Dollar Rebounds Strongly, Medium Term Reversal in Sight?
Dollar rebounded strongly today, preventing euro from hitting a new record high against the greenback. Traders continue to lighten dollar short positions ahead of tomorrow’s Q1 GDP from US, which will be crucial in determining whether Fed will have a rate cut in 2nd half and thus the near term sentiments on dollar. Elsewhere, the Japanese yen continues to weaken across the board ahead of a string of important economic data from Japan including inflation, employment, manufacturing and retail sales. BoJ rate decision will also be announced in the coming Asian session and is widely expected to keep rates unchanged at 0.5%.
Technically speaking, note that both Euro and Sterling are yet to break firmly above medium term resistance. For EUR/USD, it’s still held by 04 high of 1.3668. For Sterling, it retreated since a brief and marginal break of 92 high of 2.0106. Risk of medium term reversal in both pair are continuing to increase. Further weakness in these two paris will likely mark the completion of the near term rally and thus give a serious warning signal of the completion of the medium term up trend that started in 2005.
GBP/USD
Daily Pivots: (S1) 1.9990; (P) 2.0026; (R1) 2.0049;
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Cable failed mentioned 2.0067 resistance. and fall from 2.0132 resumed by breaking below 1.9954, reaching as low as 1.9902 so far. The fall from 2.0132 should still be in progress as long as cable stays below 2.0067 resistance and further fall should be see to short term rising channel support (now at 1.9854). Break will encourage further decline towards next support of 1.9723/26. On the upside, above 2.0067 will indicate correction from 2.0132 has completed and bring retest of this high.
In the bigger picture, we’d like to point of that risk of medium term reversal is increasing. Firstly, the whole up trend from 1.7047 is not clearly impulsive. One interpretation is that rally from 1.7047 ended with three waves up to 1.9024. Subsequent correction ended at 1.8090. Rally from 1.8090 has already met mentioned target of 100% projection of 1.7047 to 1.9024 from 1.8090 at 2.0067. Secondly, regardless of the larger trend, rise from 1.8090 can be interpreted as being a five wave sequence with first wave ended at 1.9142, second at 1.8517, third at 1.9913 and fourth at 1.9183. The channeling property supports this interpretation too. In such case, the fifth wave rally from 1.9183 has also met target of 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046 too. With bearish divergence condition remains in weekly RSI and Daily MACD and key 2.0106 resistance (92 high) not decisively taken out, cable could be forming a top at the current price level.
On the downside, break of 1.9723/26 support will warn that the rise from 1.9183 has completed and put medium term rising channel support (now at 1.9447) back into focus. Firm break of the channel support will indicate that the whole rally from 1.8090 has completed and add much credence to the case that an important medium term top is already formed and put focus to 1.9183 low. However, a sustained trading above mentioned 2.0106 resistance will dampen the above interpretation and indicates that underlying bullishness in cable is much stronger then we thought. Further medium term rally should then be seen towards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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