Weekly Technical Market Insight: Week Ending 2nd September 2022

Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index:

Month to date, the US dollar, measured by the US Dollar Index, is higher by 2.8 per cent. Quite remarkably, aside from May, the US dollar has chalked up successive monthly gains in every other month this year, adding 13.0 percent, year to date. The final full week of trading in August is now in the rear-view mirror and the Dollar Index finished 0.7 per cent in the green.

Visible from the daily timeframe, familiar resistance between 109.14 and 108.58 (made up of a 1.272% Fibonacci projection, a 1.618% Fibonacci expansion, and a Quasimodo resistance level) entered the frame last week. Given the lacklustre bearish presence from the noted zone, manoeuvring higher this week could call on additional resistance by way of a Quasimodo support-turned resistance formation at 110.69. Nevertheless, a drop from current price levels—aided by early negative divergence from the relative strength index (RSI) on both monthly and daily charts—unearths a daily acceleration trendline support (drawn from the low 95.17) and a 50-day simple moving average, trading around 106.45.

Trend studies on the monthly and daily timeframes continue to favour buyers which portends a break of the current daily resistance, as well as prime resistance on the monthly scale from 109.77-104.96. As aired in recent weekly technical writing, aside from a 7-year range (forming a pennant chart pattern [considered a continuation signal], taken from 103.82 and 88.25), monthly movement has been higher since early 2008. This is reinforced by the uptrend visible on the daily timeframe, exhibiting well-defined upward action since price made contact with support from 89.69 in May 2021. The upside bias is also shown through the 50-day simple moving average crossing above the 200-day simple moving average (current: 100.68) in August 2021 (‘Golden Cross’).

Technical Expectation:

According to chart studies, technical evidence supporting buyers continues to surpass the chart’s bearish features.

As a result, a break of daily resistance might be seen between 109.14 and 108.58 this week. This may trigger breakout buying, dethroning the monthly timeframe’s prime resistance at 109.77-104.96 for daily price to eventually greet Quasimodo support-turned resistance around 110.69.

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EUR/USD:

Month to date, Europe’s common currency is 2.6 per cent lower against its US counterpart, fashioned by way of two consecutive weekly bearish candles. Last week concluded 0.7 per cent lower for the EUR/USD, following the prior week’s one-sided fall of more than 2.0 per cent. The currency pair, however, did manage to regain some poise after shaking hands with weekly support in the form of a 1.272% Fibonacci projection at $0.9925 last week (alternate AB=CD bullish formation), yet whether this will be sufficient to withstand bearish forces in the weeks to come is difficult to estimate in light of the current trend.

I noted the following in my previous weekly report in respect to the trend (italics):

Price action on the weekly timeframe has been entrenched within an unmistakable primary bear trend since pencilling in a top in early 2021 with heavy-handed pullbacks in short supply.

The above, thrown together with the recent pullback touching gloves with resistance at $1.0298 on the weekly chart, sets the currency pair up for another leg lower, perhaps eventually pulling weekly flow south of $0.9925. Weekly support from $0.9606 warrants attention should $0.9925 cede ground.

Unfortunately, the outlook from the daily timeframe is not much brighter. Friday ended in the shape of what’s known as a shooting star candlestick formation after a mid-week rebound from nearby support at $0.9919 (note that in order for this bearish candle pattern to be valid, an up move must be present which is not the case here). Although scope to establish a pullback is evident on both the weekly and daily timeframes (to at least weekly resistance at $1.0298), weekly and daily supports echo a vulnerable position, with daily Quasimodo support set to greet price movement at $0.9668 in the event of a break lower this week.

The story on the H4 timeframe remains centred around prime resistance at $1.0125-1.0105 and a bearish pennant (forged between $1.0122 and $1.0195) pattern’s profit objective at $0.9928. Shorter-term flow on the H1 chart spiked to a high just under $1.01 (and Quasimodo support-turned resistance at $1.0108) before muscularly rotating south and recapturing parity ($1.00) to the downside. Trendline resistance-turned support, extended from the high $1.0364, was subsequently tested heading into the close. Dropping under here is likely to revive selling towards the $0.99 region in early trading this week.

Technical Expectation:

Overall, the picture for EUR/USD remains bearish, according to technical studies.

The lack of demand from weekly and daily supports at $0.9925 and $0.9919 (viewed through candle action), along with the pair’s clear downtrend, portends a break of the noted supports this week. As underlined above, a break of the aforesaid support levels shifts attention to daily Quasimodo support at $0.9668.

Short term, rupturing current H1 trendline support provides an early cue of a potential bearish scenario, tipping price in the direction of $0.99 on the H1 and $0.9928 on the H4.

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AUD/USD:

Despite July’s hammer candlestick formation—frequently accepted as a bullish signal—AUD/USD is on track to conclude August on the ropes. Efforts to recover from the prior week’s 3.5 per cent one-sided decline rapidly drew to a close on Friday last week, leaving the currency pair considerably off best levels.

Consequently, as I noted in the previous weekly technical briefing, support between $0.6632 and $0.6763 is back on the radar for the weekly timeframe, constructed from a 100% Fibonacci projection, horizontal price support, and a 50% retracement.

I also noted the following with respect to the trend direction in recent writing (italics):

Siding with the recent bout of selling is the currency pair’s trend: reflecting a primary bear trend since $0.8007 (22nd Feb high [2021]). The monthly timeframe has also portrayed a longer-term downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is likely viewed as a deep pullback among chartists. Downside from the 2021 February top, therefore, might be seen as a move to explore lower over the coming weeks/months.

The outlook on the daily timeframe offers an interesting technical picture, yet not one that really improves the currency pair’s position. Friday’s candle engulfed Thursday’s upside, offering traders a bearish outside reversal candle. Note that I would have preferred to see a decisive up move form before recognising such a candle pattern. Nevertheless, recent movement places a bold question mark on current support at $0.6901. Adding to the bearish vibe, the pair remains under its 200-day simple moving average at $0.7130, alongside a brewing head and shoulders top pattern (price has yet to puncture the neckline, drawn from the low $0.6869). Assuming buyers lack fuel above $0.6901, this swings the pendulum in favour of reaching trendline resistance-turned support, drawn from the high $0.7661, as well as support at $0.6678. Interestingly, the daily chart’s relative strength index (RSI) is testing the 50.00 centreline (resistance). Until we decisively breach this value, this timeframe (according to the indicator) reflects negative momentum.

Prime resistance on the H4 timeframe at $0.7004-0.6972, although having its upper boundary clipped on Friday, welcomed sellers and pulled price action back into the walls of H4 supply-turned demand at $0.6901-0.6862. This signals that sellers are perhaps gearing up for a push towards prime support at $0.6774-0.6815 (arranged just north of Quasimodo support at $0.6761).

Addressing the H1 timeframe, you’ll note the unit slipped under $0.69 on Friday after crossing swords with the widely watched $0.70 figure (missing a 1.272% Fibonacci projection at $0.7017 by an inch). Should bearish players continue to occupy space under $0.69 this week, Quasimodo support from $0.6862 is visible, closely followed by a Quasimodo resistance-turned support level from $0.6843. Reclaiming space above $0.69, on the other hand, could watch price zero in on the $0.6973-0.6963 prime resistance.

Technical Expectation:

Technically, price action reflects a bearish stance, both long term and also in the short term.

The modest close beneath daily support at $0.6901, the room to manoeuvre lower on the daily and weekly timeframes (to at least daily trendline support), the primary bear trend, and the H1 timeframe crossing under $0.69, technically, places H4 supply-turned demand at $0.6901-0.6862 under pressure this week.

With the above, a short-term bearish scene could emerge beneath $0.69, action that might have traders pursue at least H1 Quasimodo support at $0.6862 and H1 Quasimodo resistance-turned support at $0.6843. If a daily close forms under the head and shoulders top pattern’s neckline, of course, further selling is in the offing.

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USD/JPY:

Following the prior week’s spirited advance, rallying 2.5 per cent, recent trading observed additional gains which consequently placed resistance on the weekly timeframe at ¥137.23 under attack. This followed the beginning of August adopting a dip-buying phase from the weekly timeframe’s decision point at ¥126.40-131.30, in a market that’s been trending higher since early 2021: a primary bull trend. This is further reinforced by the monthly timeframe’s trend, higher since bottoming in late 2011.

Meanwhile on the daily timeframe, following the rebound from supply-turned demand at ¥131.93-131.10 in early August (an area glued to the upper boundary of the weekly decision point), Quasimodo support-turned resistance at ¥139.55 is in the firing line this week.

I noted the following in the previous weekly technical briefing (italics):

Supporting trend direction, price has been trading north of the 200-day simple moving average since February 2021. Additionally, the SMA has pointed higher since April 2021: another widely used trend-following technique. Interestingly, the daily timeframe’s relative strength index (RSI) ventured above its 50.00 centreline after coming within an inch of testing oversold space and forming hidden positive divergence at the beginning of August. Dethroning the 50.00 base adds weight to last week’s push, informing market participants that average gains are exceeding average losses (positive momentum). Upside targets are seen at the indicator trendline resistance, etched from the high 87.44, and indicator resistance at 87.52.

The H4 ascending support-turned resistance, taken from the low ¥134.27, remains a clear talking point at the moment, a base rejecting upside attempts last week. Below, support is seen at ¥135.58, joined closely with a 38.2% Fibonacci retracement at ¥134.94 and a 50.0% retracement value from ¥134.72. Above, a 1.272% Fibonacci projection and a deep 88.6% Fibonacci retracement at ¥138.35ish will demand attention should further buying play out this week, as suggested on the higher timeframes.

Realised from the H1 timeframe, Friday came within reach of ¥136 and trendline support, taken from the low ¥131.73, and subsequently reclaimed ¥137+ status. ¥138, therefore, delivers a reasonable upside objective, though before buyers change gears, a retest of ¥137 could be seen with a whipsaw possibly unfolding into H1 prime support coming in at ¥136.38-136.77.

Technical Expectation:

Weekly resistance from ¥137.23 appears to be hanging by a thread. Couple this with scope to advance on the daily timeframe to ¥139.55 and the primary bull trend, buyers appear to have the upper hand as the market looks to step into September.

Should price form a pullback in early trading this week, chart studies indicate a whipsaw beneath ¥137 on the H1 could be seen, and a whipsaw into H1 prime support from ¥136.38-136.77 enough to perhaps entice buying interest to target ¥138.

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GBP/USD:

It was another disappointing week for sterling. Versus the US dollar, GBP/USD is 3.6 per cent lower, month to date, following last week’s 0.75 per cent slump that refreshed 2022 lows. The downside bias is unlikely to surprise technicians, particularly those who focus on trend direction and basic support and resistance.

$1.1958 exiting the fight as support in mid-August on the weekly timeframe uncovers the pandemic low of $1.1410. This, together with the primary bear trend since early 2021, places sellers in the driving seat for the time being. Adding to current trend direction on the weekly scale, the monthly timeframe shows the overall long-term downtrend has been soft since late 2007 tops at $2.1161.

From the daily timeframe, Friday’s bearish outside reversal candle (one which engulfed four previous daily candles) shines the technical spotlight on support at $1.1655 and $1.1683: two 100% Fibonacci projection levels. The daily chart also shows that the unit has been trading beneath its 200-day simple moving average since August 2021 (currently trading around $1.2832). Additionally, the relative strength index (RSI) is on the verge of dropping in on oversold territory.

Addressing both the H4 and H1 timeframes, H4 manoeuvred beneath 14th July low at $1.1760 on Friday and H1 price secured ground beneath $1.18 along with the decision point at $1.1744-1.1784, following a test of $1.19. This week has $1.17 calling to be tested on the H1 and H4 Quasimodo support at $1.1698.

Technical Expectation:

Longer term, GBP/USD remains bearish until at least the daily timeframe’s 100% Fibonacci projection levels at $1.1683 and $1.1655.

Short term, in line with the bigger picture, shows sellers likely have control until reaching at least $1.17 and H4 Quasimodo support at $1.1698. Thus, should a retest of $1.18 play out (or 14th July low at $1.1760) as resistance, sellers could be drawn to this level.

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