Charts: Trading View
(Italics: Previous Analysis)
Against the US dollar, Europe’s shared currency received some much-needed impetus in early US hours on Tuesday as the US private sector activity contracted again in August. The S&P Global Flash US Composite PMIs showed the services reading recorded a 44.1 print, following July’s 47.3. The survey’s manufacturing side, however, registered 51.3—modest expansion—though lower than July’s 52.2.
Technically speaking, the recovery should not be a surprise. I noted the following in Tuesday’s technical briefing (italics):
Support on the weekly, daily, and H4 timeframes ($0.9925, $0.9919, $0.9928) are likely to concern sellers and may be an area the charts witness a bout of profit taking.
The support on the weekly timeframe is in the shape of a 1.272% Fibonacci projection, while the daily timeframe’s support is considered ‘traditional’ support, and the H4 timeframe represents a bearish pennant pattern’s profit objective. You will also note that the daily chart’s relative strength index (RSI) shows the indicator rebounded from an indicator trendline resistance-turned-support level (drawn from the high 58.91), situated just ahead of oversold territory.
H4 Quasimodo support-turned resistance consequently entered the frame on Tuesday at $0.9998, aligned with the H1 timeframe’s price action chewing on the lower side of parity ($1.00). Should H1 price manage to find grip north of $1.00, H1 resistance at $1.0046 warrants consideration, alongside trendline resistance, drawn from the high $1.0364.
It’s an interesting situation for the EUR/USD currently. On the one hand, the currency pair has been entrenched within a dominantly bearish downtrend (a primary bear trend) since the beginning of 2021, yet on the other hand, support emerged from weekly, daily and H4 timeframes and, for now, has offered a floor to work with.
I feel attention, therefore, will be directed to $1.00 on the H1 scale. As highlighted above, price on the H1 chart is retesting the underside of the noted psychological figure. Sellers defending this number places a question mark on the higher timeframe supports and essentially trades in line with the overall downtrend (and could be viewed as a bearish cue back to $0.99). A break above $1.00, nonetheless, signals bullish strength and reinforces current support structure, opening the door to short-term breakout buying opportunities towards H1 resistance at $1.0046.
US trading on Tuesday observed a healthy AUD/USD bid, bolstered by USD softness thanks to a contraction in US private sector activity.
Most notably is the daily timeframe’s movement clearing offers around resistance at $0.6901 and perhaps paving the way for further upside towards the 200-day simple moving average, currently circling $0.7135 (accompanied by a 50.0% retracement value at $0.7167 and a 78.6% Fibonacci retracement at $0.7156). Assuming buyers lack fuel above $0.6901, this swings the pendulum in favour of reaching trendline resistance-turned support, drawn from the high $0.7661, as well as support at $0.6678. Interestingly, the daily chart’s relative strength index (RSI) is testing the mettle of the 50.00 centreline (resistance). Until we breach this value, this timeframe, according to the indicator, reflects negative momentum.
Limited change is seen on the weekly timeframe; therefore, the following text serves as a reminder of where I left things in Tuesday’s technical briefing (italics):
The weekly timeframe’s support likely remains on the radar for longer-term players between $0.6632 and $0.6763, built from a 100% Fibonacci projection, horizontal price support, and a 50% retracement. This follow’s last week’s 3.5 per cent tumble, in a market that’s been entrenched within a primary bear trend since $0.8007 (22nd Feb high ).
Out of the H4 timeframe, supply-turned demand at $0.6901-0.6862 stood firm (despite a number of downside attempts) and shows price is now on the verge of shaking hands with prime resistance at $0.7004-0.6972. Closer analysis on the H1 timeframe, on the other hand, has price responding to Quasimodo resistance at $0.6961 and resistance from $0.6947 in the shape of a shooting star candle pattern. Area above here throws light on $0.70; respecting the aforesaid resistances, nonetheless, projects a possible retest of $0.69.
With the overall trend facing southbound (in spite of daily price climbing above resistance at $0.6901), the H4 prime resistance at $0.7004-0.6972 is likely to create interest among sellers if tested. Yet, if sellers continue to defend H1 resistance between $0.6961 and $0.6947, a dip back to $0.69 is not out of the question.
Following Tuesday’s bleak US data, the US dollar plunged versus the Japanese yen. This guided USD/JPY through ¥137 and a H1 acceleration trendline support, drawn from the low ¥132.56, to cross swords with ¥136. Reclaiming space south of the aforementioned psychological figure unearths H1 trendline support, pencilled in from the low ¥131.73.
Higher up, H4 ascending support-turned resistance, taken from the low ¥134.27, served well as a rising resistance barrier. H4 support is subsequently calling for attention at ¥135.58, closely shadowed by a 38.2% Fibonacci retracement at ¥134.94 and a 50.0% retracement value from ¥134.72. Should we eventually clear the noted ascending resistance, however, this highlights a 1.272% Fibonacci projection at ¥138.36 and a deep 88.6% Fibonacci retracement at ¥138.34.
From the weekly timeframe, resistance remains a key talking point at ¥137.23, in a market that’s emphasised a dominant primary bull trend since 2021. The weekly decision point from ¥126.40-131.30 is also a worthwhile note in the event sellers make a show on this timeframe. Technical studies on the daily chart has price chalking up a bearish outside reversal; this follows five consecutive bullish sessions after an earlier defence formed from supply-turned demand at ¥131.93-131.10. While the daily bearish outside reversal has taken shape at weekly resistance (¥137.23), room to manoeuvre higher on the daily timeframe to Quasimodo support-turned resistance at ¥139.55 is evident.
I also noted the following in Monday’s weekly technical briefing in terms of the relative strength index (RSI) (italics):
The daily timeframe’s relative strength index (RSI) ventured above its 50.00 centreline after coming within an inch of testing oversold space and forming hidden positive divergence at the beginning of August. Dethroning the 50.00 base adds weight to last week’s push, informing market participants that average gains are exceeding average losses (positive momentum). Upside targets are seen at the indicator trendline resistance, etched from the high 87.44, and indicator resistance at 87.52.
Weekly resistance at ¥137.23, the H4 ascending support-turned resistance recently welcoming sellers, and the daily timeframe’s bearish outside reversal informs traders that bears may look to control things further, particularly if H1 price dips under ¥136. This unlocks the door to at least the H1 trendline support, drawn from the low ¥131.73.
However, it is important to remember where we are in terms of trend studies. With the trend facing higher since 2021, any bearish showing could be short-lived as trend traders may view down moves as opportunities to buy the dip.
Snapping a four-day bearish phase, sterling made a comeback on Tuesday against the US dollar and established a daily bullish outside reversal candle. Influenced largely by dismal US economic data pressuring the buck lower, GBP/USD put in a bottom just ahead of daily support between $1.1655 and $1.1683 (two 100% Fibonacci projection ratios). In terms of where I stand on the daily chart’s relative strength index (RSI), we can see that the indicator has marginally bottomed ahead of oversold.
$1.1958 remains a key resistance level to be mindful of on the weekly timeframe, following last week’s dominant push lower. This is not a surprise as GBP/USD has chalked up an unmistakable primary bear trend since early 2021. And, as I wrote in recent analysis, the breach of $1.1958 reopens the risk of a return to the pandemic low of $1.1410.
The $1.1760 14th July low did a good job of holding back sellers on Tuesday on the H4 timeframe, with the test forming a hammer candlestick pattern. Quasimodo support-turned resistance at $1.1925 and prime resistance from $1.1978-1.1954 remains upside objectives on the H4 scale. The upside move on Tuesday also produced a H1 decision point at $1.1744-1.1784. Note that we can also see that price recaptured $1.18 and appears to have left $1.19 unchallenged, as we’re now on the verge of retesting $1.18 as possible support.
Longer term, GBP/USD remains bearish until at least the daily timeframe’s 100% Fibonacci projection levels at $1.1683 and $1.1655. Short term, however, room to move higher on the H4 and H1 timeframes is visible to $1.19 and H4 Quasimodo support-turned resistance from $1.1925. Therefore, buyers could take control from $1.18 if retested on the H1 scale, supported by the H1 decision point at $1.1744-1.1784.
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