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FX Analysis – Technical Outlook (2015-06-29)

by James Chen



GBP/USD (daily chart) rose to a year-to-date high of 1.5928 shortly after mid-June. Overall, this high represented a full 50% bullish retracement of the previous downtrend from the five-year high of 1.7190 in July of 2014 down to the four-year low of 1.4565 this past April. Since that multi-year low in April, the currency pair has been on a substantial rebound and recovery path, with the exception of a deep pullback down to 1.5250-area support in the latter half of May. From early June, GBP/USD then saw a steep incline that pushed above the 1.5900 resistance level to reach the noted 2015 high of 1.5928. During the course of this rise, in mid-June the key 50-day moving average crossed above the 200-day average for the first time since the beginning of a bullish trend in late 2013. Despite this bullish technical indication, the currency pair had become significantly over-extended to the upside and subsequently retreated from its year-to-date highs. While the recent trend for GBP/USD has been in bullish recovery mode, the current pullback could well have further to run to the downside on any sustained dollar strength. If the currency pair continues to trade under the 1.5900 level, the key downside target on an extended pullback resides around 1.5500, with a further downside pullback target around the noted 1.5250 support area. To the upside, on any break back above the noted 2015 high, major resistance resides immediately above at the key 1.6000 level.



EUR/USD (daily chart) has continued to remain weighted down within the context of a sharp bearish trend that has been in place for more than a year, since the May 2014 highs near 1.4000. The new trading week saw a large gap down below 1.1100 support on increased fears of Greece exiting the euro. Although the currency pair is well off its 12-year low of 1.0461 that was established this past March, price action has continued to trade well below its key 200-day moving average, as has been the case since mid-year last year. After the sharp slide from the May 2014 highs around 1.4000 down to the noted long-term low of 1.0461 in March, EUR/USD formed a rough double-bottoming pattern around the 1.0500 support area before rising back up to 1.1400 area resistance by mid-May. After a subsequent pullback and bounce off 1.0800 support in late May, the currency pair entered into a relatively tight trading range during much of the month of June. This trading range has been bounded to the upside by key resistance around the noted 1.1400 level, and was previously bounded to the downside by key support around 1.1100 before the breakdown. With the currency pair having now gapped well under the 1.1100 support level, both a longer-term and shorter-term bearish bias are currently in place. Any sustained trading below 1.1100 could push EUR/USD back down towards its 1.0800 and then 1.0500 support targets.



USD/JPY (daily chart) saw a large gap down towards the key 122.00 support level to open the new trading week on increased turmoil in the currency markets. Prior to this drop, USD/JPY had remained relatively range bound off its 13-year high of 125.85 that was hit in early June. Before that high was reached, the currency pair saw a sharp climb in the latter half of May and early June. That climb pushed USD/JPY above its previous resistance and long-term high of 122.00. From a long-term perspective, the currency pair has spent more than three years trading within a general uptrend that has lifted it from its lows below 80.00 in 2012 up to its noted 13-year high that approached the 126.00 upside target several weeks ago. After reaching that high, the overbought and over-extended currency pair retreated below 124.00 and settled into a trading range consolidation that is characteristic of USD/JPY price action. While the long-term trend remains bullish, the current pullback and consolidation could well be protracted, as was the case in March, April, and much of May. Short-term resistance on this consolidation is around 124.00, with any sustained break above that level targeting the 126.00 resistance objective once again. To the downside, major support within the context of the current bullish trend continues to reside around the noted 122.00 previous resistance level.



AUD/USD (daily chart) had been trading within a bearish flag pattern consolidation just off its long-term lows since late May. Late last week saw a major breakdown below this pattern. If this breakdown is sustained, the move could serve as a potential impetus for an impending continuation of the entrenched downtrend. Since the intermediate 0.9500-area high in July of 2014, AUD/USD has spent the past year plummeting down to hit a new five-year low of 0.7532 this past April. After that low was established, the currency pair rose in a major rebound to hit a high of 0.8162 by mid-May, right at the 200-day moving average resistance, before plunging sharply from that resistance back down once again towards its multi-year lows. During the course of the current flag pattern unfolding, price action managed consistently to close under the key 50-day moving average every trading day and return back towards its lows after rebounds. Any continued trading below this flag pattern would confirm the prevailing bearish bias. In that event, the next major downside target remains at the key 0.7500 level, which is just slightly below the noted five-year low of 0.7532 that was established in early April. A further downside objective on any break below 0.7500 resides at the key 0.7300 support level.

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