Financial Advisor

FX Closing Note: Weekly FX candle-palooza

John J. Hardy, FX Consultant, Saxo Bank

We’re seeing a very interesting close to the week, with a plethora of interesting candlestick patterns worth close consideration. What do the technical tea leaves suggest is in store for the coming days and weeks?
Today we’ll run through a series of charts as we saw a number of very significant developments this week. Leading the pack among the G-10 currencies for this first week of the year was the Canadian dollar, which seems to be piggybacking on the USD strength now – certainly in the crosses. The US dollar was the second strongest currency of the week and managed to shrug off a relatively negative jobs report today to finish the week far stronger than it started it. The pound sterling was a close third.
On the weak side, we had a very weak Euro, weak CHF and a weak SEK as the troubled EuroZone fared poorly this week, and the somewhat weak close today saw the SEK trimming its sails, even while the franc made a sufficiently large comeback to avoid (the CHF reversal from recent outperformance to underperformance, the mirror image of the USD, was one of the more interesting developments this week.)
Below we highlight some of the more interesting charts and ponder what could be in store from a technical perspective in the coming weeks. Have a great weekend and stay careful out there. Volatility is heating up.

Charts
Chart: Weekly EURUSD
As we pointed out this morning, the pair was confronting the critical 1.2965 support zone and 40-week (200-day) moving average and it appears from today’s close that we have a failure of the support to hold, so this sets up a go lower at the next Fibo targets at around 1.2800 (0.618) and even 1.2450 (0.764). 
 Chart: Weekly USDCHF
Finally, the CHF has managed to weaken a bit – enough for USDCHF to make an important engulfing-ish reversal that takes it back well above the previous low, which was the basic resistance. This sets up a possible test higher to the parity area that was probed in late November/Early December.
 Chart: Weekly USDJPY
USDJPY was an interesting one for the week as well. The JPY was weak for much of the week, but the comeback today on a rally in bonds makes the set up far weaker than elsewhere, and if equities can ever figure out how to correct a bit lower, the commodities sell-off and bond rally are already providing a tailwind for the JPY. Also note on the daily USDJPY chart the important support just below 83.00 on the daily (from the Ichimoku cloud).
 Chart (Daily CADJPY)
Particularly noteworthy on the daily charts was CADJPY. CAD was the strongest currency this week, but note the vicious reversal precisely off the 200-day moving average today. An interesting one to watch next week after today’s close. 
 Chart: Weekly AUDJPY
AUDJPY has rallied in recent months, but note that each rally wave has seen progressively lower momentum. With the Aussie strength fading this week, the pair seems to be nearing an inflection point. Note the influence of the weekly Ichimoku cloud on the currency pair. The closing level this week is about half-way between the 200-week moving average around 85 and the weekly cloud support at around 80. A renewed bond sell-off and commodities rally means the pair probably tries higher, while a follow-through on today’s bond rally and equity sell-off could mean a sharp consolidation lower. It’s either/or time for the pair after the recent loss of momentum.
 Chart: GBPUSD
Not much to point out with this week’s GBPUSD close, save for the rare harami candlestick and inside week. Also note the influence of the 40-week (200-day) moving average at the last two touches – this is an important area. But strength in the pound and USD seem to be relatively correlated here, so the pair could remain choppy and not terribly directional. Still, interest rate spreads suggest that GBPUSD is very cheap right here.
 Chart: EURGBP
EURGBP re-established the downtrend with an exclamation point this week, engulfing the previous several weeks’ action and handily taking out the 40-week moving average again after the false break higher the previous week. Note the huge trendline in orange that goes way back and the 200-day moving average creeping higher towards 0.8200. 

 Chart: AUDUSD
An important bearish reversal in AUDUSD this week after the apparently false break in the last week of last year. This sets up an important resistance area for the pair. Note the trend-line from May/June and the 40-week moving average rising toward the big flatline support around 0.9400.
 Chart: AUDCAD
This is one of the more interesting AUD pairs to look at, as we discussed this morning. This week’s huge reversal suggests that a double top may now be in place and we may be looking for a test of the 40-week moving average in coming weeks.

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