Charts: Trading View
(Italics: Previous Analysis)
By all counts, it was a volatile start to the week. Traders and investors were greeted with risk-off conditions in the early hours of trading amidst escalating tensions between Russia and the Ukraine. Despite a strong gap lower, however, Europe’s single currency ended European hours higher by 0.6 percent against the US dollar.
On the technical front, this elevated EUR/USD north of $1.12 to a high of $1.1246. As evident from the H1 chart, the currency pair is in the process of revisiting $1.12. In the event buyers demonstrate commitment here, the weekend gap may be filled and the H1 decision point from $1.1295-1.1275 could be challenged (nestled under $1.13 and H1 Quasimodo support-turned resistance at $1.1320).
In terms of higher timeframes, chart studies reveal limited structure hindering an upside attempt on the H1 scale. The H4 timeframe, despite recently pencilling in a shooting star candlestick formation (bearish), exhibits scope to approach prime resistance at $1.1322-1.1276 (note the H1 decision point is glued to the lower side of the said H4 base). Below, harmonic traders will note the H4 ‘Alternate’ AB=CD pattern (1.272% Fibonacci projection at $1.1125), followed closely by H4 Quasimodo resistance-turned support at $1.1089.
The technical landscape remains unchanged on the weekly and daily timeframes and support further selling (italics):
Technically, according to trend, a downside bias has been in play since topping at $1.2350 at the beginning of January (2021) on the weekly timeframe. This is reinforced by a weekly trendline support breach, drawn from the low $1.0636, together with the break of the $1.1602 November 2020 low (circled) and the retest of weekly resistance at $1.1473-1.1583. Continued interest to the downside on the weekly chart could overthrow 28th January low at $1.1121 [RECENTLY TESTED] and bring attention to as far south as Quasimodo support at $1.0778—area not seen since pandemic lows of March 2020.
The $1.1483 14th January peak (marked Key WATCH) echoed muscular resistance on the daily timeframe between 4th and 10th February. Remaining below the 200-day simple moving average (circling 1.1613), last week acknowledged fresh YTD troughs at $1.1106 and unearthed a probable dip to prime support from $1.0941-1.1000. Also of note is the relative strength index (RSI) cementing position under 50.00 (average losses exceeding average gains: negative momentum).
While the bigger picture indicates lower prices, should H1 maintain position above $1.12 the technical pendulum swings in favour of an approach to the H1 decision point at $1.1295-1.1275. In the event of a $1.12 breach, follow-through selling is on the table, targeting the H4 ‘Alternate’ AB=CD pattern ($1.1125), and possibly $1.11 (H1).
The Australian dollar—in spite of a 1 percent opening gap lower to $0.7158—traded higher against its US counterpart on Monday. Filling the weekend gap and overpowering Friday’s session high at $0.7237, AUD/USD has reclaimed a bullish position amid higher commodity prices.
From the top this morning, we remain within the upper boundary of weekly prime support at $0.6968-0.7242, following a fourth consecutive weekly gain. Nevertheless, as pointed out in recent analysis, demand within the noted support has been subdued since late last year. The currency pair’s trend may have something to do with that:
Longer term—the monthly timeframe—has portrayed a downtrend since August 2011, suggesting the 12.6 percent correction from mid-Feb tops at $0.8007 (2021) on the weekly timeframe might be the start of a bearish phase and not a dip-buying correction from the 2021 advance from pandemic lows of $0.5506. This clearly places a question mark on weekly prime support. If a break lower should come to pass, weekly support at $0.6673 and a 50% retracement at $0.6764 are visible.
Meanwhile on the daily timeframe, price is closing in on resistance between $0.7331 and $0.7278 (made up of a 200-day simple moving average, trendline resistance [taken from the high $0.7891], and Quasimodo resistance). Failure to hold price here—remember we are coming from weekly prime support (despite the trend)—unlocks the door to daily trendline resistance, drawn from the high $0.8007. You will also note the relative strength index (RSI) is on the verge of clearing indicator resistance at 58.43 after drawing support from the 50.00 centreline (momentum remains to the upside, according to this indicator).
Lower down on the curve, the H1 timeframe reclaimed $0.72+ status on Monday, which should last Wednesday’s top at $0.7284 give way, then a bearish AB=CD formation could form at $0.73. Alternatively, failure to explore higher terrain at this point opens a test of a newly formed decision point at $0.7210-0.7222.
Resistance between $0.73 and the potential AB=CD bearish pattern (H1), as well as daily Quasimodo resistance from $0.7278, delivers a reasonable ceiling to be mindful of.
Nonetheless, it is important to factor in the possibility of a dip lower to the H1 decision point at $0.7210-0.7222 before price attempts to shake hands with $0.73-0.7278.
Downbeat risk sentiment underpinned a safe-haven bid across the Japanese yen and US government bonds (US yields lower across the curve), leaving USD/JPY on the ropes on Monday.
The short-term technical landscape has the H1 seeking lower levels under the ¥115 figure, with room to extend losses to a H1 decision point coming in at ¥114.57-114.74. This is supported on the H4 timeframe. Following a bearish position from trendline support-turned resistance, extended from the low ¥113.47, and a 61.8% Fibonacci retracement at ¥115.64, support is not expected on this timeframe until ¥114.57ish: a H4 AB=CD bullish formation (black arrows to the downside) completing at a 61.8% Fibonacci retracement ratio.
From the perspective of the higher timeframes, limited change is evident (italics):
The trend in this market favours buyers at the moment. The currency pair has been stepping higher since early 2021, clearly visible on the weekly timeframe. In line with this, the overall longer-term trend has been climbing 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. The weekly timeframe’s 1.272% Fibonacci projection, as you can see, has remained a headwind since the beginning of this year. Should sellers strengthen their grip, weekly channel support, extended from the low ¥102.59, could be an area we see enter the frame.
In the meantime, the daily chart has been in the process of chalking up an ascending triangle pattern (typically considered a continuation arrangement) since December 2021 between Quasimodo resistance at ¥116.33 and an ascending line drawn from the low ¥112.53. Toppling ¥116.33 would allow analysts to chart a pattern profit objective by extending the ‘base’ distance (blue vertical box) from the breakout point. Withdrawing under the ascending line, nevertheless, seats supply-turned demand from ¥112.66-112.07 in the picture. Not only is the area in the company of a 78.6% Fibonacci retracement at ¥112.00 and a 50% retracement from ¥112.55, technicians will acknowledge the widely watched 200-day simple moving average housed within the lower limit of the zone at ¥112.27.
Note the relative strength index (RSI) is also testing support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May—common view in trending markets).
Short term, a retest at the lower side of ¥115 could be seen on the H1. Holding the underside of this level may encourage a bearish scenario to the H1 decision point at ¥114.57-114.74 (sat on top of H4 Fibonacci support at ¥114.57).
Ahead of Monday’s close, despite a spirited opening to the downside, sterling trades unchanged versus the US dollar, successfully filling the opening gap. $1.34 proved reasonably stubborn support during US hours on Monday following an earlier break higher during the London morning session. The H1 timeframe also highlights two nearby resistance zones at $1.3443-1.3459 and $1.3477-1.3514, with the latter housing $1.35. Retaking $1.34 support, on the other hand, provides a basis for a return to the $1.33ish neighbourhood.
Sharing a connection with H1 resistance at $1.3443-1.3459 is H4 resistance between $1.3456 and $1.3436 (composed of a 50% retracement, a 38.2% Fibonacci retracement and a Quasimodo support-turned resistance level). Also of technical relevance is H4 resistance at $1.3498 residing within H1 resistance at $1.3477-1.3514.
Below serves as a reminder of where we currently stand on higher timeframes:
Technical structure visible on the weekly timeframe consists of resistance at $1.4371-1.4156 (potential compressed supply appears between $1.3983 and $1.3834 [blue arc]) and a double-top pattern’s ($1.4241) profit objective at $1.3090 (red boxes).
Longer-term trend direction has been southbound since late 2007 tops at $2.1161. As a result, the move from pandemic lows in March 2020 could be viewed as a pullback within the larger downtrend. This, of course, places a question mark on the 7.5 percent ‘correction’ from February 2021 to December 2021; it may in fact be the beginning of a longer-term push to the downside and not a dip-buying scenario.
Based on the daily timeframe, after nearly a month of hesitation around resistance at $1.3602—stationed under the 200-day simple moving average at $1.3665—the currency pair welcomed support at $1.3355. Space beneath here unearths Quasimodo support at $1.3119. Of note, the aforementioned support connects with the weekly timeframe’s double-top pattern’s profit objective at $1.3090. In terms of momentum, the relative strength index (RSI) continues to operate south of its 50.00 centreline, informing traders average losses are exceeding average gains at the moment: negative momentum.
Daily support at $1.3355 is key. Yet, knowing the trend demonstrates a downward bias, breaking the aforementioned support remains a possibility. With this being the case, short-term bearish attention is likely to remain on the two H1 resistance zones at $1.3443-1.3459 and $1.3477-1.3514.
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.