Weekly Technical Market Insight: Week Ending 25th February 2022

Weekly Technical Market Insight: Week Ending 25th February 2022, FP Markets

Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index (Daily Timeframe):

The US dollar left behind a muted vibe last week, calling attention to a weekly doji candlestick that generally reflects indecision. Consequently, the majority of the following analysis echoes points aired in previous weekly writing.

According to the US dollar index (USDX), Quasimodo resistance is visible at 97.45, located a handful of points south of the weekly timeframe’s trendline support-turned resistance, taken from the low 78.90. To the downside, attention continues to focus on support from 94.65 this week. The additional observation here—technical confluence—is the gathering of Fibonacci retracement ratios (50.0% is not a Fibonacci level) between 94.44 and 94.87 (green), coupled with trendline support, extended from the low 89.54.

Trend studies reveal a well-defined upward trend since price made contact with support from 89.69 in May (2021), shaped through a series of higher highs and higher lows. The weekly timeframe, nonetheless, shows a long-term range since 2015, fluctuating between 103.82 and 88.25, following a clear upside bias since May 2011 (72.70).

Rupturing daily support at 94.44-94.87 (and trendline support) will, by extension, engulf the 94.63 14th January low and signal an early trend reversal to the downside. Continuation selling, movement overthrowing noted supports, also re-opens the risk of a return to a decision point at 92.71-93.53, an area fixed nearby the 200-day simple moving average at 93.74.

From the relative strength index (RSI), a popular gauge of momentum, the indicator dropped in on support between 40.00 and 50.00 in recent trading, following bearish divergence ahead of overbought territory heading into February. 40.00-50.00 has been centre stage since August 2021, a common view in upward trending markets. As a result, 40.00-50.00 will likely remain on the watchlists for many traders this week.

Recognising upside strength since 2021, a dip-buying theme could emerge at support from 94.44-94.87 if the area is tested, in light of technical confluence present in this area. This is bolstered by the RSI rebounding from 40.00-50.00 support.

 Weekly Technical Market Insight: Week Ending 25th February 2022, FP Markets


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, 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 and shine the technical spotlight as far south as Quasimodo support at $1.0778—area not seen since pandemic lows of March 2020.

Lower on the curve, the daily timeframe witnessed a trendline resistance breach (taken from the high $1.2254) in early February, movement conflicting with the weekly timeframe’s bearish environment. However, the $1.1483 14th January peak (marked key WATCH) echoing muscular resistance between 4th and 10th February, together with a subdued bid from last week’s trendline retest and the relative strength index (RSI) weakening at 50.00, airs a bearish vibe, in line with the weekly scale. Dethroning the noted trendline this week pulls interest towards daily prime support from $1.1161-1.1199.

Against the technical backdrop of higher timeframes, a harmonic vibe clouds H4 and H1 timeframes. Early London Friday witnessed Europe’s single currency decline against its US counterpart just ahead of H1 supply at $1.1407-1.1386 (houses the $1.14 figure). A harmonic Gartley pattern’s PRZ (potential reversal zone) is stationed north of $1.13 and prime support at $1.1264-1.1294 at around $1.1307 (made up of a 78.6% Fibonacci retracement, a 100% Fibonacci projection [AB=CD structure] and a 1.272% BC Fibonacci extension).

From the H4 timeframe, a harmonic bat pattern is possibly brewing lower on the curve; the PRZ resides between $1.1164 and $1.1181, and shares a connection with daily prime support mentioned above at $1.1161-1.1199. Before reaching this far south, however, two prime supports are seen at $1.1262-1.1304 and $1.1205-1.1230.

Medium term:

The retest (and reaction) from $1.1473-1.1583 on the weekly timeframe, in addition to the chart’s downside bias, demonstrates a bearish tone. This is bolstered on the daily timeframe. Failure to overcome the $1.1483 14th January peak and trendline resistance-turned support sending a fragile tone points to an approach towards prime support at $1.1161-1.1199 over the coming weeks.

Short term:

Immediate structure to be mindful of on the H1 timeframe is the harmonic Gartley pattern’s PRZ at around $1.1307, closely followed by $1.13 and prime support at $1.1264-1.1294. It is important to be aware that a bullish position taken from the noted supports is counter to higher timeframe ‘direction’.

Harmonic traders typically position protective stop-loss orders beyond the X leg ($1.1280), but given the low is found within the H1 prime support, traders may opt to locate stops beyond $1.1264.

 Weekly Technical Market Insight: Week Ending 25th February 2022, FP Markets


The Australian dollar finished another week higher versus the US dollar, adding 0.6 percent.

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 correction from the 2021 advance from pandemic lows of $0.5506. This, of course, places a question mark on weekly prime support at $0.6968-0.7242, which has failed to ignite much bullish interest since late November 2021. If a break lower should come to pass, this could guide candles to weekly support at $0.6673 and a 50% retracement at $0.6764.

The downside bias is supported on the daily timeframe: price remains comfortable under its 200-day simple moving average, currently flirting with $0.7347. Adding to the SMA, Quasimodo resistance is seen at $0.7278, shadowed closely by two trendline resistances, drawn from highs of $0.8007 and $0.7891. Between $0.7347 and $0.7278, therefore, is likely watched resistance this week. Also worth highlighting is the relative strength index (RSI) is seen struggling to find grip above the 50.00 centreline.

A closer reading of price action on the H4 timeframe shows that following the reaction (10th Feb) from the harmonic bat pattern’s PRZ between $0.7274 and $0.7241, a ‘deep’ AB=CD bullish formation may complete (black arrows) at the 61.8% Fibonacci retracement from $0.7074. Harmonic traders will note the aforementioned Fibonacci ratio serves as a second (and for many, a final) profit objective out of the bat pattern (derived from legs A-D).

Lower down on the H1 timeframe, we can see that in spite of numerous upside attempts, $0.72 proved stubborn resistance, aided by trendline support-turned resistance, extended from the low $0.6968. Prime support at $0.7141-0.7152 is considered ‘consumed’ and therefore may be cleared if tested this week. South, technical eyes are likely drawn to $0.71 and a 78.6% Fibonacci retracement at $0.7094. Of particular importance is the $0.71 figure set just above the H4 timeframe’s AB=CD completion point at $0.7074ish (the 61.8% Fibonacci ratio).

Medium term:

Weekly prime support at $0.6968-0.7242, albeit delivering a fragile vibe and positioned against the overall trend, remains in play and, therefore, should not be overlooked. With that being said, though, particular emphasis is on daily resistance between $0.7347 and $0.7278 this week, in line with the current downside bias.

Short term:

Scope for the H4 timeframe to drop in on the 61.8% Fibonacci retracement at $0.7074 (AB=CD completion), and the H1 failing to find acceptance north of $0.72, signals short-term flow might push through (used) prime support at $0.7141-0.7152 and attack $0.71 on the H1.

Traders, nonetheless, are urged to pencil in the possibility of a $0.71 whipsaw to test $0.7074 on the H4 scale, which could present a bullish theme this week.

 Weekly Technical Market Insight: Week Ending 25th February 2022, FP Markets


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 also 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 at ¥116.09, as you can see, has remained a headwind since the beginning of this year. The potential for a double-top pattern to form is present, thanks to an additional test of the Fibonacci base early February. Weekly channel support, extended from the low ¥102.59, could be an area we see enter the frame, should sellers strengthen their grip over the coming weeks.

A meaningful rejection from the daily timeframe’s Quasimodo resistance at ¥116.33 technically aided the weekly timeframe’s Fibonacci projection test (¥116.09). Aside from lows at ¥114.15 (2nd Feb) and ¥113.47 (24th Jan), supply-turned demand from ¥112.66-112.07 is seen. 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 ¥112.09. 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).

Meanwhile, H4 price action submerged a 38.2% Fibonacci retracement at ¥115.25 (a level derived from legs A-D of an AB=CD bearish structure [black arrows] that converged with daily Quasimodo resistance underlined above at ¥116.33) and trendline support, drawn from the low ¥113.47. This—coupled with Friday’s successful retest of the breached trendline to shape resistance—communicates the potential for a test of a 61.8% Fibonacci retracement at ¥114.57 (considered by many to be a second profit objective from the H4 AB=CD pattern’s A-D legs). Interestingly, this echoes the possibility of an AB=CD bullish formation (black arrows to the downside) that completes at the 61.8% Fibonacci ratio.

Friday watched H1 buyers fatigue ahead of Quasimodo support-turned resistance at ¥115.31 in the early hours of London, a move that led ¥115 into the light during the US session. As evident from the chart, price finished the week on the doorstep of the noted psychological figure, formed by way of a near-full-bodied bearish candle. Further downside, therefore, becomes increasingly likely early week, re-opening a return to Quasimodo support at ¥114.82. Short-term chartists may reason that should the latter step aside (given Thursday’s test), support from ¥114.42 might step in the frame.

Medium term:

Although the overall trend favours buyers, recoiling lower to the weekly timeframe’s channel support or the daily timeframe’s demand at ¥112.66-112.07 remains an achievable scenario, before buyers attempt to step in.

Short term:

In conjunction with higher timeframes, the H4 chart, following a retest of trendline support-turned resistance, indicates space to move in for the 61.8% Fibonacci retracement at ¥114.57 and the intersecting AB=CD bullish formation. This bearish picture is strengthened by the ¥115 figure emphasising weakness on the H1 timeframe, informing traders that a test of H1 Quasimodo support from ¥114.82 could emerge, with follow-through selling looking towards H1 support at ¥114.42 (situated under the H4 Fibonacci level).

Therefore, a ¥115 breach may have sellers zero in on ¥114.42-114.57 this week (H1 support and H4 61.8% Fibonacci level).

 Weekly Technical Market Insight: Week Ending 25th February 2022, FP Markets


(Analysis Similar to Previous Weekly Report)

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.

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).

Daily resistance remains in the spotlight at $1.3602, organised under the 200-day simple moving average, circling $1.3685. Weakness from here shines light on support at $1.3355, with follow-through downside perhaps throwing Quasimodo support into the mix at $1.3119. Of note, the aforementioned support shares chart space 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 above its 50.00 centreline, informing traders average gains are exceeding average losses at the moment: positive momentum.

Lower timeframes shine light on a H4 consolidation between resistance at $1.3622-1.3646 (arranged beneath Quasimodo resistance at $1.3650) and Quasimodo resistance-turned support at $1.3498. Of particular importance is also H4 prime support located at $1.3428-1.3444. This is a fresh zone that’s in good shape, placed to take advantage of ‘sell-stop momentum’ beneath $1.3498.

Out of the H1 timeframe, traders will note that following the rejection of Quasimodo resistance at $1.3637, the currency pair reclaimed territory south of $1.36. Retesting the lower side of the psychological figure on Friday unlocks the door back to prime support at $1.3477-1.3514 (surrounds H4 Quasimodo support-turned resistance at $1.3498). However, as this prime zone has been tested, it could be brittle. Consequently, this throws the H1 decision point at $1.3441-1.3459 in the mix (sharing space with the H4 prime support mentioned above at $1.3428-1.3444).

Medium term:

Daily resistance remaining active at $1.3602 indicates a bearish setting this week. Still, traders are urged to note the 200-day simple moving average at $1.3685 in the event buyers make a push.

Overall, though, daily support at $1.3355 calls for attention to the downside.

Short term:

Chart studies imply a continuation lower until reaching H4 prime support at $1.3428-1.3444 and the H1 decision point at $1.3441-1.3459. This is due to daily resistance maintaining position at $1.3602 and H4 Quasimodo resistance-turned support at $1.3498 (and H1 prime support at $1.3477-1.3514) already being tested.

As such, early week may see additional sellers make an entrance south of $1.36.

 Weekly Technical Market Insight: Week Ending 25th February 2022, FP Markets


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.

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