Weekly technical market insight: Week ending 8th July 2022

US Dollar Index

Against a basket of six international currencies, the US dollar settled the week in positive territory and added 1.0 per cent. In keeping with the daily scale, more topside is likely to come with the possibility of refreshing near-two-decade peaks and reaching for Quasimodo resistance at 106.97. Trend studies remain unchanged on the daily chart and reinforces additional buying. Direction has exhibited well-defined upward movement 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 (trading at 98.14) in August 2021 (‘Golden Cross’). The 50-day simple moving average at 103.43 is an obvious dynamic support to remain aware of this week, sharing chart space with a nearby ‘acceleration’ trendline support, taken from the low 95.17.

Through the relative strength index (RSI) on the daily chart, momentum studies remain moderately positive (following negative divergence [red line]) north of support between 40.00-50.00: a ‘temporary’ oversold region serving the indicator well since August 2021 (common view in strongly trending environments).

Higher up on the curve, the greenback punctured the upper limit of a near-six-year consolidation at 88.88-102.19 on the monthly timeframe. Subsequently, May and June established a ‘throwback’ and retested the breached border to create support. Some technicians may also acknowledge the rectangle area as a pennant formation, a well-known continuation signal taken from 103.82 and 88.44. However, while the breakout of the said patterns is likely to be interpreted as bullish, long-term monthly prime resistance at 109.77-104.96, together with the monthly timeframe’s relative strength index (RSI) demonstrating early bearish divergence within overbought status, echoes a bearish setting.

Technical expectation:

Having noted the monthly prime resistance at 109.77-104.96, sellers could begin making their presence felt over the coming weeks/months. The question is whether we’ll see daily price stretch for the Quasimodo resistance at 106.97 before sellers attempt to put on a show. A break of the 50-day simple moving average at 103.43 and daily ‘acceleration’ trendline support would likely be viewed as medium-term bearish ‘confirmation’.

EUR/USD

It was a particularly disappointing week for EUR/USD, shedding 1.2 per cent and consequently further undermining weekly support between $1.0298 and $1.0445, made up between Quasimodo resistance-turned support at $1.0298, 2nd January low at $1.0340 (2017), and a 100% Fibonacci projection at $1.0445 (AB=CD harmonic bullish formation). The lack of bullish interest from the aforementioned area should not surprise. The general direction in this market reflects a primary bear trend, establishing a series of lower lows and lower highs since 2021. Adding to this, seen from the monthly timeframe, the vibe has been to the downside since topping in April 2008. The trend, therefore, is likely one of the main factors discouraging any meaningful buying from current weekly support. Should weekly flow remain beneath Quasimodo support-turned resistance from $1.0778—capping upside since the beginning of June—and eventually strip away current support (as the trend suggests), a 1.272% Fibonacci projection might be targeted beneath parity at $0.9925.

Fusing with current weekly support is Quasimodo support on the daily timeframe from $1.0377, a level that welcomed buyers in May and in mid-June. Interestingly, paltry buying derived from the aforesaid daily level remains a concern for any current bids, particularly following Friday’s bearish close on the doorstep of the level. Engulfing $1.0377 this week, then, is possible, a move that exposes daily support coming in at $1.0182—sited beneath the current weekly support zone. For those who follow the relative strength index (RSI), the daily chart shows the indicator’s value—south of the 50.00 centreline—is on the verge of penetrating trendline support, taken from the low 23.08. If the momentum gauge does indeed grip lower levels, this helps ‘confirm’ a bearish existence and oversold space will call for attention, alongside indicator support at 21.87.

Quasimodo support from $1.0354 on the H4 timeframe came within touching distance last week, arranged south of the noted daily Quasimodo support at $1.0377. H4 supply resides overhead at $1.0469-1.0430 (which was tested heading into the close) with a break here throwing light on prime resistance coming in at $1.0535-1.0505. Both areas are likely on the watchlists this week, having noted the higher timeframes favouring sellers at the moment.

A closer reading of price action on the H1 timeframe reveals the currency pair took on bids at $1.04 on Friday, clearing out the majority of buyers within the surrounding area after touching a low of $1.0366. The $1.04 whipsaw might be enough for price to reach supply at $1.0471-1.0447 and a local trendline resistance, drawn from the high $1.0606. Traders may acknowledge the said supply merges closely with H4 supply mentioned above at $1.0469-1.0430.

Technical expectation:

The weekly timeframe displaying minimal respect for support at $1.0298-1.0445, in a market firmly trending lower, together with a lack of interest seen from daily Quasimodo support at $1.0377, unearths a probable bearish showing.

Consistent with higher timeframes, a short-term pullback on the H1 to test supply at $1.0471-1.0447 and a local trendline resistance could draw in sellers to take aim at space beneath $1.04. Reinforcing the H1 zone, as highlighted above, is H4 supply from $1.0469-1.0430.

AUD/USD

Despite a phase of hesitancy, the Australian dollar deserted hopes of rejuvenating a bid against its US counterpart last week. Communicating a downside bias since early 2021, coupled with scope to test weekly support between $0.6632 and $0.6764 (composed of a 100% Fibonacci projection, a price support, and a 50% retracement), price action on the weekly timeframe eventually dropped in on the said support last week and fashioned a mild end-of-week correction from the upper side of its base.

In terms of trend, I feel it is worth readdressing the direction of this market.:

The monthly timeframe has 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 long-term chartists. Downside from the 2021 February top (an early primary bear trend), therefore, is potentially seen as a move to explore lower over the coming weeks.

Also swinging the technical pendulum in favour of sellers in recent weeks, of course, was daily price threatening to consume Quasimodo support at $0.6901 and the chart’s relative strength index (RSI) continuing to explore space under its 50.00 centreline (negative momentum). As you can see, latest developments show Friday probed below $0.6901 and consequently sponsors a possible move to daily support this week at $0.6678 (sits within weekly support).

Addressing the H4 timeframe, the currency pair rebounded from support at $0.6772 on Friday and wrapped up the week on the doorstep of resistance at $0.6833, a level sheltered under another resistance level from $0.6867 which intersects with supply at $0.6901-0.6862. Sharing chart space with $0.6833 resistance on the H4 is H1 Quasimodo support-turned resistance at $0.6842, while mingling with H4 resistance at $0.6867 (and H4 supply from $0.6901-0.6862), we can see another H1 Quasimodo support-turned resistance close by at $0.6862.

Technical expectation:

Long term, technical studies show sellers have been in control for most of 2021 and 2022. Though, last week had weekly price shake hands with support between $0.6632 and $0.6764 which could inspire buyers this week. On the other side of the field, daily price channelling through $0.6901 support projects additional losses towards daily support from $0.6678 (organised within the weekly support zone).

Siding with sellers, the H4 chart draws attention to supply at $0.6901-0.6862 and neighbouring resistances at $0.6867 as well as $0.6833. Note that the above-mentioned structures also share a connection with H1 resistances between $0.6862 and $0.6842, and therefore could be a range that the charts witness sellers put in an appearance from this week.

USD/JPY

Moulded by way of back-to-back half-hearted ‘shooting stars’ (bearish), the weekly timeframe shows price crossed swords with resistance forged between ¥137.23 and ¥136.04. Although exhibiting signs of slowing momentum, is this sufficient to motivate a reversal over the coming weeks, in a market displaying a dominant primary bull trend since 2021? Support on the weekly timeframe falls in at ¥125.54, tucked under the ¥126.36 swing low (24th May).

Once again, supply-turned demand at ¥131.93-131.10 on the daily chart merits consideration this week. Price responded from the zone in mid-June, yet, given active weekly resistance (above) was unable to reach ¥139.55, a Quasimodo support-turned resistance. Through the relative strength index (RSI) on the daily chart, the popular momentum gauge demonstrates diminished momentum since the indicator delivered negative divergence on 14^th June. Indicator support between 40.00 and 50.00, therefore, is an obvious base to monitor this week, an area serving as a ‘temporary’ oversold zone since May 2021 (common in strongly trending environments).

Following a failed attempt to pursue higher levels in the second half of the week, selling within weekly resistance guided H4 price to a nearby trendline support, extended from the low ¥126.86. Technically speaking, this trendline support is a critical level in early trading this week. Should buyers endorse the ascending line and price attempts to invade weekly resistance once more, this informs market participants that buyers remain behind the wheel. However, it’s important to note that a whipsaw (stop run) of the trendline support (and maybe even the ¥134.27 23^rd June low) could also unfold in order to create liquidity for additional buyers. On the other hand, a decisive bearish close beyond the current trendline support (one that preferably follows up with a retest) could be interpreted as a signal that the currency pair is headed for at least H4 support at ¥133.60.

The ¥136.21-135.88 prime resistance on the H1 scale is on the radar this week (housing the ¥136 figure), while in terms of support I am looking at ¥135 and a Quasimodo formation at ¥134.73. In the event of a close under ¥134.73, ¥134 calls for attention and at the same time would help confirm bearish intention below the H4 timeframe’s trendline support. Nevertheless, traders are also encouraged to pencil in the possibility of a pullback to the H1 prime resistance noted above at ¥136.21-135.88 before sellers make a play, if at all.

Technical expectation:

Having noted weekly resistance holding price, with scope to manoeuvre lower, a break of trendline support on the H4 timeframe may be seen. However, sellers are unlikely to have conviction in any bearish setups until H1 closes under the H1 Quasimodo support from ¥134.73, a move opening the trapdoor to ¥134.

Alternatively, as noted in the main body of text, a pullback to the H1 prime resistance at ¥136.21-135.88 may occur prior to any bearish assault this week.

GBP/USD

Pound sterling finished June miserably, registering a 3.4 per cent loss against the US dollar. The final week of June also observed GBP/USD erase 1.5 per cent and dip a toe under the widely watched $1.20 mark amid declines in UK government bond yields.

Through the lens of a market technician, trend direction has been unmistakably bearish since February/May’s double-top formation on the weekly timeframe at around $1.4241. Furthermore, seen through the monthly timeframe, the long-term downtrend has been soft since late 2007 tops at $2.1161. Hence, despite mid-June’s reaction from Quasimodo support at $1.1958, buying has been supressed. Violating $1.1958 unmasks the pandemic low of $1.1410 as the next reasonable downside target. In terms of where I stand on the daily timeframe, the current weekly Quasimodo formation serves as clear support. Upstream directs focus to trendline resistance, taken from the high $1.3639. In conjunction with the weekly chart’s bearish vibe, the daily timeframe’s relative strength index (RSI) remains under its 50.00 centreline (negative momentum).

As demonstrated on the H4 chart, Friday recovered from an ‘alternate’ AB=CD bullish structure (1.272% Fibonacci projection) at $1.2025. Commonly, traders regard the 38.2% and 61.8% Fibonacci retracement ratios (derived from legs A-D) as upside objectives ($1.2140 and $1.2242). Supply from $1.2165-1.2107 also entered the fight late on Friday (enclosing the 38.2% Fibonacci retracement). Downstream on this timeframe has support at $1.1933 to target. Out of the H1 timeframe, US hours on Friday saw a momentary dip beneath $1.20, touching a low of $1.1976. Price, however, settled 100 pips higher at $1.21, a move which saw the unit touch gloves with a Quasimodo support-turned resistance level at $1.2110.

Technical expectation:

Longer-term technical studies show weekly Quasimodo support at $1.1958 is likely to be challenged this week. A decisive close south of here tips the currency pair in favour of further downside, in line with the current downtrend.

Short term, in conjunction with the bigger picture, H4 supply from $1.2165-1.2107 may be a location sellers put in an appearance from this week, bolstered by H1 resistances: Quasimodo support-turned resistance at $1.2110 and H1 trendline resistance around $1.2136.