Weekly Technical Market Insight: Week Ending 29th April 2022

Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index (Daily Timeframe):

Sealing its third consecutive week in positive terrain, the US Dollar Index (USDX) added 0.6 per cent and refreshed year-to-date highs of 101.33. The tail end of the week welcomed healthy buying following a retest of the widely watched 100.00 base, aided by channel resistance-turned support, taken from the high 96.94. This led Friday to within the walls of neighbouring prime resistance at 101.79-101.04, which if taken this week, sets the stage for an approach to resistance at 102.95.

Trend studies support the breach of the aforementioned prime resistance, exhibiting well-defined upward movement since price made contact with daily 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 in August 2021 (‘Golden Cross’).

Further adding to trend studies, we can see the weekly timeframe, although displaying a long-term range since 2015 (fluctuating between 103.82 and 88.25), was entrenched within a dominant bullish move since May 2011 (72.70). For that reason, the longer-term (OVERALL) trend is supportive of the current 11-month up move seen on the daily scale.

Momentum, based on the relative strength index (RSI), unearthed the possibility of bearish divergence last week as the indicator continues to touch gloves with overbought territory. What this means is upside momentum is in the process of slowing, yet this is not a guarantee of a price reversal. Should we punch higher, indicator resistance is seen within overbought space at 79.23, whereas a dip lower shifts focus to support between 40.00-50.00: a ‘temporary’ oversold region since August 2021.

Technical Outlook:

Trend studies support further buying this week. As a result, prime resistance from 101.79-101.04 could abandon position and eventually permit movement to resistance at 102.95. However, before buyers change gears, traders are encouraged to prepare for sellers to attempt to defend current prime resistance, which may activate rangebound action.

EUR/USD Technical Analysis:

Despite catching a mid-week tailwind, it comes as no surprise to see Europe’s shared currency conclude another week underwater against the US dollar. Pencilling in a third consecutive negative close has EUR/USD threatening a break of weekly support this week; buyers and sellers remain squaring off at a weekly Quasimodo support from $1.0778, complemented by channel support (extended from the low $1.1186).

As underlined in the previous report, buyers are somewhat hindered by the visible downtrend, dominant since the beginning of 2021. Adding to this, seen clearly from the monthly timeframe, the overall vibe has been to the downside since topping in April 2008. Voyaging beneath weekly supports calls on another Quasimodo formation at $1.0517, a level extended from November 2015.

Price movement on the daily timeframe, following Thursday’s shooting star candlestick pattern and Friday’s bearish follow-through, places a question mark on the ascending line, drawn from the $1.0340 3^rd January low 2017. In a market trading south of its 200-day simple moving average at $1.1410, the pandemic low of $1.0638 calls for attention on the daily scale should sellers strengthen their grip. Out of the relative strength index (RSI), the indicator’s value continues to explore sub-50.00 after failing to find acceptance north of the centreline in March. This informs traders and investors that this timeframe’s momentum remains negative and could head for oversold territory.

H4 local resistance at around $1.0925ish (marked yellow) proved a healthy ceiling. Primary analysis documented that this area would likely break if confronted again, permitting the unit to shake hands with the Quasimodo support-turned resistance at $1.0961 and nearby decision point at $1.0990-1.0963. Evidently, $1.0925 was stronger than anticipated. As the currency pair moves into a fresh week, Quasimodo support is within striking distance at $1.0758; a break unlocks the door to another Quasimodo formation at $1.0655.

Early London witnessed a short-lived effort to defend $1.08 on the H1 scale Friday, unable to engulf $1.0845 before reclaiming the noted psychological base heading into US hours ($1.08 may form resistance going forward). H1 Quasimodo support is plotted nearby at $1.0769 (sat just above the H4 Quasimodo support at $1.0758), nestled closely with trendline resistance-turned support, taken from the high $1.1185. Below here re-opens the risk of a return to H1 support at $1.0727 and $1.07.

Technical Outlook:

Medium term:

Crosshairs are likely fixed on lower levels this week. The clear downtrend, together with lacklustre bullish interest from weekly supports and the daily timeframe’s ascending line, indicates further underperformance is perhaps on the menu, targeting pandemic lows of $1.0638.

Short term:

The medium-term’s downside bias suggests the currency pair may pursue levels beyond the H1 and H4 Quasimodo supports at $1.0769 and $1.0758, respectively. Should H1 maintain position beneath $1.08, H1 support at $1.0727 and the $1.07 might be viewed as reasonable downside objectives this week.

AUD/USD Technical Analysis:

For those who read recent analysis you might recall that the technical backdrop projected broader AUD/USD downside. In conjunction with spirited demand for the US dollar and downbeat risk sentiment, the currency pair recognised sharp losses last week, erasing 2 per cent and extending month-to-date losses to 3.2 per cent. Latest developments out of the weekly timeframe has price action at the doorway of prime support from $0.6948-0.7242.

While this area has capped selling since September 2020, the trend suggests that surpassing the area could be seen in the coming weeks. The monthly timeframe has portrayed a downtrend since August 2011, indicating the pullback (February 2022 to current) on the weekly timeframe has likely been viewed as a ‘sell-on-rally’ theme and not a ‘dip-buying’ opportunity within the 2020 advance from pandemic lows of $0.5506 (march 2021).

Erasing an eye-watering 1.7 per cent on Friday guided the daily timeframe beneath the 200-day simple moving average at 0.7292. Alone, this is considered by many technicians as a sign of strong bearish interest: price is now below the average price for the previous 200 trading days.

Neighbouring 61.8% Fibonacci retracement at $0.7234 is now a talking point, a level derived from $0.6968 (28^th Jan low) and $0.7661 (5^th April high). Also of relevance is daily support at $0.7165 as clearing this level potentially frees downside to a familiar daily decision point at $0.6964-0.7040. Interestingly, this area is fixed within the lower limits of weekly prime support mentioned above at $0.6948-0.7242.

Across the page on the H4 timeframe, the technical window reveals price ended the week testing Quasimodo support at $0.7246. This was the result of a one-sided decline below support at $0.7349 (now a marked resistance) and trendline support, etched from the low $0.6968. While technicians will note potential support from $0.7165 (15^th March low), Fibonacci support between $0.7117 and $0.7153 is featured, should sellers press on this week. We can also see additional support in the form of a Quasimodo formation at $0.7109.

Activity on the H1 timeframe wrapped up the week retesting support-turned resistance at $0.7246 and demand at $0.7216-0.7236. Above resistance shines light on $0.73 and a prime resistance at $0.7313-0.7302, while beneath current demand shows $0.72.

 

Technical Outlook:

Medium term:

Although weekly price could observe attempts to defend prime support at $0.6948-0.7242, the trend points to lower levels. Consequently, we may see this area challenged this week. If daily price overthrows support at $0.7165, this will likely be regarded as a strong technical signal that further softness is on the menu towards the daily decision point at $0.6964-0.7040.

Short term:

Clearance of H4 Quasimodo support at $0.7246 would provide an early cue that this market might seek lower prices. Not only does this help confirm further bearish action on the bigger picture, it places H1 demand at $0.7216-0.7236 and $0.72 in a vulnerable position and we may be headed for daily support mentioned above at $0.7165.

USD/JPY Technical Analysis:

Upside continued to gain traction last week, adding 1.7 per cent and recording its seventh consecutive week in the green. Month to date, the currency pair is higher by 5.6 per cent, following March’s 5.8 per cent rise. Year to date, we’re higher by nearly 12 per cent, followed only by USD/CHF at 5.2 per cent.

Weekly support remains obvious at ¥125.54 and, interestingly, there’s scope for further gains to as far north as ¥135.16: 28^th January high (2002) on the weekly scale. However, traders and investors are urged to pencil in the possibility of a retest of ¥125.54 prior to registering fresh highs.

Heading into the second half of the week, nonetheless, the daily timeframe took a ‘breather’ and shaped a pennant formation, which is sometimes referred to as a ‘half-mast formation’ (¥129.41/¥127.46) and is generally viewed as a continuation configuration. One of the most important identification features is the sharp up move prior to the pattern, of which we have. In the event USD/JPY continues to press higher and breaks above the current pennant, supply from ¥130.65-129.57 is the next hurdle buyers must overcome.

Adding to the daily timeframe’s technical picture, we can see the relative strength index (RSI) peaked around 87.52 resistance on two occasions (a level boasting historical significance as far back as 2014). Note that this is technically the early stages of a double-top within the RSI with the neckline stationed around the 66.78 31^st March low. Exiting overbought space is considered a bearish indication by many technicians. Still, in upward facing markets, such as the one we’re clearly in now, false bearish signals are common. If the RSI value does eventually tunnel lower, the 40.00-50.00 area of support may be targeted (served as a ‘temporary oversold’ base since May 2021).

In terms of the H4 chart, there’s not much to add that has not been covered by the daily and weekly timeframes. Weekly support is a key base on the H4, closely shadowed by H4 support at ¥125.11, while daily supply commands attention to the upside at ¥130.65-129.57.

Drilling down to the H1 timeframe, nonetheless, you will observe price confronted the lower side of ¥129 in early US trading hours on Friday (joined by a 100% Fibonacci projection at ¥129.05 and a 1.272% Fibonacci extension at ¥129.02). Lower, trendline support can be seen intersecting with the ¥128 figure (drawn from the low ¥121.28) and the 38.2% Fibonacci retracement at ¥127.75 (as well as the 50.0% retracement at ¥127.82).

Technical Outlook:

Medium term:

Having noted room to appreciate on the weekly timeframe to ¥135.16, and the daily timeframe in the process of fashioning a pennant pattern, casts a bullish light over this market. If the currency pair establishes a decisive breakout above the current pennant formation and price makes its way into daily supply from ¥130.65-129.57, this is then likely to be considered a buyers’ market.

Short term:

The H1 timeframe’s support area between ¥127.75 and the ¥128 figure may interest short-term dip-buying strategies if tested this week. Equally, a breakout above ¥129, knowing there’s scope to at least reach the lower side of daily supply at ¥129.57, might be recognised as a short-term (bullish) breakout theme.

GBP/USD Technical Analysis:

It was a tough week for the British pound, wrapping up lower by 1.7 per cent versus the US dollar. Friday nosedived 1.5 per cent, a move triggered on the back of disappointing retail sales data for Great Britain in March; the release noted a 1.4 per cent fall in the prior month.

Technically speaking, the price tumble is unlikely to have alarmed technicians. You may recall recent analysis noted the following in terms of trend direction and technical structure on the weekly timeframe:

Long-term trend direction on the weekly chart has been southbound since late 2007 tops at $2.1161. As a result, the 25 percent move from pandemic lows ($1.1410) in March 2020 to February 2021 ($1.4241) might be viewed as a pullback within the larger downtrend.

This, of course, places a question mark on the 8.5 percent ‘correction’ from February 2021 to April 2022, suggesting the possibility of continuation selling. The bearish trend, in addition to price rejecting the lower side of weekly prime resistance at $1.3473-1.3203 with room to push towards weekly support at $1.2719, adds to the bearish environment. Thus, support at $1.2719 is likely a key watch this week.

As evident from the daily timeframe, Friday’s one-sided decline landed price action at the 50.0% retracement from $1.2826 ([green] this informs traders that we’ve reclaimed 50 per cent of the advance seen during the pandemic from March 2020), which happens to be stationed just north of Quasimodo support at $1.2762. The daily timeframe’s relative strength index (RSI) is now within reach of oversold space. Should the indicator form a bottom at this point, bullish divergence could be on the table (suggests that downside momentum is weakening).

From the H4 timeframe, the latest selloff dragged price action through a number of support levels, all of which now represent resistance. Immediate support falls in at $1.2789 on the H4 scale and resistance warrants attention around the $1.2868ish neighbourhood. A closer look at price movement on the H1 timeframe shows that the currency pair made short work of $1.30 in early European hours on Friday, pressured lower amidst lower-than-expected retail sales for Great Britain (see above). US hours subsequently retested the lower side of $1.29 and made its way sub $1.2850. $1.28 is now close by this week.

Technical Outlook:

Medium term:

The weekly timeframe demonstrates scope to approach support at $1.2719, placing the daily timeframe’s 50.0% retracement at $1.2826 and Quasimodo support at $1.2762 in a vulnerable position.

Short term:

In line with the weekly timeframe, chart studies on the H4 show room to drop in on support at $1.2789, and the H1 to approach $1.28. As a result, short-term action suggests a bearish phase early week towards the $1.28 region, with the possibility of a $1.2868 retest emerging before (H4 resistance).

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