Dollar Extends Rally

Dollar resumes recent rally against
majors today and quickly breaks through last week high as traders from US
enter the markets.
Strength in the greenback is impressive considering the negative news of Kuwait ending it’s USD peg and move to a currency basket which downgraded the dollar’s status. We have pointed out recently that dollar seems immune to negative news and data. And such a pattern could have prompted unwinding of some EUR/USD speculative carry trades as the dollar bearish scenario didn’t play out. Anyway, technically speaking it’s pointed out that risk of medium term reversal continues increase in both EUR/USD and GBP/USD and April’s high in both pairs could be the important medium term already. Believe the situation will be much clearer after release of durable goods and housing data this week and after dollar tests important resistance levels against both currencies


Daily Pivots: (S1) 1.3474; (P) 1.3497; (R1) 1.3531;


EUR/USD’s fall resumes after recovery was limited at 1.3525. Breaking of 1.3461 support, EUR/USD has now reached as low as 1.3435, touching 55 days EMA (now at 1.3438) as expected. At this point, the fall from 1.3609 should still be in force as long as 1.3525 holds and further decline is expected to follow towards 100% projection of 1.3681 to 1.3461 from 1.3609 at 1.3389. Above 1.3525 will indicate fall from 1.3609 has possibly made bottomed. But it will take a strong rebound to above 1.3609 resistance to confirm that decline from 1.3681 has completed. Otherwise, short term risk remains on the downside.

In the bigger picture, risk of 1.3681 being an important medium term top continues to increase. As discussed before, medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 is treated as resumption of the whole up trend from 1.1639. With such interpretation, we’d expect risk of medium term reversal to increase significantly after EUR/USD met resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, focus is now on reversal signals.

On the downside, break of the short term rising channel support is already a warning that the rise from 1.2865 has completed. Decisive break of 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369) will confirm such case. More importantly, with bearish divergence condition in daily MACD and RSI, this will warn that the whole rally from 1.2483 has also completed, and, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.3032).

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