Last week, our long-term short Euro position moved further in our favor, bringing floating profit to nearly 1,000 pips. Looking ahead, we see striking symmetry in US Dollar positioning. Indeed, the greenback now stands at the threshold of key multi-year support/resistance levels against the spectrum of major currencies.
EUR/USD
Euro selling retains momentum
We sold EURUSD below a long-term trend line in place since August having identified a Long Black Candle that closed beyond support. The pair is now trading just above the 1.4500 level, bringing our floating profit to around 1,000 pips.
Looking ahead, we see striking similarity in the US dollar’s positioning against the major currencies. Indeed, the greenback stands at the threshold of key support/resistance levels across the board. The turnaround in commodity prices appears to be behind the set-up. DailyFX Quantitative Analyst David Rodriguez has reported “[recent] dramatic declines in crude oil prices have quite clearly coincided with similarly large US dollar advances.” With the broad US Dollar Index firmly above key resistance, we will continue holding EURUSD short on expectation of further downside.
EUR/USD Strategy
1. Continue holding short EURUSD at 1.5510.
2. Move stop-loss to 1.5310, protecting 200 pips in profit.
3. Next “soft target” lies near 1.4370.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
GBP/USD
Testing key trend line support
Last week, Pound price action served as a reminder of the flexibility one needs to trade financial markets. We noted that GBPUSD had broken past a significant supporting trend line showing a large Bearish Engulfing formation. We suggested a sell order at 1.8591, only see the high on Sterling miss entry by 3 pips (1.8588) and proceed to drop 750 pips.
Current positioning sees the pair at long-term trend line support in place since June 2001. We will look for a daily close below this boundary in the 0.7800-0.7780 area to initiate a short targeting a test of 0.7100.
GBP/USD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
USD/JPY
Dollar strength losing steam?
Last week, we called for caution in bundling USDJPY with the other major pairs. While the US Dollar has made substantial inroads against the Yen since March, we noted that while the greenback was clearly positioned for more strength against other currencies, USDJPY price action appeared to be unfolding in a Rising Wedge formation. This setup is typically indicative of a reversal and is confirmed by negative divergence between the direction of price action and an oscillator. We pointed out that USDJPY was making new highs in August as the Slow Stochastic oscillator as pointing down, suggesting bullish momentum is running dry.
Indeed, last week saw USDJPY sell off to the bottom of Wedge support. While we have seen a bullish candle formed here, negative divergence remains intact. As such, we will continue to remain on the sidelines until a clear directional bias emerges.
USD/JPY Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.
USD/CAD
Bulls not ready for a breakout
Canadian dollar positioning is little changed since last week. We suggested USDCAD was correcting lower from resistance at a trend line in play since May 2004 showing a Long Black Candle.
The selloff was cut short above the 1.04 level, and prices are again standing just below the trend line. Yesterday produced a large Inverted Hammer, suggesting another pullback is likely before the larger bullish trend resumes. We will continue to monitor the pair for a long entry opportunity expecting substantial dollar strength in the coming months.
USD/CAD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
AUD/USD
Trend line support under pressure
Last week, we saw AUDUSD produce a Bearish Engulfing but opted to remain on the sidelines out of risk-reward considerations as prices stood squarely above major trend line support.
Current positioning sees AUDUSD testing support at the major trend line in place since September 2001. We will look for a daily close below it in the 0.8300-0.8260 area to initiate a short, initially looking for a decline to the 0.80 level.
AUD/USD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
NZD/USD
Testing multi-year support
Last week, we saw NZDUSD issue a Bearish Engulfing having bounced higher from a trend line in place September of 2001 to test support-turned-resistance at the bottom of a channel that had contained price action since mid-March. We were looking for a bit of a pull-up for an entry short at 0.7161 to target just above 0.68. However, NZDUSD dropped straight down towards our target, leaving our entry unfilled.
Current positioning sees NZDUSD return to trend line support. We will look for price action to issue a daily close below 0.6822 (08/13 low) to position for fresh selling opportunities targeting the 8/17/07 low at 0.6640.
NZD/USD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room.
To contact Ilya regarding this or other articles he has authored, please email him at [email protected]
