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

US dollar weakness continues to dominate, pushing USD/JPY out of its 40 day range, while AUD/NZD also breaks lower from a wide range.

Pound and dollar
Source: Bloomberg

US dollar index continues to move lower

Yesterday saw the US dollar selloff continued apace, with price crashing down through the $94.20 target, to consolidate around $93.90.

Given the size of the overnight selloff, I would not be surprised to see some sort of retracement higher from here, but with such an important resistance level just above at $94.20, there is a possibility this could be short-lived.

A break back above $94.20 would point towards a more protracted retracement higher, at which point I would be watching for bearish reversal signals to cue another move lower. Medium-term downside support levels I am hoping to be hit are at $93.40, $93.17 and $92.75.

EUR/USD breaks back below $1.146 to form double-top

Yesterday saw a strong move higher to complete the move to $1.147 I was looking for. However, this was followed up by a double-top formation which has subsequently led to a strong selloff in EUR/USD.

The stochastics are on the cusp of creating a lower low, which thus provides us with a bearish divergence should price not push back below $1.1393. Thus despite a nice bullish break higher, it seems we could see further downside for today, which would correspond with a retracement higher for the US dollar basket.

I do not see this as a reversal, but more a retracement to take back some of the sharp gains yesterday. Potential support levels to watch would be around $1.1411 and $1.14. 

USD/JPY finally finds direction, with break lower

This  morning has seen the USD/JPY break to a 40 day low, with price failing to bounce higher in the same manner that it has countless times before over the past month.

This is no doubt driven by US dollar weakness that has been permeating markets over recent weeks. A close below ¥118.60 would be particularly notable and would provide us with a very clear direction going forward.

Should that occur, I would be looking towards ¥116.21 over the coming weeks.

AUD/NZD breaking into clear and strong downtrend

Gone are the days of talking about AUD/NZD ranging, with price finally breaking below $1.0899 on Tuesday to set us on a bearish pathway.

I am hoping this will provide us with a strong and consistent trend lower. Thus I prefer to watch the short-term timeframe for multiple legs lower with short retracements or consolidation in between.

This morning sees the pair selling off once more and whilst another bout of consolitation is always likely within a trend, I expect further downside before such any pullback. Apart from the retracement overnight, we have seen very little in the way of pullbacks over the previous two trading days and hopefully we can get back on that path.

Therefore I am bearish unless price breaks back above $1.0778. The next major support level in view is at $1.0576.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.