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.

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.

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.