The major forex currency pairs gained ground on the US dollar last week but the move fell short of a meaningful correction of the greenback’s recent strength. Although price action has nearly reversed to initial levels, positioning reveals continued possibility for an anti-dollar retracement in the near term.
EUR/USD Euro correction stalls – where to from here? We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. The pair is now trading at 1.2692 bringing our floating profit to 2818 pips. Last week we saw the pair trade up to the recent range top at 1.30 and noted mid-week that a breakout higher was apparently taking place. As it happened, the pair failed to pick up substantial upside momentum, sinking back into the range area. Looking now, it seems what we originally saw as a range is in fact be a Triangle formation. We have seen a breakout higher and a subsequent pullback to resistance-turned-support. EURUSD is now showing a Bullish Engulfing formation, so we will look for bullish momentum to materialize from here. Tentatively, we target a correction into the 1.33-1.35 area over the coming weeks. As we mentioned before, we see this correction as a selling opportunity to trade with the broad down trend. EUR/USD Strategy 1. Continue holding short EURUSD at 1.5510, looking to add. 2. Retain stop loss to 1.4893. 3. Next “soft target” aims for a test below 1.2160. For more resources on the EURUSD, please visit the DailyFX Euro Currency Room. GBP/USD Is the British Pound finally ready to rally? Last week we saw GBPUSD bounce higher from support at the bottom of a Falling Wedge formation to challenge resistance showing a bullish Three Inside up formation. Continued divergence with the RSI oscillator offered confirmation of waning bearish momentum. Indeed, we saw GBPUSD break out to the upside but significant upside failed to materialize and the pair pulled back to rest at resistance-turned-support above the Wedge top. GBPUSD is now showing a Star candlestick at support, hinting that a resumption of bullish momentum may be in the cards for the days ahead. We will look for the close of the current candle to offer confirmation, looking for a tangible upswing to provide a short entry opportunity to trade with the broad bearish trend. GBP/USD Strategy Pending short. 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 Yen breaks lower, lining up selling opportunity Last week, we saw USDJPY trading inside triangle formation and showing a (slightly imperfect) bullish Three Outside Up formation. Price action failed to break past resistance, however, dropping sharply in the middle of the formation and subsequently closing past support. Current positioning sees USDJPY testing the low from late October. The pair showed a Star formation here, hinting at a bit of stalling. We will look for a daily close below 92.60 to enter short, targeting the 30-year low at 84.25. USD/JPY Strategy 1. Short USDJPY above 91.60 on a daily close below 92.60. 2. Set stop loss at 96.45. 3. Set profit target at 84.25 near the 30-year low. For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room. USD/CAD Double top, divergence bolsters bears Last week, we saw USDCAD put in a double top below the 1.30 level. The pair has sold down to find support at an upward-sloping trend line established along the lows since mid-September. The pair has since stalled, with daily trading ranges contracting for over a week as traders seem to lack directional conviction. USDCAD is currently showing clear negative divergence with the RSI oscillator, giving positioning a bearish tone. That said, price action is not showing conclusive confirmation and we will remain on the sidelines until a definitive daily close below support. 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 Australian Dollar upswing meets resistance Our view on the Australian Dollar remains largely unchanged from last week: AUDUSD looks to be showing an inverted Head and Shoulders bullish reversal pattern. While the second shoulder looks somewhat over-extended, the implications of the formation appear intact. As before, positive divergence with the RSI oscillator offers confirmation Over the past week, prices have pulled up to and paused at resistance below the neckline of the head and shoulders formation. With no substantive evidence to suggest otherwise, we will remain on the sidelines as we wait for bullish momentum to break through resistance and present a selling opportunity to position in tandem with the broader trend. AUD/USD Strategy Pending Short. 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 New Zealand Dollar outlook clouded ahead Last week we saw New Zealand dollar showing a similar inverted Head and Shoulders pattern to that of AUDUSD, with positive RSI divergence and a Three Inside Up formation supporting a bullish near-term outlook. While limited upside momentum did materialize, the pair stalled near the 0.55 mark and has since pulled lower. Looking ahead, the Head and Shoulders scenario looks increasingly remote. Rather, we note a downward-sloping trend line connecting the highs since mid-September that looks to have acted as significant resistance. While prices appear to have bounced lower having tested this area, continued RSI divergence and the failure to break past the previous low have us favoring a cautious approach. We will remain on the sidelines for the time being as positioning reveals a clearer signal. NZD/USD Strategy Pending short. 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 ispivak@dailyfx.com