The markets are set for seasonal major shifts. Huge trends usually occur in every Autumn. There is even a sign among the currency market traders: the direction of the Autumn trend is traditionally identified by the direction of the Labour Day on September the 1st. Let’s put signs apart and get to the forecasts. Huge trends do not appear just like that. There is always a long-term preparation period before major and long-lasting trends. And what do we see right now, in these last weeks of August, is exactly the preparation of the technical background in order to have a base to kick off the busy season. So our target is to clarify the future directions of major currency pairs.
The U.S. Dollar Index: Neutral.
Several technical factors have to be taken into account before making the conclusion. First of all, the index is off its 2018 highs posted two weeks ago. The greenback bulls tried to test 97.00 level which never happened since July 2017. Unability to break through that level caused a normal reaction of the recent bearish pullback. The index was traded lower in 6 of the last 7 days. The main question is do we see just a rebound and the greenback should renew its growth, or is that a bearish reversal? Second factor from technical analysis tells us that its too early to talk about bearish reversal. At least untill the current support levels stand: Exponential Moving Average with 54 days period and the green median line, which worked well supporting the uptrend during the whole 2018. Only a lear breakthrough that two important technical supports will open the door for further bearish slides. On the other hand, we have two bearish signals from MACD indicator: the bearish cross of the lines which happened last Monday and a huge bearish divergence which is built by connecting the peak in May 2018 and the recent highest rate. Both these signals have not worked out yet with a room to go in bearish favour for the index. And the fourth reason not to buy DXY is in the RSI fast oscillator as it’s crossed the 50% level and went to the bearish territory. Although the bearish factors overcome the bullish ones, we would recommend to have wait-and-see trading strategy, especially for the long-term traders. The recent uptrend momentum is definitely halt at the moment and it would be tough for the bulls to renew the North direction from here. But at the same time, bears could struggle to overweight bulls on these important supports, and we might see some kind of a consolidation range in the nearest future.
The technical outlook here is lamost the same but in a mirror reflection to the DXY which is normal as EUR/USD has more than 60% on the overall weight of the currencies basket. The daily chart below has several significant differences though compared to the previous chart. First of all, the prices are very close to EMA54 and the chances of breaking that resistaceas are very high. Secondly, RSI has much more convinsable position over the 50% level which is also bullish. And thirdly, MACD has also the bullish cross of its lines with more room to go North. One more factor is that the price broke through 1.1530 resistance and it even performed the retracement on Thursday which has been followed by the bullish bounce on Friday. So we suggest that the EUR/USD has to continue the bullish spike that we’ve seen in the past trading week.
Japanese Yen has been mostly weak recently lifting the USD/JPY pair above 111.00 mark again. The technical outlook is generally mixed with the price is placed inside the span. Ichimoku cloud indicator is in consolidation range with a slightly bearish prevalence. Moreover, the prices failed to get out of the span after the latest bullish run and the base line works as the dailt resistance as well. But the conversion line works as the support which is another confirmation of the sideways ranges for the nearest days or even weeks.
The Loonie was among the leaders versus the greenback in the last trading week. The USD/CAD bears have approached a significant psychological support at 1.3000 and it seems like it’s just the question of time when it is going to be breached. But the main support here is a but lower - 1.2969 was the lowest close price recently. The 4-hours chart below is completely bearish with the pair coming back to the descending blue channel. The Bollinger Bands in dicator is modified here to the period of 50, which is the right number for the Loonie and this modification helps to avoid false signals. The indicator is also bearish and we need to watch closely the bottom line of it because if the close price crosses this bottom line, this would be a strong berish continuation signal. The same story happened on July 25th. Anyway, sell-highs trading strategy may be in place for USD/CAD.
With the Loonie strength and with the Yen weakness, CAD/JPY is one of the most attractive currency pairs nowadays. The recent performace was bullish, exactly as we predicted in one of our previous weekly forecasts. Moreover, the current technical outlook became more clear as the door is open now for bulls to support the price and make new achievements. The targets are the same with 87.22 level as the nearest resistance. The daily chart below has the same settings as we published it before and it illustrates the bullish technical outlook with all the Ichimoku Could indicator’s conditions in right order to continue going North.
We have been waiting for reversal of this pair. EUR/JPY has been under bearish pressure recently and we see some preliminary signes that the downtrend is over. The weekly long-term chart below with Ichimoku Cloud indicator’s default settings has several confirmations for that. The bottom of the cpan holded the close prices two weeks ago and bears failed to break out of the span. There is also a long bearish shadow of that candlestick but its body is bullish. This is the ‘hammer’ bullish reversal candlestick pattern. Nex confirmation comes from the very bullish previous week which managed to engulf the latest bearish candlestick and covered all the previous losses. Moreover, the close price of the last week manage to break both conversion and base lines, so these resistances are not in play anymore. The only thing bulls need to complete the bullish reversal pattern for Ichimoku Cloud is to to get out of the span’s upper range. The level of 132.22 Yens per one Euro is the nearest target and resistance.