FOREX TRADING

Weekly Technical Update: Rotation Out of Risk and Commodity

Last week, I mentioned we should be getting ready for a rotation out of risk into commodity. This week, we saw commodity and commodity related currencies fall sharply. The Yen was a strong performer this week in the risk adverse environment. The Euro however, after exhausting declines, have finally bottomed for now near 1.22, and may be in an intermediate correction. By rotating out of equities and commodities, investors may be at the moment rotating into bonds, and treasuries.

EUR/USD Finds Short-term Bottom

Daily and Weekly: From the daily time-frame, we can see a bigger possible rally. I know just yesterday, I wrote “Bottom-pickers Go Away!” Well, signs are now finally showing a possible bottom. But I would still carry the same precaution and limit my expectation of a rally attempt.

The daily shows the 1.31 area at the 61.8% retracement, also coincident with where the SMA 50 should be, as well as a previous minor support turned into resistance. This is the furthest I would expect the rally to reach before another attempt at breaking the 1.24 support zone.

This means the market may have a tough time getting past here. But even before 1.31, 1.2750 is an important area to break above. Not shown here, but it is 61.8% retracement of the down swing from the start of May. The market may actually turn back down at the 1.2750 level.

A possible wave count is given, but is not resolved. From this scenario, the correction can actually reach 1.35. However, I am skeptical of that since so much resistance is at 1.31.

In the weekly, we see the market testing an important support. A break of this leads to a swing projection target of 1.15. The market proved to respect this support this week. There may be some further bounce, but the bearish attempts are heavy, and should be respected and anticipated to test the support again.

USD/JPY Pushing Towards Support Zone

Daily and 4H: The daily chart shows the USD/JPY in a range between 95 and 88.

The 4H chart shows the market in a channel, which could be a double bottom. A break above should go immediately to 91.80/92.00 area. A break above that suggests a move towards 93.60 area.

The bearish scenario is a break of 89 leading to 88. If 88 breaks, it can retest the lower bound of the support near 86.

In either case, there is not too much room to maneuver and may be choppy. Adjustments to targets will have to be made constantly.

GBP/USD Stayed Under the Radar

Weekly and 4H: The GBP/USD remained in consolidation throughout the week after last week;s sharp slide. The weekly shows that if the low at 1.4250 area breaks, the pair can continue lower towards 1.38.

The 4H time-frame shows the sideways action between 1.45 and 1.4250 all week. A break above 1.45 may see a rally towards 1.48/1.4750 (61.8% retracement). This would be pattern breakout projection.

Howeer, if this is a c wave of a zigzag, it should really top off earlier perhaps near the 1.4650 area (50% retraceent).

USD/CAD

Daily and 4H: The USD/CAD filled last week’s gap as anticipated, and surged to 1.0750, eating up the tail of a candlestick 2 weeks ago.

As can be seen in the Daily time-frame, this 1.0750 area is a common resistance area, and Friday’s price action shows the market respecting it.

The 4H time-frame shows supports for a correction decline. The market can go to 61.8% retracement level at 1.0350. If that breaks, the 1.250 area is the last retracement support, before the 0.99/1.0 level.

A break below 1.0250 may see parity tested. Be aware of the RSI in the 4H as it may be developing positive reversals next week to suggests more attempts to break 1.0750. For example, this would occur if the current downswing cannot make below 1.0450 before turning back up.

EUR/GBP Testing Important Resistance

Daily: The EUR/GBP is testing/breaking the 0.8650 area. This ia powerline and the market is testing not just this resistance but the declining trendline and SMA 50.

After some basing action, the market looks like it is rallying. However, this rally is so far unimpressive and may be developing a negative reversal.

If RSI crosses below its SMA 50, and the market action tops off before going above 0.8800, a slide towards 0.8350 is possible.

AUD/USD Does not See Bottom

Weekly and 4H: The weekly shows a month of sharp drops in the AUD/USD pair. Last week, I noted that the market remained in consolidation and should test the support.

This week, the pair did not even care about the support at 0.86 and came down to 0.81, testing the SMA 200.

If the market close below 0.82, further decline to 0.7950 is possible. This is based on the negative reversal in the 4H chart.

We see in the weekly that the decline can extend to 0.7830, 50% retracement, and a pattern breakout target.

GBP/JPY: Waiting for Wave Count Resolution of Correction

4H and 1H: This is a followup on yesterday’s GBP/JPY post. The question was whether wave V extension is the scenario. Today, we find that a bottom is forming, so the answer is no.

Instead, we are now looking at a developing correction. The 4H time-frame has a target for the correction to 133 area, or the 61.8% and 78.6% retracement level. This goes to wave (iv), which is the guide.

This is not an exact target, and the market can go up to 134 and satisfy corrective wave criteria.