Charts: Trading View
(Italics: Previous Analysis)
US Treasury yields soared on Tuesday, underpinning a USD bid and consequently weighing on EUR/USD for a fourth consecutive session. As underlined in recent analysis, additional downside is consistent with the higher timeframe technical picture.
For those who read Tuesday’s technical briefing you may recall the following points on the weekly timeframe:
Trend on the bigger picture continues to echo a downside bias, reflecting bearish status since topping at $1.2350 at the beginning of January (2021). This is reinforced by a trendline support breach on the weekly scale, drawn from the low $1.0636, together with the recent retest of weekly resistance from $1.1174 following year-to-date lows at $1.0806 in early March. Weekly channel support, extended from the low $1.1186 (arranged north of weekly Quasimodo support at $1.0778), remains a technical ‘floor’ for the time being.
From the daily timeframe, the ongoing sell-off has price within reach of a decision point coming in from $1.0788-1.0854, complemented by ascending support, drawn from the $1.0340 3rd January low 2017, in addition to weekly channel support. This, of course, followed last Thursday’s bearish outside reversal ahead of resistance from $1.1224. Adding to the downside bias seen on the weekly timeframe is daily price holding beneath the 200-day simple moving average at $1.1475. An additional study on the daily scale reveals the relative strength index (RSI) tunnelling into deeper terrain beneath the 50.00 centreline. Remaining under the aforementioned line informs market participants that average losses exceed average gains on this timeframe (negative momentum).
Following the breach of H4 trendline support, taken from the low $1.0806, the currency pair is nearing support from $1.0903, joined by trendline resistance-turned support, taken from the high $1.1495, and a 78.6% retracement at $1.0888. Out of the H1 timeframe, $1.09 calls for attention which dovetails with H4 support at $1.0903.
The combination of $1.09 on the H1 timeframe and H4 supportive structure between $1.0888 and $1.0903 could be enough to attract a bullish defence. However, it should be noted that higher timeframes indicate follow-through selling is possible to at least the upper boundary of the daily decision point at $1.0854.
On the back of a hawkish shift from the RBA early Tuesday, AUD/USD propelled to a high of $0.7661, levels not seen since mid-June 2021. As evident from the weekly timeframe, following a decisive mid-March bid from prime support at $0.6948-0.7242, the lower side of prime resistance at $0.7849-0.7599 welcomed price action. The trend, according to overall chart studies, suggests that surpassing the noted resistance may be problematic. The monthly timeframe has portrayed a downtrend since August 2011, indicating the pullback (February 2022 to current) on the weekly timeframe might be viewed as a ‘sell-on-rally’ theme and not a ‘dip-buying’ opportunity from within the 2021 advance from pandemic lows of $0.5506 (march 2021). A bearish scene from prime resistance, therefore, could develop. If a $0.6948-0.7242 break lower should come to pass, weekly support at $0.6673 and a 50% retracement at $0.6764 are observable.
Meanwhile on the daily timeframe, the currency pair ruptured the upper limit of a bullish flag pattern ($0.7540-0.7466). This led the unit to $0.7660. As you can see, a daily double-bottom pattern ($0.6991) had its neckline taken ($0.7314) in March and drew attention to its profit objective at $0.7660. While the bullish flag breach implies higher levels, weekly prime resistance at $0.7849-0.7599 and the double-bottom profit objective at $0.7660 form a noteworthy ceiling. In terms of the relative strength index (RSI), the indicator’s value is testing overbought and could approach indicator resistance from 74.80.
H4 resistance stepped in at $0.7662 on Tuesday, action which guided price back to channel resistance-turned support, taken from the high $0.7441. Downstream, Quasimodo resistance-turned support is seen from $0.7547. As can be seen from the H1 timeframe, price pulled beneath $0.76 heading into US hours which shines light on support at $0.7561-0.7540.
The trend (see weekly description above) places weekly prime resistance and the daily timeframe’s double-bottom profit objective at $0.7660 in favourable light. H1 price dropping beneath $0.76 and subsequently retesting the level as resistance also signals further weakness to H1 support coming in at $0.7561-0.7540.
Downbeat risk sentiment elevated the USD/JPY on Tuesday, lifting the currency pair higher for a third consecutive session.
The weekly timeframe’s focus remains on multi-year tops at ¥125.11 and Quasimodo resistance at ¥124.42. Although sellers made a show from the aforementioned resistance, trend studies communicate a bullish vibe. Along with the daily timeframe holding above its 200-day simple moving average at ¥113.47 since February 2021, the overall longer-term trend has been higher since 2012 (check monthly timeframe). The 21.5 percent correction from June 2015 to June 2016 provided a dip-buying opportunity, as did a subsequent 14.8 percent correction from December 2016 to pandemic lows formed early March 2020. Adding to this, we broke the ¥118.66 December 2016 high in mid-March.
In line with the weekly timeframe, daily resistance at ¥123.72 failed to deliver much of a ceiling as the unit pencilled in a low of ¥121.28 last week, leaving demand at ¥118.25-119.16 unchallenged. An additional technical note is the daily timeframe’s relative strength index (RSI). While the indicator peaked around 87.52 (a level not seen since 2014), the value has turned higher after dipping a toe under the 70.00 threshold. Exiting overbought space is considered a bearish indication by many technicians. However, in upward facing markets, such as the one we’re 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).
It was noted in Tuesday’s technical briefing that H1 price formed a double-bottom pattern ahead of ¥121. The pattern’s neckline (¥122.46) was subsequently engulfed on Friday last week, with Tuesday venturing above ¥123 to test ¥123.61 (double-top profit objective derived by measuring from the lowest trough to the neckline and then extending this value at the breakout point [vertical red rectangles]). What’s interesting is the profit objective blends with a decision point coming in from ¥123.76-123.43.
The H1 decision point at ¥123.76-123.43, along with the H1 double-bottom pattern profit objective at ¥123.61 and daily resistance from ¥123.72, forms a potential area of interest for sellers. Continuation moves higher elbows weekly Quasimodo resistance back into the line of fire at ¥124.42.
The British pound, as expected, was on the ropes on Tuesday against its US counterpart. Through the lens of a simple technical trader, the downside move should not surprise.
Prime resistance remains a focal point on the weekly timeframe at $1.3473-1.3203, with the chart demonstrating scope to drop as far south as weekly support from $1.2719. Trend direction on the weekly chart has also 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.
Daily support at $1.3082 is a fragile level, incapable of stirring interest last week and on the brink of giving way. Tuesday’s close suggests sellers may try to take control, a move supported by the relative strength index (RSI) pulling lower from the 50.00 centreline (negative momentum). For any longer-term trend followers watching the longer-dated moving averages, you will also note the currency pair continues to operate south of the 200-day simple moving average at $1.3549—a (technical) bearish view.
As can be seen from the H4 timeframe, sellers changed gear and left prime resistance at $1.3228-1.3186 unopposed. Ultimately, the chart displays little in terms of support until reaching the $1.2965ish region, closely shadowed by a 100% Fibonacci projection coming in from $1.2936 (AB=CD structure). On the H1 timeframe, we can see price came within a whisker of testing Fibonacci resistance between $1.3187 and $1.3175 before spinning lower heading into US hours. $1.31 was subsequently overthrown with Quasimodo support at $1.3075 entering the fold. Should price manage to shape a decisive close south of $1.3075, sellers could take aim as far south as $1.30.
Given weekly prime resistance at $1.3473-1.3203 receiving price action, in addition to trend direction facing southbound, upside efforts from daily support at $1.3082 are fragile. For that reason, chart studies indicate possible clearance of the level. Should H1 price cement position sub $1.3075, this may help ‘confirm’ a bearish theme and likely persuade short-term players to commit, targeting $1.30.
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