple). Quasimodo support-turned resistance at $0.7109 is currently welcoming sellers.
$0.7125-0.7107 supply recently entered the fight on the H1 timeframe, placed above $0.71. North of here will likely have traders take aim at Quasimodo resistance from $0.7150, while rejecting current supply could draw candle action to support at $0.7038.
The combination of daily price making progress under resistance at 0.7165, H4 price touching Quasimodo support-turned resistance at $0.7109 and H1 price shaking hands with supply at $0.7125-0.7107 suggests the upper edge of the daily timeframe’s decision point at $0.7040 is likely to be targeted.
Following the Bank of Japan reaffirming its loose policy on Thursday, demand for the Japanese yen soured and the USD/JPY powered to highs not seen since mid-2002. Interestingly, limited resistance is evident on the weekly chart until price reaches the ¥135.16 high (28th Jan 2002). In conjunction with this, and noting this market has dominantly trended higher since 2021, the daily timeframe spent the previous six sessions piecing together a bullish flag, drawn from a high of ¥129.41 and a low of ¥127.80. As you can see, Thursday ruptured the upper boundary of the flag pattern and subsequently clipped the upper limit of supply from ¥130.65-129.57. According to the flag pattern’s rules of engagement, traders will be focussing on a take-profit objective at ¥136.63 (drawn by extending the pole’s distance and adding this to the breakout point). Note that this profit objective sits above the weekly timeframe’s ¥135.16 high. In terms of the relative strength index (RSI), traders are unlikely concerned by the indicator’s persistent overbought conditions as this is a common view within trending environments.
Against the backdrop of the bigger picture, the H4 timeframe is closing in on a 1.272% Fibonacci expansion at ¥131.61. To the downside, Quasimodo resistance-turned support awaits at ¥128.72. From the H1 timeframe, ¥130 was cleared on Thursday, leading the unit to ¥131 heading into the close. A break of the aforementioned psychological figure casts light on the H4’s ¥131.61 area.
Both weekly and daily charts echo healthy bullish vibes at the moment. Although short-term sellers are attempting to defend ¥131 (likely due to profit taking on the H1), the path of least resistance is in the direction of the H4 timeframe’s Fibonacci expansion at ¥131.61. As such, breakout trading could be on the cards above ¥131.
Sterling plunged to mid-2020 lows versus a broadly stronger US dollar on Thursday. The ongoing sell-off had weekly price elbow beneath support at $1.2719 this week, a level that may form resistance in the coming weeks. What’s technically interesting on the weekly chart is the absence of clear support until reaching a Quasimodo formation at $1.2164, in a market demonstrating a long-term downtrend since late 2007 tops at $2.1161.
The long-term 61.8% Fibonacci retracement from $1.2502 (green) is on the verge of ceding position on the daily timeframe. Continuation selling could nudge the currency pair towards Quasimodo support at $1.2334. The daily timeframe’s relative strength index (RSI) also remains travelling within oversold space, though given the strong downside momentum this should not surprise. Caution is warranted taking long signals based on oversold conditions as the indicator can remain oversold for prolonged periods in downward facing markets.
From the H4 timeframe, price is seen testing support from $1.2441, with resistance parked at $1.2529. Downstream, the daily timeframe’s Quasimodo support is in view at $1.2334. Focus on the H1 scale, thanks to the recent down move, is on $1.24 and $1.25. $1.2545-1.2527 supply is also on the radar, arranged just above $1.25.
A clear bearish narrative out of higher timeframes indicates a whipsaw above $1.25 could occur on the H1 timeframe to supply at $1.2545-1.2527 before fresh sellers join the current down move. Alternatively, leaving $1.25 unchallenged, H1 flow is likely to see price drop in on $1.24 and possibly clear the level in favour of the daily timeframe’s Quasimodo support at $1.2334.
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