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FX Analysis – Technical Outlook

by James Chen



EUR/USD (daily chart) has been entrenched in a sharp bearish trend for more than a year, since the May 2014 highs around 1.4000. A 12-year low slightly below its 1.0500 support target, at 1.0461, was hit in mid-March before the currency pair rebounded. Another low just above 1.0500 support was hit in mid-April, forming a rough double-bottoming pattern. Since that pattern formed, EUR/USD has risen off its lows, bumping up several times against key resistance around the 1.1400 level. The latter half of May saw the currency pair drop back down to 1.0800 support before rising back up towards 1.1400 resistance once again on a US dollar pullback. Despite this rise, EUR/USD is still trading within the noted long-term downtrend, and is still below its key 200-day moving average, as it has been for the past year. Any sustained retreat after the current rebound should push the currency pair back down towards its 1.1100 and 1.0800 support targets, with a longer-term objective around the key 1.0500-area support lows.



GBP/USD (daily chart) has been on a strong rebound and recovery path since its multi-year low of 1.4565 was hit in mid-April. This major rebound pushed the currency pair swiftly above key resistance levels, including 1.5000, 1.5250, and 1.5500. After pulling back down to key support around 1.5250 in the latter half of May, GBP/USD has spent much of June thus far in a steep incline towards the key 1.6000 resistance objective. In the process of this rise, the key 50-day moving average has recently crossed above the 200-day average – a technical phenomenon that has not occurred since the beginning of a bullish trend in late 2013. Despite having been in a strong bearish trend from the 1.7190 high in July of 2014 down to April’s noted multi-year low of 1.4565, the currency pair has since recovered a full 50% of the entire drop., and could well have further to run. In the short-term, however, GBP/USD has been overextended to the upside and could see an impending pullback after the recent sharp run-up. The key downside target on such a pullback resides around the 1.5500, with a further downside pullback target around the 1.5250 support area.



USD/JPY (daily chart) has continued to pull back from its 13-year high of 125.85 that was hit in early June. That high has been the latest culmination of more than three years of a general uptrend that has lifted the currency pair from its lows below 80.00 in 2012 up to its current heights above 120.00. Most recently, USD/JPY broke out above strong previous resistance at the 122.00 prior high to reach towards further upside targets at 124.00 and 126.00. The 126.00 level was closely approached before the overextended currency pair began its current pullback. Currently approaching the 122.00 level once again, this time to the downside as support, USD/JPY appears to be falling back into a consolidation after the sharp upside run. While the trend remains strongly bullish, the current pullback and consolidation could be prolonged, as is often the case with the USD/JPY currency pair. Resistance on this consolidation is around 126.00, with any break above that level confirming an expected continuation of the longstanding uptrend. To the downside, key levels supporting the currency pair are at the noted 122.00 and 120.00 levels.



AUD/USD (daily chart) has been trading within a strong downtrend that has been in place for the past year, which saw a sustained plunge from the 0.9500-area high in July of 2014. Since that intermediate high, the currency pair has continuously dropped to new lows, eventually hitting a new five-year low of 0.7532 in early April. After that low was established, AUD/USD rose in a major rebound to hit a high of 0.8162 in mid-May, right at the 200-day moving average resistance, before retreating sharply from that resistance back down towards its multi-year lows. By early June, the currency pair settled into a relatively tight trading range nears its long-term lows. This trading range has since formed a clear bear flag pattern that hints at further potential downside. The upper resistance border of this inverted flag closely follows the 50-day moving average, while the lower support border is a short, rising trend line from the beginning of June. A break 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.

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