The financial markets jittered on geopolitical worries in both Ukraine and Israel last week but the impact quickly faded. Looking beyond the volatilities, there were a few developments to note. Stocks extended the bull run with DOW hitting new record high of 17151.56. Despite a steep retreat, the index recovered strongly to close the week at 17100.18. SP 500 also managed to defend recent range to close at 1978.22, maintaining near term bullishness. Dollar index also extended recent rebound and reached as high as 80.68 before closing at 80.50. In the currency markets, Euro and Swiss Franc dropped sharply over the weak and the sell off also dragged down Sterling. Nonetheless, they were overshadowed by Kiwi, which reversed from a long term resistance after inflation data missed expectations. On the other hand, Australian dollar was firm as supported by data from China. Canadian dollar’s decline paused after BoC. Yen attempted for a rally on risk aversion but couldn’t push through key resistance level against the greenback.
Technically, DOW’s uptrend remained intact and is still in progress to 100% projection of 14719.43 to 16588.25 from 15340.69 at 17209.51. We’d be cautious of strong resistance from there as upside momentum is a bit unconvincing as seen in mild bearish divergence condition in daily MACD. But break of 16805.38 support is needed to confirm short term topping of out look will stay bullish.
Dollar index reached as high as 80.68 last week as the rebound from 79.74 extended. The move away from 55 days EMA affirmed near term bullishness and we’d probably see further rise to test trend line resistance at around 80.9. A key to the development is whether EUR/USD could defend 1.3476 key support level. In any case, near term outlook in dollar index will stay mildly bullish as long as 80.36 resistance turned support holds. We’d pay attention to how it reacts on the trend line.
In the currency markets, the greenback looked firm in general except against the Japanese yen. EUR/USD breached 1.3502 support last week which confirmed resumption of fall from 1.3993. The sharp fall in GBP/USD also confirmed near term topping at 1.7179. USD/CAD has likely formed an important bottom at 1.0620, just ahead of 1.0608 key support level, as well as the long term trend line. AUD/USD’s consolidation from 0.9504 is expected to continue with another fall later. So, the overall development favors the greenback. The main question is whether EUR/USD could take out 1.3476 key support level decisively. Or a strong rebound from there could reverse dollar’s fortune.
Euro remained the weakest currency this month together with the Swiss Franc. EUR/JPY’s recent declined continued and is heading to 136.22 key support level. While EUR/CAD and EUR/AUD stayed above recent low of 1.4439 and 1.4358 respectively, price actions from these two level did look corrective. And thus, the bearish outlook in both crosses was maintained. While EUR/GBP lost momentum as seen in bullish convergence in 4 hours MACD, there is no confirmed indication of bottoming yet and the outlook is still bearish.
The development in the Japanese yen was a bit mixed. While EUR/JPY was clearly bearish, the outlook in USD/JPY and GBP/JPY was rather unclear. USD/JPY is holding on to key support level at 100.61/82 and we didn’t see any strong downside momentum for pushing through this level yet. The pair could rebound strongly from the current level any time. Meanwhile, GBP/JPY has also been rather resilient and we won’t really turn bearish on it unless 172.36 support is firmly taken out. Also, the rally in stocks would continue to limit yen’s strength.
Regarding trading strategies, we’ve closed the EUR/GBP short position last week after the anticipated break of 0.7914 support. As bullish convergence condition is seen in the 4 hours MACD of the cross, we’ll stay away from it first. The above analysis suggests that EUR/USD short would be a profitable trade ahead. And we’ll sell EUR/USD this week. But again, considering that it’s close to key support level of 1.3476, we’ll keep out stop tight at 1.3580 to guard against a powerful rebound. Our AUD/CAD short still didn’t yield any result. However, the cross is clearly struggling from 55 days EMA and below 1.0117 resistance. We’ll stay short with top at 1.0120 for eventual resumption of fall from 1.0349.
EUR/USD’s break of 1.3502 support confirmed resumption of fall from 1.3993. Deeper decline is expected this week for 1.3476 key support level first. Decisive break there will carry larger bearish implication and would target 61.8% projection of 1.3993 to 1.3502 from 1.3700 at 1.3397. However, it should noted that the pair is close to 1.33476 key support as well as the long term trend line. Rebound from current level and break of 1.3575 could indicate near term reversal and will turn bias back to the upside for 1.3700 resistance instead.
In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. The choppy rise from 1.2042 is seen as a leg inside the pattern. Bearish divergence condition in daily and weekly MACD raises the chance that this leg is finished at 1.3993 already. Break of 1.3476 support will confirm this bearish case and should target 1.2755 and below. Meanwhile, break of 1.3993 is needed to confirm rally resumption. Otherwise, we won’t turn bullish even in case of strong rebound.
In the long term picture, EUR/USD turned into a long term consolidation pattern since reaching 1.6039 in 2008. Such consolidation is still in progress. And break of 1.2042 will likely pave the way to 61.8% retracement of 0.8223 to 1.6039 at 1.1209. Before that, EUR/USD would continue to engage in sideway trading between 1.1875 and 1.5143 in medium term.