Our long-term short Euro position added another 282 pips to overall gains as the US Dollar remained strong last week. We now look for a correction of the greenback’s rally to offer favorable entry points to enter shorts against the other major currencies. Having identified the relevant support levels in last week’s report, we are now beginning to see the pullback begin to materialize with the New Zealand dollar pairing leading the way once again.
EUR/USD
Has the Euro retracement finally arrived?
Current positioning sees EURUSD find a supporting trend line that has marked weekly lows since October 2006. The daily chart sees today’s candle close as a bullish Inverted Hammer (not shown), suggesting we may see a bounce higher from here. We see a move higher as corrective, with the broad trend firmly bearish in the medium term. Indeed, the US Dollar Index broke a downward-sloping trend line in place since 2005, pointing to continued greenback strength in the months to come. A pop-up to resistance at 1.4922 will be treated as a selling opportunity where we will look to add to our position.
EUR/USD Strategy
1. Continue holding short EURUSD at 1.5510, looking to add near 1.4922.
2. Keep stop-loss at break-even.
3. Next “soft target” lies near 1.4370.
Will Pound slow down enough to offer entry?
Looking ahead, we see the daily chart showing a very similar Inverted Hammer to that indentified for EURUSD (not shown). We will look for a reversal higher to find resistance near 1.89 and enter short targeting a breach beyond the 1.82 level.
GBP/USD Strategy
USD/JPY
Bearish correction gaining traction
Looking ahead, we see price action take on a Rising Wedge formation since mid-March. Current positioning sees USDJPY just below resistance and showing a Harami reversal pattern. A reversal may be brewing following last week’s consolidation, though it must be kept in mind that the Harami pattern is considered a weak signal and requires confirmation. In any case, our bias remains bullish as the US dollar index has broken above a downward trend line in place since 2005. We will for a pullback as a buying opportunity,
USD/JPY Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
Major resistance to prompt correction
Looking ahead, we see a corrective downturn increasingly likely. The daily chart shows an Evening Star below resistance (not shown), hinting a selloff lies ahead. Our ideal scenario is a reversal to resistance-turned-support at 1.0376. We will look to go long here expecting a break of resistance to yield a test of the 1.1000 level.
USD/CAD Strategy
Support found…for now
Indeed, downward momentum appears to be stalling. In a similar fashion to the Euro and the Pound, the daily AUDUSD chart is now showing an Inverted Hammer (not shown). We will look for a reversal to reach the 0.8870-0.8900 area and monitor for signs that resistance is being hit. We expect the subsequent down swing to break trend line support to test the 0.83 mark.
AUD/USD Strategy
Leading other majors to retrace greenback rally
NZDUSD had led the other majors in showing aggressive US Dollar strength and now seems to be doing the same with the eventual corrective rally. The weekly chart is now showing a large Hammer right at trend line support, suggesting a sizable counter-trend rally may be soon to follow. We will monitor price action to indentify where the correction will meet resistance to enter short aiming for NZDUSD to eventually decline to 0.6450.
NZD/USD Strategy
Flat. Updates will be posted throughout the week at the Candlestick forum.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com
Forex
