Dollar Tumbles, Correction Done?
Dollar is seen weaker against Euro earlier today after Eurozone PPI came in stronger than expected but the weakness spreads across the board when markets enter into the US session.
Lower than expected factory orders in Apr is giving little help to the greenback. The lack of sustainable reactions to last week’s positive data is a cause in triggering traders to ligtening dollar positions. On the other hand, overnight’s 7.7% fall in the Chinese stock market is seen as another reason as US stocks followed to open lower and in turn triggered some withdrawal from dollar based assets. But based on the relatively steadiness in yen crosses, it’s a little doubtful.
Anyway, technically speaking, today’s fall in dollar gives out a serious alert that the correction started in Apr has probably ended, with GBP/USD led the markets with a relatively stronger rebound last week and USD/JPY could have also topped in short term. EUR/USD was support above an important near term support while USD/CHF rally was limited by a trend line resistance. Focus will turn to ISM Services tomorrow but it will really take a super strong reading to give dollar a boost based on current sentiments.
EUR/USD
Daily Pivots: (S1) 1.3406; (P) 1.3434; (R1) 1.3475;
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EUR/USD’s rebound from 1.3391 extended further to as high as 1.3499 in early US session. Break of 1.3477 resistance argues that the fall from 1.3681 has already completed at 1.3391 with bullish convergence condition in 4 hours MACD and RSI. Moreover, the fact that 100% projection target of 1.3681 to 1.3461 from 1.3609 at 1.3389 was almost met add much credence to the case that fall from 1.3681 is merely a correction. This is also supported by 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369) remains intact.
Having said that, further rally is now expected to be seen towards short term falling trend line (now at 1.3531 first) and then 1.3609. Break will encourage further rally to retest 1.3681 high. Meanwhile, below 1.3430 support will turn intraday outlook consolidative again. But sustained break of 1.3364 cluster support is needed to confirm underlying bearishness.
In the bigger picture, even though another high above 1.3681 could now be seen, risk of medium term reversal is still high. 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, decisive break of 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369) is needed to confirm a medium term top is made. 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 1.3049).
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.
Shing-Ip Tsui is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.