Weekly Technical Market Insight: Week Ending 12th August 2022
Charts: Trading View
(Italics: Previous Analysis)
US Dollar Index:
Snapping a two-week correction, the US dollar—according to the US Dollar Index—staged a spirited recovery last week and added 0.7 per cent.
Upside interest initially developed following a retest of the 50-day simple moving average at 105.28 (moving averages can [and often do] deliver dynamic support and resistance as price frequently reverts to its mean) on Tuesday. Friday witnessed the buck extend recovery gains amid hotter-than-expected US payrolls data for July, action fuelling the possibility of larger near-term interest rate increases at upcoming Fed meetings. US unemployment fell from 3.6 per cent to 3.5 per cent, matching lows formed ahead of the Covid-19 pandemic in 2020.
Trend studies continue to favour buyers. Here’s where I left the previous weekly briefing in terms of trend direction (italics):
Unquestionably, trend on the monthly and daily timeframes is north. Aside from a 7-year range (forming a pennant chart pattern, taken from 103.82 and 88.25), monthly movement has been higher since early 2008. This is reinforced by the uptrend visible on the daily timeframe, exhibiting well-defined upward action since price made contact with support from 89.69 in May 2021.
The upside bias is also shown through the 50-day simple moving average crossing above the 200-day simple moving average (current: 99.75) in August 2021 (‘Golden Cross’).
As you can see, price action on the monthly timeframe broke out of the long-term pennant formation (considered a continuation signal). Additionally, I see the daily timeframe’s relative strength index (RSI) shaking hands with support between 40.00 and 50.00, an area delivering an oversold region since August 2021 (common in uptrends).
You may recall that I underlined a handful of potentially bearish elements to consider in recent writing, which remain relevant this week (italics):
The monthly timeframe remains within the walls of prime resistance at 109.77-104.96, together with the RSI demonstrating early negative divergence within overbought status (note that the weekly timeframe also shows negative divergence). Furthermore, daily resistance between 109.14 and 108.58 (made up of a 1.272% Fibonacci projection, a 1.618% Fibonacci expansion, and a Quasimodo resistance level) remains a potential obstacle.
According to chart studies, technical evidence supporting buyers surpasses the chart’s bearish features.
The current uptrend, coupled with dip-buying unfolding from the 50-day simple moving average at 105.28 last week, as well as monthly price completing a bullish pennant formation (rupturing its upper side) and the daily timeframe’s RSI shaking hands with support at 40.00-50.00, favours buying over the coming weeks/months (possibly with enough oomph to refresh multi-decade highs).
Europe’s shared currency wrapped up the week 0.5 per cent lower versus the US dollar, echoing another tentative week of trading. Notably, though, price action on the weekly timeframe did manage to cross swords with space around resistance at $1.0298, a level boasting technical relevance since the year 2000. The resistance test, together with the EUR/USD trading lower since the beginning of 2021, highlights a potential sell-on-rally scenario over the coming weeks.
In the context of trend, I added the following in my previous weekly briefing (italics):
Establishing a series of lower lows and lower highs, the general direction in this market reflects a primary bear trend, with prolonged pullbacks (or sometimes referred to as ‘secondary trends’) in short supply. Additionally, the monthly timeframe has been to the downside since topping in April 2008. On the assumption that sellers remain in command, the weekly timeframe’s next downside objective rests at a 1.272% Fibonacci projection from $0.9925.
Resistance at $1.0377 on the daily timeframe continues to draw attention as not only is it located nearby the weekly resistance level, it dovetails with daily trendline resistance, extended from the high $1.1495. The weekly timeframe’s non-committal tone is also shown on the daily chart through a clear range between $1.0276 and $1.0100.
Further analysis on the daily chart shows the relative strength index (RSI) attempting to hold south of the 50.00 centreline (negative momentum), following a rebound from oversold space in mid-July. Still, you will note that the indicator recently crossed above trendline resistance (drawn from the high 58.91) and retested the breached barrier at the end of July.
The recent rangebound performance is also observed on the H4 timeframe, fluctuating between a decision point at $1.0276-1.0235 and support coming in at $1.0125. Additional levels to be mindful of this week are Quasimodo support from $0.9998 and a Quasimodo support-turned resistance at $1.0354.
A closer examination of price action on the H1 timeframe shines the spotlight on $1.02, and two prime resistance zones sheltering the psychological level at $1.0236-1.0207 and $1.0231-1.0220. Lower, eyes are likely drawn to the $1.0147 3rd August low, the $1.0114 28th July low, and $1.01 which happens to share chart space with Quasimodo support from $1.0108.
Knowing that weekly price continues to touch gloves with space nearby resistance at $1.0298, in a market trending lower since 2021, a whipsaw north of $1.02 on the H1 into prime resistance at $1.0236-1.0207 should not surprise.
As a result, a H1 bearish close under $1.02 after testing the H1 prime zone could be sufficient to prompt a bearish scenario to take on H4 support at $1.0125 and test the $1.01 region on the H1 scale this week.
Against the US dollar, the Australian dollar finished the week 1.1 per cent lower. By way of an outside candle reversal (range high/lows), price action on the weekly timeframe confronted resistance from $0.6996 (backed by strong historical significance since 2020).
This follows a two-week recovery from support between $0.6632 and $0.6764 (composed of a 100% Fibonacci projection, a price support, and a 50% retracement), a move which many perhaps suspect is the beginning of a dip-buying theme after the one-sided advance from pandemic lows (19th March 2020). Overall trend direction, however, argues that this may not be a dip-buying market and additional selling could be on the table. I noted the following in previous analysis (italics):
Siding with the current weekly resistance is the currency pair’s trend: reflecting a primary downtrend since $0.8007 (22nd Feb high ). The monthly timeframe has also portrayed a downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is likely viewed as a deep pullback among chartists. Downside from the 2021 February top, therefore, might be seen as a move to explore lower over the coming weeks/months.
Meanwhile on the daily timeframe, price action acknowledged resistance at $0.7039 (sited just south of prime resistance at $0.7104-0.7080) at the beginning of last week (accompanied by a 38.2% Fibonacci retracement at $0.7051), bolstering the current weekly resistance level. A drop under daily support at $0.6901, and the daily chart’s relative strength index (RSI) voyaging under the 50.00 area (negative momentum), would add weight to the weekly timeframe’s bearish outside reversal.
Supply-turned demand at $0.6901-0.6862 entered the fight at the latter half of the week on the H4 timeframe, a base that not only has its upper edge fortified by daily support ($0.6901), but one that’s withstood numerous downside attempts since 21st July. If we do cross under $0.6901-0.6862, as suggested by the weekly timeframe, I have noted the possibility of creating a H4 harmonic bat pattern around $0.6724.
Should the unit reach this far south, it could also serve as a reasonable support target (for any shorts taken on the break of $0.6901-0.6862) as the pattern is within the weekly support area underlined above between $0.6632 and $0.6764.
The AUD/USD, fuelled by upbeat US employment data, plunged on Friday and price whipsawed through $0.69 to form a low a touch north of H1 Quasimodo resistance-turned support at $0.6861. Overhead, H1 trendline resistance is seen, taken from the high $0.7047, closely followed by prime resistance at $0.6976-0.6965.
Knowing the currency pair is working within a primary bear trend, a daily close below support at $0.6901 (which should include H4 supply turned demand at $0.6901-0.6862) is likely to motivate a bearish scene based on the weekly timeframe’s bearish outside reversal from resistance at $0.6996.
Consequently, H1 players will likely be watching for a close below $0.69 as an early signal of selling strength this week which may lead to a break of H1 Quasimodo resistance-turned support at $0.6861 to run for at least $0.68.
It was a good week for the USD/JPY currency pair, rallying 1.4 per cent and clawing back a large portion of the two-week correction from weekly resistance at ¥137.23. Based on the underlying trend fashioning dominant up moves since 2021 (primary bull trend), and weekly price challenging the upper boundary of a decision point at ¥126.40-131.30, last week’s recovery should not shock most technical analysts.
Follow-through buying over the coming weeks could overthrow current resistance, a move not only likely to refresh 24-month peaks but also one that throws light on weekly Quasimodo resistance at ¥146.79.
Supply-turned demand at ¥131.93-131.10 on the daily timeframe, which happens to be glued to the upper side of the weekly decision point, put in an appearance last week. Resistance is seen at ¥139.55: Quasimodo support-turned resistance that came within a whisker of putting in an appearance in mid-July. Interestingly, the daily timeframe’s relative strength index (RSI) has now reconnected with the lower side of its 50.00 centreline after coming within an inch of testing oversold space and forming hidden positive divergence.
Dethroning the 50.00 level this week would add weight to last week’s push, informing market participants that average gains are exceeding average losses (positive momentum).
From the perspective of the H4 timeframe, the week concluded by crossing paths with a trendline resistance, extended from the high ¥138.88. This follows a rebound from Quasimodo resistance-turned support earlier in the week at ¥130.58. Upstream, an ascending support-turned resistance is seen (drawn from the low ¥134.27) merging with a 100% Fibonacci projection from ¥136.65. Note that many ‘harmonic traders’ will acknowledge the 100% Fibonacci ratio as an AB=CD bearish pattern that’s accompanied by a 200% Fibonacci extension.
Shorter-term action on the H1 timeframe, nevertheless, demonstrates scope to travel higher this week to test prime resistance at ¥136.21-135.87 and perhaps reconnect with ¥137. Below, traders will note a Quasimodo resistance-turned support at ¥134.14 and the ¥134 figure.
The weekly and daily timeframes show buyers may strive to make contact with weekly resistance at ¥137.23 this week. Yet, before buyers attempt to make a show, sellers could reject H4 trendline resistance and force a retest of ¥134 on the H1 scale.
H1 prime resistance at ¥136.21-135.87 may trigger a mild reaction if tested, though it is unlikely to be anything to write home about as the area between weekly resistance at ¥137.23 and ¥137 on the H1 offers more technical appeal.
Sterling wrapped up the week on the ropes versus the US dollar (-0.9 per cent), sending a message to market participants that support on the weekly timeframe at $1.1958 is perhaps hanging by a thread. This is not a surprise as GBP/USD has chalked up an unmistakable primary bear trend since early 2021. Breaking $1.1958 reopens the risk of a return to the pandemic low of $1.1410.
I noted the following in regards to the trend in my previous weekly technical briefing (italics):
Trend direction has been bearish since February/May’s double-top formation on the weekly timeframe at around $1.4241 (2021). Furthermore, seen through the monthly timeframe, the long-term downtrend has been soft since late 2007 tops at $2.1161.
Addressing the daily timeframe, we can see that price movement closed the week out retesting a trendline resistance-turned support, taken from the high $1.3639. However, with the relative strength index (RSI) venturing below its 50.00 centreline (negative momentum), this signals price could indeed venture beneath trendline support and zero in on the two 100% Fibonacci projection levels at $1.1683 and $1.1655.
Against the backdrop of the bigger picture, H4 left the inverted head and shoulders pattern ($1.1876; $1.1760; $1.1890) profit objective at $1.2335 unchallenged in recent trading, topping around $1.2295 and falling to retest the pattern’s neckline (from the high $1.2056). Below is familiar support at $1.1933.
Finally, the H1 timeframe has price action on the doorstep of reaching the lower side of $1.21. This comes after a near-test of the widely watched $1.20 figure and a reaction from support between $1.1998 and $1.2027 (made up of Fibonacci ratios and the 50.0% retracement). Trendline resistance, drawn from the high $1.2293, is likely to be watched closely in the event of a $1.21 breach this week.
For weekly and daily timeframes, it’s all about the daily trendline resistance-turned support. Defending the descending line could mean buyers are willing to hold their ground north of weekly support at $1.1958, yet a downside move beneath the trendline support encourages a bearish phase and places a question mark on current weekly support.
Defending the lower side of $1.21 on the H1 scale in early trading this week might be viewed as an early sign of bearish strength which may lead to a daily close under the daily chart’s trendline support. Alternatively, a H1 close above the psychological level may be seen as buyer intent and imply further buying is likely to unfold from the daily level.
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