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FX Analysis – Technical Outlook (2015-08-17)

by James Chen

EUR/USD

james-chen-EURUSD-2015-08-17

EUR/USD (daily chart shown below) fell back down towards the key 1.1100 level on Friday after preliminary GDP data from Germany, France, and Italy were all reported to have grown less than expected in the second quarter. Overall, the euro zone economy grew by only 0.3% quarter-on-quarter in the period from April to June, against expectations of 0.4%.

This data helped pressure the euro despite a modest surge for the shared currency early on Friday that was prompted by the Greek parliament voting to pass the country’s third bailout agreement.

Also weighing on the EUR/USD on Friday was an enduring US dollar that, despite an earlier drop, was quick to recover its resiliency against other major currencies.

Prior to Friday, EUR/USD had seen more than a week of gains from just above the 1.0800 support level. Earlier this week, those gains had pushed the currency pair above both its 50-day moving average and prior resistance around the noted 1.1100 level.

Above 1.1100, EUR/USD then rose higher to reach, but not quite breach, major resistance around its 200-day moving average. A sustained close above the 200-day moving average has not occurred since mid-year last year. Furthermore, in the past week, the currency pair has not been able to break appreciably above this 200-day moving average.

With any re-breakdown and sustained trading below the 1.1100 level, EUR/USD could resume its bearish stance as the euro shrugs off positive developments in the Greek debt crisis and the US is likely to raise interest rates this year, leading to a further potential strengthening of the dollar.

In the event of such a turn back to the downside, EUR/USD could reverse its gains of the past two weeks and fall once again back down towards the key 1.0800 support level. A further breakdown below 1.0800 should target multi-year lows around the 1.0500 support objective.

In the short-term, key intermediate resistance to the upside on any further rebound above the 200-day moving average currently resides around the 1.1300 level.

AUD/USD

james-chen-USDJPY-2015-08-17

Despite having established a new six-year intraday low at 0.7215 mid-week last week, AUD/USD quickly rebounded off that low to end up all the way up near the 0.7400 level on a US dollar drop and a surge in gold. These market moves were caused in part by China devaluing its currency, which temporarily prompted turmoil in the global equity markets and renewed questions over the timing of a US Fed rate hike.

Later in the week saw a slightly different story unfold, however, as the US dollar and global equities steadied and gold began to falter once again. This caused AUD/USD to trade down from Wednesday’s highs and begin to resume its bearish stance.

Bounces and relief rallies notwithstanding, AUD/USD should continue to be pressured to the downside in the long-term in light of several different factors, including China’s apparently troubled economy, pervasive weakness in commodities, and the likely inevitability of near-future Fed tightening that should further strengthen the US dollar.

Having just spiked down to hit a new six-year low last Wednesday, AUD/USD is still trading within a consolidation near its extreme lows and well below both its 200-day and 50-day moving averages. The prevailing trend continues to be bearish in line with both the short-term downtrend that has been in place for the past three months and the longer-term downtrend that extends back more than a year to the 0.9500-area high in July of last year.

Any sustained re-break below 0.7300 should confirm the current bearish stance, with a major downside target around the key 0.7000 psychological level.

To the upside, any bounce or rebound should be met by strong resistance around the 0.7500 level.

USD/CAD

james-chen-AUDUSD-2015-08-17

USD/CAD pulled back last week to dip below key support around the 1.3000 level before bouncing back towards the end of the week to begin re-approaching its new multi-year high just above 1.3200.

A combination of continued US dollar strength and persistently weak crude oil prices pressuring the Canadian dollar prompted the USD/CAD currency pair rebound back up towards its new peak of 1.3212 that was reached in early August, a high not seen since September of 2004.

From a longer-term perspective, USD/CAD has been trading for the past year within a strong bullish trend framed by a well-defined uptrend line extending back to July of last year. That trend line was tested on a pullback in mid-June, but for almost two months, USD/CAD has advanced almost unceasingly to its current heights.

With the US dollar continuing to strengthen on rate hike anticipation and with crude oil continuing to be pressured by persistent oversupply conditions and production levels, USD/CAD could well have further upside before making any substantial pullback or correction.

With any sustained breakout above the 1.3200 resistance level, the next major upside target is at the 1.3400 resistance level. To the downside, any further pullback below the 1.3000 level should find major support around the key 1.2800 support level.

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