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FX snapshot – US Dollar Index, EUR/USD, USD/JPY, AUD/NZD

Dollar continues to selloff, yet the existence of major support means a reversal is soon likely.

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Source: Bloomberg

Dollar weakness persists
The dollar selloff is continuing today, in a move which is likely to have significant repercussions for dollar denominated markets. Given the importance of the 97.31 Fibonacci retracement, coupled with the ascending trendline from May, I would have thought it would hold up and the failure to do so is a little worrying.

Nevertheless, I remain bullish while Dollar Basket price remains above 96.52 and thus whilst we could see further downside for the near-term, I will be watching for reversal signals to continue the bullish theme of the past two months.

EUR/USD continues to rise, yet resistance is in view
The euro has enjoyed a particularly strong week so far, gaining 1.8% against the dollar since Monday’s open. This upside in EUR/USD looks set to continue for now, but the pair is approaching a major resistance zone which has medium-term technical implications.

The two peaks from late July of $1.1115 and $1.113 form a zone, which if broken would complete a double bottom formation. This would then activate an upside projection of $1.146 (the height of the double bottom projected higher). This coincides with the May high.

I remain bearish over the long-term and given the implications of a move above $1.113, I would expect to see some sort of bearish reaction in the near future. Thus I prefer to hold off and await a possible selloff in the $1.1115-1.113 zone. Intraday reversal patterns would be my dominant tool around that area. A move above $1.113 would be a notable bullish move and would look towards the next major resistance of $1.122.

USD/JPY breaking towards crucial support
We has seen a sharp depreciation in USD/JPY this week, following a move higher to an ascending trendline from early July. The outlook for USD/JPY from a monetary policy standpoint is clear, yet the technical has not been as one sided.

Nevertheless, price action is moving higher in general over recent months, trading within a rising wedge. Given the continued creation of higher lows and highs, I would expect this to continue and thus the support zone between Y124.14 and Y124.38 is likely to provide another move higher. Thus I am bullish unless price moves below Y124.14

AUD/NZD trades lower and further losses expected
The unpredictability of the dollar of late has pushed me towards other markets. The AUD/NZD has been trading within a descending channel in recent months and this is likely to continue.

Yesterday we looked at the daily chart, but this hourly chart shows a clearly defined selloff in place. The 50-hour simple moving average is providing a good approximate resistance point for any temporary upside and whilst I am bearish, I see any move back towards the 20- and 50-hour SMA as better points of entry.

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