Charts: Trading View
(Italics: Previous Analysis)
US Dollar Index (Daily Timeframe):
In what has been a week of turbulence and volatility, the US dollar index (USDX) extended recovery gains last week and added 0.5 percent.
Technically, Quasimodo resistance from 97.45 welcomed sellers at the tail end of the week, after the unit refreshed a YTD pinnacle at 97.74. Note that the aforementioned structure is set a handful of points south of the weekly timeframe’s trendline support-turned resistance, taken from the low 78.90. Consequently, the weekly ascending barrier and daily Quasimodo resistance is likely to be a watched neighbourhood going forward.
To the downside, attention is on neighbouring trendline support this week, drawn from the low 89.84, together with support at 94.65. The additional observation here is a gathering of Fibonacci retracement ratios (50.0% is not a Fibonacci level) between 94.63 and 94.99 (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 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 mentioned above at 94.63-94.99 will, by extension, also engulf 4th February low at 95.14 and the 94.63 14th January low, a move signalling an early trend reversal to the downside. Continuation selling also re-opens the risk of a return to the 200-day simple moving average at 93.89, closely followed by a decision point at 92.71-93.53.
From the relative strength index (RSI), a popular gauge of momentum, the indicator has (once again) rebounded from support between 40.00 and 50.00. It is worth noting this area has been centre stage since August 2021, a common view in upward trending markets.
Acknowledging trend strength since 2021, trendline support, taken from the low 89.84, may offer a ‘floor’ this week. Overthrowing the latter, however, from a technical perspective this indicates an early sign of upside weakness, but is by no means a strong trend reversal signal. Support at 94.63-94.99 would be the next technical hurdle, in the event of lower prices this week, which houses considerably more (technical) confluence than the noted trendline support.
Europe’s shared currency finished the week higher against its US counterpart, lifted by 0.71 percent.
The technical landscape remains unchanged on the weekly timeframe (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.
Previous text regarding the daily timeframe serves as a reminder of where we are lower on the curve (italics):
The $1.1483 14th January peak (marked Key WATCH) echoed muscular resistance between 4th and 10th February and was clearly a ‘ceiling’ of note. Remaining below the 200-day simple moving average (circling 1.1618), Thursday acknowledged fresh YTD troughs for EUR/USD 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).
Across the page, the closing candles of the week witnessed H4 react from what’s known as an ‘Alternate’ AB=CD formation at $1.1125: an extended D leg to a 1.272% Fibonacci projection that formed a handful of pips north of Quasimodo resistance-turned support from $1.1089. Friday also watched price action shake hands with the 38.2% Fibonacci retracement at $1.1257—harmonic traders often target the 38.2% and 61.8% Fibonacci retracements derived from legs A-D. Prime resistance is close by at $1.1322-1.1276, sheltered under the 61.8% Fibonacci retracement at $1.1348—the second (and for many, a final) profit objective for those long the Alternate AB=CD configuration.
Interestingly, the H1 timeframe’s reaction from the H4 Alternate AB=CD pattern (above $1.11 on the H1) ended Friday on the verge of completing the D-leg of an equivalent AB=CD bearish pattern at $1.1280. Complemented by a H1 decision point at $1.1295-1.1275, in addition to a 200% Fibonacci extension at $1.1295 and the psychological base $1.13, this is an area likely to be observed early week. Furthermore, the H1 decision point is fastened to the lower edge of H4 prime resistance underlined above at $1.1322-1.1276.
The weekly timeframe points to further weakness over the coming weeks, ‘confirmed’ by the daily timeframe recently spiking to a YTD low with scope to reach as far south as daily prime support from $1.0941-1.1000.
In conjunction with higher timeframes, H4 prime resistance at $1.1322-1.1276 could be welcomed in early trading this week. As underscored above, this brings a H1 equivalent AB=CD bearish pattern at $1.1280 to the table, along with $1.13 and a H1 decision point from $1.1295-1.1275.
It was another positive week for the Australian dollar, climbing 1 percent versus the US dollar and stamping in a fourth consecutive weekly gain. Despite this, subdued demand remains within weekly prime support at $0.6968-0.7242, an area unable to stir much bullish interest since late November 2021.
Long-term technical studies ‘may’ (technically) help explain the lacklustre demand from the aforementioned weekly zone. The following text (italics) displays our recent breakdown of the weekly timeframe:
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.
The technical representation drawn from the daily timeframe continues to shine the spotlight on resistance between $0.7333 and $0.7278 (made up of a 200-day simple moving average, trendline resistance [taken from the high $0.7891], and Quasimodo resistance), which served well during mid-week trading and punched through a shooting star candlestick pattern (bearish signal). A break of the said resistance this week could pave the way for a test of neighbouring trendline resistance, coming from the 2021 high $0.8007. Sellers retaking the wheel, however, clears the river to a familiar decision point at $0.6964-0.7040. Lastly, on the daily timeframe we also see the relative strength index (RSI) occupying area between indicator resistance at 58.43 and the 50.00 centreline. Traders are likely to watch for a breakout in either direction to help traders gauge momentum on this timeframe.
H4 Quasimodo support at $0.7109 entered on Thursday, triggering a ‘hammer pattern’ response and follow-through upside on Friday. Overhead, daily Quasimodo resistance is on the radar at $0.7278, with a break pointing to a mid-January peak at $0.7314 and a $0.7368-0.7343 decision point. Beneath Quasimodo support, traders may also note the decision point at $0.7033-0.7064.
Price action on the H1 timeframe shows bullish forces overrun $0.72 offers heading into US hours on Friday and subsequently crossed swords with trendline support-turned resistance, drawn from the low $0.7086. You will note the said level is closely reinforced by a 78.6% Fibonacci retracement ratio at $0.7244. Further upstream has last Wednesday’s peak at $0.7284 to target (daily Quasimodo resistance), and the $0.73 figure. Venturing below $0.72 elbows prime support in sight at $0.7141-0.7155.
Further weakness is possible in light of weekly chart studies. According to the daily scale, scope to test $0.6964-0.7040 is visible as long as resistance at $0.7333-0.7278 holds out.
H1 trendline support-turned resistance, drawn from the low $0.7086, and the H1 78.6% Fibonacci retracement ratio at $0.7244 provides potential resistance in early trading.
Another layer of resistance to be mindful of is between $0.73 on the H1 and daily Quasimodo resistance at $0.7278.
USD/JPY bulls went on the offensive last week, lifting the currency pair to shape a weekly bullish engulfing candle (real bodies are the focus with engulfing patterns). Still, it must be emphasised that in order to be considered a true engulfing pattern, a down move must precede the pattern which is not the case here.
The recent bid, however, does throw light on the weekly timeframe’s 1.272% Fibonacci projection at ¥116.09. We recently detailed the higher timeframe’s picture in the following text:
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. Note the relative strength index (RSI) also tested support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May—common view in trending markets). 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 ¥112.24.
The technical reading out of the H4 timeframe shows recent action ‘completed’ a H4 AB=CD bullish formation (black arrows to the downside) by testing its second profit objective at the 61.8% Fibonacci retracement ratio from ¥115.64 (derived from legs A-D of the bullish pattern). Note that above ¥115.64, a trendline support-turned resistance is seen, extended from the low ¥113.47, with subsequent upside interest casting light on the daily Quasimodo resistance mentioned above at ¥116.33.
Quasimodo resistance stepped in at ¥115.75 during US hours on Friday on the H1, forcing price to withdraw to unchanged levels and establish a doji indecision candle on the daily timeframe. Two Quasimodo resistance-turned supports are seen at ¥115.17 and ¥115.03, complemented by ¥115 close by. Also worth sharing is support coming in under ¥115 at ¥114.93. A whipsaw south of ¥115 could trigger ¥114.93 bids and generate what’s known as a ‘bear trap’.
The primary trend in this market faces north; the secondary correction (¥125.86 [June 2015] to ¥98.79 [June 2020]) has demonstrated upside strength since 2021 (weekly ascending channel [¥102.59-¥110.97]).
Although the trend supports higher prices, resistance should not be overlooked between ¥116.33-116.09: the daily timeframe’s Quasimodo resistance at ¥116.33 and the weekly timeframe’s 1.272% Fibonacci projection at ¥116.09.
The combination of the H4 61.8% Fibonacci retracement ratio from ¥115.64 and H4 trendline support-turned resistance, as well as H1 Quasimodo resistance from ¥115.75, encourages an early reversal to the downside this week. Should this come to fruition, surpassing H1 Quasimodo resistance-turned support at ¥115.17 is a possibility to test the area between H1 support at ¥114.93 and H1 Quasimodo resistance-turned support from ¥115.03.
¥114.93-115.03, therefore, may be a location the charts observe a short-term recovery from.
Sterling wrapped up last week underwater against the US dollar, down 1.26 percent.
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 $1.3669—the currency pair welcomed support at $1.3355 last week. Space beneath here unearths Quasimodo support 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 south of its 50.00 centreline, informing traders average losses are exceeding average gains at the moment: negative momentum.
Price action on the H4 timeframe, following a bottom ahead of an AB=CD bullish formation at $1.3263 on Thursday, directed the unit towards Quasimodo support-turned resistance at $1.3436. This is joined closely by a 50.00% retracement and a 38.2% Fibonacci retracement around $1.3455. Technical eyes may also acknowledge resistance plotted at $1.3498.
Lower, the H1 timeframe discovered intraday support at $1.3367 at the tail end of the week, with many traders likely ‘chewed up’ around $1.34. Nevertheless, price reclaimed $1.34+ status into the close, fuelling attention towards resistance at $1.3443-1.3459 (connection with H4 resistance between $1.3456 and $1.3436). Additional technical elements seen are resistance at $1.3477-1.3514, which encloses $1.35.
Daily support at $1.3355 is key this week. Yet, knowing the trend demonstrates a downward bias, breaking the aforementioned support remains a possibility.
In the event daily support fails to spark bullish commitment, the short-term bearish spotlight will be on the two H1 resistance zones at $1.3443-1.3459 and $1.3477-1.3514.
For that reason, traders are likely to keep a close eye on both H1 resistances in early trading this week, with conservative traders perhaps seeking additional confirmation before pulling the trigger.
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