Major currency pairs stayed in tight ranges in the first week of September. A certain consolidation has been noticed in emerging markets as well. Equities pulled back from historical highs while bonds gained some strength. Commodity currencies struggled to find any bottom.
The U.S. dollar index measuring a volume-weighted basket of six major currencies is still in the uptrend currently from the technical perspective. The past trading week started with a slight decline which was just a technical correction and a comeback to Exponential Moving Average breached before. A strong bullish run was noticed after that bounce and the index have tested the local top at 95.67. We need to make a significant remark here regarding the fake breakouts: any support or resistance is considered breached when it happens with the close price for any given timeframe. In case if the price breaks the level with the high price only, this option is not considered as the breakout. This is why the dollar index declined after failed bullish test of the local resistance despite the higher highs. In addition, the RSI oscillator went into the overbought zone on Tuesday and that caused the pullback. It is recommended to keep buying the greenback until RSI stays in bullish territory. Conservative traders should consider a pullback to the green support line to open fresh longs, in case if the market would give them such a gift.
Single European currency failed to hold gains this past week and the overall decline has been noticed as the weekly result. The pace of this decline was not huge though: 0.35% and 55 pips (four digit quote). The highest weekly price was 1.1659. Despite the weekly close price is 3 pips above the long-term Simple Moving Average with the period of 244 (red on the H4 chart below), and it is only 12 pips above the support green horizontal line, downside pressure would dominate in the first half of the next week. Our target sector is in the range of 1.1500/40 with potential bullish bounces after testing the bottom line of it. Bulls had several failed attempts to break through the SMA50 resistance after the bearish cross of Exponential MA50 and SMA50 in the previous week. So the range between these two moving averages would be our zone for short positions. Any clear breakout in any direction might have an extension of 40-50 pips but the general trading range is pretty tight, so EUR/USD traders should not hold their positions too long.
The British pound had a weekend gap last week but the initial bearish momentum was quite weak, so the price was held by Exponential Moving Average with 50 period. But overnight bearish attempts were reinforced with the liquidity came into the market and GBP/USD has found the local bottom only at 1.2794. This point became the second one to draw an ascending support line (green on the H4 chart below). The resistance line worked well two times this past week but the bearish bounces were rather short in time and limited by the Exponential Moving Average (blue, period 50). This pattern might work as a bullish spring before breaking out of the resistance line and reversing the recent bearish trend. Therefore, short positions should be opened with rather tight stop-losses (30-50 pips, hide above the line) and tight targets. The green support line has to be considered as an attractive level of new fresh longs. Of course, it is too early to talk about the reversal for GBP/USD and more confirmations are needed from the technical point of view just because the recent downtrend has been quite sustainable and long-term. The best way for conservative traders would be to stay out of the pair.
The Australian dollar continued declining with new year-lows on record as the weekly result. AUD/USD gave deep enough retracement level to enter the market with fresh short positions on Tuesday. As long as the price action is on strong trend conditions, standard technical indicators do not work in this environment. Below you can find a combination of two Bollinger Bands indicators with different periods: 21 and 55. Both periods are Fibonacci numbers and such a combination allows to avoid fake trading signals. Another task is to identify entry points to add volume or open new positions depending on the trading strategy. RSI fast oscillator works here as an additional technical indicator helping to double check the BB signals. The first example of profitable trading signals was exactly on Tuesday when the bullish bounce failed to break through the BB21 and RSI 50% level. The second entry point is illustrated for Thursday when AUD/USD breached the BB21 middle line, but it stayed below the horizontal resistance of 0.7211 and in the bearish zone of BB55. Moreover, RSI was also below 50%, so the latest short position is on profit of 106 pips recently. The reason why we still hold this short is that a recent bearish continuation signal was triggered: AUD/USD breached BB55 lower line with the close price. Those traders who missed that signal can wait for a bounce to BB21 middle line in order to join the party.
The overall technical perspective for NZD/USD is rather similar to AUD/USD with new record lows posted for this year. But there is a significant difference in the the bearish momentum, this is why the technical indicators used on the H4 chart below are also different. This is the Ichimoku Cloud indicator with modified settings: Baseline with period 13 (9 on default) and conversion line with period 34 (instead of 26 by default). The targets of this modification are the same: we want to avoid fake trading signals and find good entry points. As long as the trend is obvious, there is no need to identify it. The only thing we need is to understand when the retracement is over and when the next bearish wave starts. The past trading week gave us two signals with this pattern. The first one came on the failed test of the baseline but the gains were limited by the conversion line. The second signal happened the next day and it has been confirmed by the conversion line breakout. Sell-highs is the best trading strategy for NZD/USD so far.