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FX Analysis – Technical Outlook (2015-10-26)

by James Chen

Key economic data releases this week:

Monday (26th October):

  • EUR – German Ifo Business Climate

Tuesday (27th October):

  • NZD – New Zealand Trade Balance
  • GBP – UK Preliminary GDP
  • USD – US Durable Goods and Core Durable Goods
  • USD – US Consumer Confidence (CB)

Wednesday (28th October):

  • AUD – Australian Consumer Price Index (CPI)
  • USD – US FOMC Statement and Federal Funds Rate

Thursday (29th October):

  • NZD – Reserve Bank of New Zealand (RBNZ) Rate Statement and Official Cash Rate
  • USD – US Advance GDP
  • USD – US Unemployment Claims

Friday (30th October):

  • NZD – ANZ Business Confidence
  • JPY – Bank of Japan (BOJ) Monetary Policy Statement, Outlook Report, and Press Conference
  • CAD – Canadian GDP
  • USD – US Employment Cost Index

Technical developments:

  • EUR/USD could be poised for a further fall towards the 1.0800 support target this week to continue last week’s plunge.
  • GBP/USD has tentatively dropped below key support and could now be targeting the 1.5100 downside objective.
  • USD/JPY rebounded strongly last week but faces major resistance and could be poised for a retreat below 120.00 once again.

EUR/USD

james-chen-EURUSD-2015-10-26

The past week saw EUR/USD plunge and breakdown below key support levels after a dovish ECB press conference where ECB President Mario Draghi made comments indicating that the central bank would be open to further quantitative easing. While EUR/USD’s plummet last week was primarily a result of the euro’s understandably negative reaction to the ECB remarks, a sharp rebound for the US dollar in the past week exacerbated the EUR/USD drop. As a result, the currency pair broke down below a major confluence of support factors. These support factors included the key 1.1100 support level, the 200-day moving average, and a well-defined uptrend support line extending back to March’s 12-year low below 1.0500. Now that this key technical breakdown has occurred, EUR/USD could resume targeting its main downside objective at the 1.0800 support level, which is the bottom border of the prolonged trading range that has been in place for the past six months. Any further breakdown below 1.0800 could then begin to target long-term lows around the 1.0500 support objective.

GBP/USD

james-chen-GBPUSD-2015-10-26

GBP/USD also fell in the past week, primarily due to a sharp dollar rebound. In the process, the currency pair retreated from major resistance around the key 1.5500 level. Since mid-October, GBP/USD had been testing 1.5500 with almost daily attempts to breach the level. By late last week, however, it was evident that the attempts had failed, and the currency pair tentatively dropped below key support around the 1.5350 level. This is also where the 50-day and 200-day moving averages have converged in a bearish technical pattern commonly referred to as a “death cross.” In the event of further bearish momentum below 1.5350, the next major downside target is at the key 1.5100 support level.

USD/JPY

james-chen-USDJPY-2015-10-26

USD/JPY continued its strong rebound last week as the dollar strengthened along with global stock markets. After rebounding from the key 118.00 support level in mid-October, USD/JPY climbed sharply above the 120.00 psychological support/resistance level last week to reach a high above 121.00, right around its 200-day moving average. In the process, the currency pair broke out above a large triangle pattern that it had previously broken down below. The new trading week has begun with a modest retreat from the 200-day moving average. In the event of a further retreat from this resistance, the key downside target remains at the 118.00 support level. To the upside, major technical resistance continues to reside around the important 122.00 level directly above.

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