Further Signs Of Trend Reversals

There is growing reason to be suspicious of the current state of dollar weakness, which has now failed to really appear in any meaningful way overall, save for a few exceptions. True, the European currencies are rallying, but the pace of rally is painfully slow which causes suspicion. With thanksgiving in the US, Thursday’s morning session was surprisingly perky, although obviously dropped off in the NY afternoon. European data was mixed with a worse than expected German unemployment number.

Friday sees European CPI although trading is expected to be slow and messy with month end flows to contend with in addition to the thin trading volumes. As such we may be in for a choppy day.

The Dollar fell on Thursday in quite a safe and contained way. It’s downward momentum has been seriously lacklustre, with the major resistance level turned support (shown in red) being a major problem to significantly hold below. The downward pressure of the bearish trend line has now backed the price action into a corner where it has to break one way or the other. Our suspicion is for a break to the upside, although we will have to see how the session progresses. RSI is firmly middle of the road too which is no help at all. I am mildly bullish USD

USD% Index Resistance (EURUSD support): EURUSD 1.3600, 1.3582
USD% Index Support (EURUSD support): EURUSD 1.3650, 1.3666

Overnight S&P upgraded Spain’s outlook from Negative to Stable, so it will be interesting to see the market reaction. It is certainly a good test of our current view that downside is expected, so a failure to rally on quite bullish Euro news will seal the deal for a drop lower. The EUR% index is currently at what could be considered the right shoulder of a medium time-frame bearish head and shoulders formation. The lack of momentum upwards suggests that any failure to continue may have eager Euro bears waiting to finally enter short. As such, a turn to the downside is suspected although confirmation will be sought. our bias is bearish EUR

EUR% Index Resistance: EURUSD 1.3625, 1.3635, 1.3650
EUR% Index Support: EURUSD 1.3600, 1.3550, 1.3500

Very interestingly the JPY% index has now tested the medium term bearish trend line shown at 102.52 and rejected well from it. It’s still early days yet, but this could signal a profit taking strengthening of the Yen, especially since the Nikkei has stalled somewhat, ending the session lower. We are still shy of the index yearly low shown at 103.00 which may still be tested in time, but for now our outlook is for a slight bounce in the Yen. I remain bearish JPY but expect a bounce from here in the short term

JPY% Index Resistance (USDJPY Support): USDJPY 102.00, 101.37
JPY% Index Support (USDJPY Resistance): USDJPY 102.50, 103.00


Thursday saw another up day for the pound although the performance was less than dazzling given the further bullish data from the UK. As such we may be approaching a medium term top in the pair and we may begin to see some downside unless 1.6350 can be held above convincingly. Overall there is a feeling that the Pound is stalling somewhat but it seems sensible to wait for proper bearish signals at this stage though. I am cautiously bearish GBP

GBP% Index Resistance: GBPUSD 1.6400, 1.6443
GBP% Index Support: GBPUSD 1.6300, 1.6246, 1.6187

After complaining in yesterday’s analysis that we hadn’t tested the 161.8% fib expansion, overnight we saw a nice drop to it and rejection higher. I suspect that we could see another drop to that level for perhaps a double bottom before the reversal higher since all indications are for upside from here I am bullish AUD although expect a retest of 0.9055

AUD% Index Resistance: AUDUSD 0.9087, 0.9149, 0.9180
AUD% Index Support: AUDUSD 0.9044, 0.9015

Much like the EUR% index, the CHF% index seems to be forming a nice bearish head and shoulder formation, although we have yet to see a failure of the current rally. If we do post a lower high then we should see a reasonable push lower from here. I am cautiously bearish CHF

CHF% Index Resistance (USDCHF support): USDCHF 0.9040, 0.8989
CHF% Index Support (USDCHF resistance): USDCHF 0.9143, 0.9188