Euro Loses Steam

EUR/USD remains in a short-term downtrending channel with resistance formed from a line connecting the 12/3 and 12/12 highs and with support at a line connecting the 11/30, 12/15, and 12/18 lows. A break through the top of the channel could target the early December highs. However, easing oscillators could signal that price will continue to consolidate within the range and take aim on the support line of the channel which currently sits at 1.3020.

The USDJPY continues to be hemmed in by the massive resistance at the 118.50 level as the pair churns in one of the narrowest channels in recent memory. Typically the resolution of this compressed volatility action serves as an excellent forecaster of future directionality. Therefore, should the pair break above the 118.50 ceiling it may target the 119.87 high of 10/13. On the other hand a hard break below the 118.00 could well lead the pair lower to retest the recent lows below the 115.00 figure. Thus given these compressed conditions a breakout in either direction could be a potent signal. 

The GBP/USD backed off from formidable resistance at the 1.9750 level yesterday but price has started to edge back up towards the trendline formed from the 12/1 and 12/20 high. A break above and a subsequent probing of the 12/1 high could perpetuate GBP/USD towards the psychologically important 2.000 figure by year end. However, weakening oscillators may signal declines which could find the pair taking aim on support at the 11/29 and 12/18 low at 1.9432/33.

The USD/CHF having tagged and been rejected at the 38.2% fibo of 1.2769, 1.1878 at 1.2216, USD/CHF appears set for a double bottom retest of the 12/05 low of 1.1878  However, a move and close on the daily charts above the 1.2250 level  would open the way to the test of the 50% fibo at 1.2334. 

USD/CAD (Loonie) dropped from the resistance line of a channel formed from August highs and September lows, with price currently targeting the 12/5 low of 1.1379. The bearish bias is furthered by the recent downturn of MACD on the daily charts. Additionally, a solid break through trendline support currently resting at 1.1323 (and rising 4 points a day) would signal more significant declines to the 1.1200 level.

The AUD/USD after having made a double bottom on the hourly charts at .7790 the Aussie has regained strength as it consolidates at the .7850 level. The next move higher targets the .7890 swing high set on 12/13/06 just below the important .7900 level which the pair was unable to overcome on the first attempt higher. A break below the near term hammer at .7820 negates the bullish view and suggests yet another retest of recent lows at .7790.

The NZD/USD (Kiwi) momentum has started to grind to a halt just below the .7000 level, which is very near to a one year high. The daily charts show that NZD/USD could be in a monstrous head and shoulders pattern. If Kiwi's uptrend falters at the .7000 level, price could be set to make hefty declines towards .6000. However, a break above the 2/18/2004 high of .7095 could find price targeting the 12/12/2005 high of .7121.

Kathy Lien is the Chief Currency Strategist at Forex Capital Markets. Kathy is responsible for providing research and analysis for DailyFX, including technical and fundamental research reports, market commentaries and trading strategies. A seasoned FX analyst and trader, prior to joining FXCM, Kathy was an Associate at JPMorgan Chase where she worked in Cross Markets and Foreign Exchange Trading.