Weekly Technical Market Insight: Week Ending 14th October 2022

Weekly Technical Market Insight Week Ending 14th October 2022

Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index:

Remarkably, aside from May, the US dollar has pencilled in successive monthly gains in every month this year, adding 17.5%, year to date. The month of September rallied 3.2%, the largest one-month rise behind April’s eye-popping 5.0% advance. The first full week of October also wrapped up considerably off session lows, up 0.2%.

Apart from a 7-year range (forming a pennant chart pattern [considered a continuation signal], taken from 103.82 and 88.25), monthly movement has been higher since early 2008. This is reinforced by the uptrend visible on the daily timeframe, exhibiting well-defined upward action since price made contact with support from 89.69 in May 2021. The upside bias is also shown through the 50-day simple moving average (current: 109.15) crossing above the 200-day simple moving average (current: 102.85) in August 2021 (‘Golden Cross’).

In terms of price, the monthly timeframe is comfortably north of support at 109.25 and communicates scope to reach Quasimodo resistance at 119.07. Rupturing the aforementioned barrier, together with the 121.02 July high (2001), unearths the pennant profit objective at an ‘ambitious’ 134.40. A closer reading of price on the daily timeframe shows we rejected space just south of a Quasimodo resistance level at 115.09 at the end of September, drawn from 2002. Subsequent action witnessed a test of a well-placed decision point from 109.31-110.24, which welcomed buyers on Wednesday last week. Note that the decision point is situated near the 50-day simple moving average and an acceleration trendline support, drawn from the low 95.17. In terms of the daily chart’s relative strength index (RSI), the indicator rebounded from familiar support between 40.00 and 50.00 (active since August 2021). Interestingly, however, the monthly timeframe’s RSI is seen nearing the March 2015 high at 82.87 within overbought territory (though it must be noted that the RSI can remain overbought for prolonged periods in trending environments).

Technical Expectation:

According to current action, technical evidence supporting buyers continues to surpass the chart’s bearish features.

The combination of monthly support at 109.25, the rebound from the daily decision point at 109.31-110.24, the long-term uptrend, and daily RSI support suggests further buying could be on the table this week (and likely throughout October). As a result, continued defence of the daily decision point is anticipated, followed by an eventual break of the daily Quasimodo resistance from 115.09 that could see the index refresh 20-year tops.

DXY-FPMARKETS

EUR/USD:

The first full week of October proved gloomy for Europe’s common currency. Against the US dollar, the euro concluded the week in the ‘shape’ of a weekly ‘shooting star’ (down 0.62%). Although a shooting star should form after a meaningful advance, its profile still indicates weak demand when the surrounding context is taken into consideration. This places a bold question mark on weekly support from $0.9606 which held firm the prior week, facilitating a rebound from 20-year lows ($0.9536). Engulfing current support unearths a weekly Quasimodo formation at $0.9241.

I noted the following in recent research in respect to the trend (italics):

Price action on the weekly timeframe has been entrenched within an unmistakable primary bear trend since pencilling in a top in early 2021 with heavy-handed pullbacks in short supply. The daily timeframe’s price movement also continues to work under its 200-day simple moving average ($1.0616).

The outlook from the daily timeframe is not much brighter. In the second half of the week, through a series of three back-to-back bearish candles, the chart observed a rotation lower ahead of trendline resistance, extended from the high $1.1495, and neighbouring Quasimodo resistance from $1.0090. To the downside, Quasimodo resistance-turned support calls for attention at $0.9573, closely shadowed by support at $0.9377. The daily chart’s relative strength index (RSI) resistance area at 60.00-50.00, which has been in place since 28th October 2021, also received the indicator’s value last week and has pivoted lower (resistance formed between 60.00 and 50.00 is common in downtrends). Oversold territory this week?

From the H1 timeframe, $0.98 is overhead, sheltered just south of Quasimodo resistance at $0.9812. Fibonacci enthusiasts may find interest in the Fibonacci cluster positioned to the downside at $0.9714, followed by $0.97. Less immediate, currency traders will likely acknowledge prime resistance at $0.9984-0.9938, while splitting $0.97 opens the door to a Quasimodo support from $0.9655.

Technical Expectation:

Medium term, bearish hands maintain control. According to weekly and daily timeframes, the absence of ‘energetic’ support and a long-term bearish trend, sellers will likely have the upper hand going forward, targeting weekly and daily supports this week at $0.9606 and $0.9573, respectively.

Shorter term, the H1 Fibonacci cluster at $0.9714 is likely to attract attention, though given it is positioned a touch ahead of $0.97, testing the resolve of bids around the psychological level (possible stop-run) could unfold. Nevertheless, I do not see any viable support to help facilitate such a whipsaw.

Taking into account the bearish environment the EUR/USD is in, upside efforts from the aforementioned H1 supports might be short-lived. As such, here’s another two possible (bearish) short-term scenarios to be mindful of:

  1. Clearing $0.97 this week may trigger a round of breakout selling to H1 Quasimodo support at $0.9655.
  2. Alternatively, a rebound to $0.98 could play out, and a whipsaw emerge to H1 Quasimodo resistance at $0.9812 to draw bearish attention.

EURUSD-FPMARKETS

AUD/USD:

Despite efforts at the beginning of the week, buyers lacked the resources to maintain an upside presence. Consequently, recent trading unwrapped a fourth consecutive weekly bearish candle and placed a bold question mark on weekly support from $0.6351-0.6468 (Fibonacci support: 1.272% Fibonacci projection [alternate AB=CD formation]) and a 61.8% Fibonacci retracement), casting light on possible follow-through selling to a weekly decision point at $0.5975-0.6166.

For those who regularly read my research, you might recall the following in regard to trend direction (italics):

Siding with the recent bout of selling is the currency pair’s trend: reflecting a bear trend since $0.8007 (22nd Feb high [2021]). The monthly timeframe has also portrayed a longer-term downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is viewed as a deep pullback among chartists. Downside from the 2021 February top, therefore, might be seen as a move to explore lower over the coming weeks/months.

The daily timeframe’s price action tunnelled through support at $0.6401 on Friday, reinforcing the bearish posture observed on the weekly timeframe. The break of daily support implies current weekly support is in a vulnerable location and could relinquish position this week. In the context of the daily chart, the support breach calls attention to Quasimodo support coming in at $0.6263. The daily chart’s relative strength index (RSI), a popular momentum gauge, also remains south of its trendline resistance, drawn from the high 64.39, and has continued to explore space beneath 50.00 since August: negative momentum.

The H1 timeframe penetrated $0.64 on Friday, action that appealed to breakout sellers towards Quasimodo support from $0.6352. You may recall I also turned the headlights to the bearish pennant pattern between $0.6363 and $0.6531 in recent writing. The profit objective for the pennant pattern is located as far south as $0.6137.

Recent analysis also highlighted the following possible scenarios (italics):

First, selling continues and H1 manoeuvres under $0.64, opening the door for breakout sellers to take aim at H1 Quasimodo support from $0.6352. Alternatively, a rebound from $0.64 unfolds and shakes hands with H1 prime resistance at $0.6446-0.6440, an area perhaps welcomed by short-term sellers.

As evident from the H1 chart, the former took command and Friday ended the session on the doorstep of Quasimodo support mentioned above at $0.6352.

Technical Expectation:

Technically speaking, a lack of bullish evidence exists on the bigger picture. Technical elements, therefore, suggest further selling could be seen.

On the H1 timeframe, this seats Quasimodo support at $0.6352 in a dismal position in early trading this week and a break directs flow towards $0.63. Although price movement is unlikely to reach this far north, prime resistance at $0.6446-0.6440 remains a noteworthy zone if tested; sellers may defend this base to ‘fade’ buy-stop momentum on the back of breaking above $0.64.

AUDUSD-FPMARKETS

USD/JPY:

Impressively, the USD/JPY has climbed for eight consecutive weeks. August added 4.3% and September almost matched it, rallying 4.2%. The currency pair has been trending higher since early 2021. This is further strengthened by the monthly timeframe’s trend, higher since bottoming in late 2011. Supporting trend direction, price has been trading north of the 200-day simple moving average since February 2021. Additionally, the SMA has pointed higher since April 2021: another widely used trend-following technique.

I noted the following on the weekly and daily timeframes in recent analysis (italics):

The weekly timeframe’s price action, however, continues to cement position north of support at ¥137.23, inching towards forging a fresh 24-year high with scope to climb to weekly Quasimodo resistance at ¥146.79 (in line with the current bull trend). Note that directly above the aforementioned resistance resides a weekly 100% projection at ¥149.66 (an AB=CD bearish pattern). In terms of supportive structure, daily support falls in at ¥139.55, closely followed by weekly support at ¥137.23.

The daily timeframe’s relative strength index (RSI) ventured outside of its overbought territory (70.00) and is establishing what I see as early bearish divergence (negative divergence). This informs market participants that upside momentum is slowing and that a spike into the current weekly Quasimodo resistance could trigger a bearish scenario. I also want to add that should the RSI fail to probe above the previous high (78.94), we may be gifted with a bearish failure swing and see the indicator tackle the 50.00 centreline.  

Realised from the H1 timeframe, price action made its way above ¥145 on Friday (and a Quasimodo resistance at ¥145.08) to touch gloves with Quasimodo resistance at ¥145.40. Above points to the ¥145.90 top (22nd September); a break of this region this week would see the currency pair refresh 24-month pinnacles and perhaps begin cutting a path towards the weekly timeframe’s Quasimodo resistance from ¥146.79.

Technical Expectation:

Despite the slowdown in upside momentum—clear from both weekly and daily price action as well as the RSI negative divergence—weekly Quasimodo resistance at ¥146.79 is a level that’s within touching distance, thanks to the current uptrend.

In light of higher timeframe structure, H1 Quasimodo resistance from ¥145.40 is questionable structure. Any downside move from here is likely to find willing bids at the H1 Quasimodo resistance-turned support from ¥145.08. In fact, this level, combined with ¥145, could offer buyers a dip-buying platform if tested. Alternatively, running through ¥145.40—potential breakout opportunity, according to chart structure—signals 22nd September high at ¥145.90 is likely to be challenged.

USDJPY-FPMARKETS

GBP/USD:

Sterling finished the week lower versus the US dollar, following the prior week’s spirited recovery from record lows of $1.0357 in the final full week of September.

The weekly timeframe’s price action emphasises a bearish environment. At the forefront of the technical observations, of course, is the clear-cut bearish trend seen since topping at $1.4250 in June 2021. Furthermore, the monthly timeframe demonstrates that the overall long-term downtrend has been soft since late 2007 tops at $2.1161. I also drew attention to resistance at $1.1410 and neighbouring decision point at $1.1751-1.1413 in previous writing as a critical juncture for the currency pair. Price tested the aforementioned areas last week and chalked up a shooting star candlestick formation. For candlestick supporters, this bearish pattern, alongside the surrounding technical elements mentioned above, adds to the bearish atmosphere on the weekly scale. Will follow-through selling materialise and retest $1.0357?

Meanwhile on the daily timeframe, movement tested (and respected) trendline resistance last week, taken from the high $1.2278 (note that price topped within reach of trendline resistance, extended from the high $1.3639). What followed from the respected trendline resistance was three consecutive daily bearish candles that firmly focussed the spotlight back on the February 1985 low at $1.0520 (and the record low of $1.0357). The daily chart also shows the relative strength index (RSI) rejected indicator resistance forged from 60.00 and 50.00 (a common sight in downtrends). Oversold territory this week?

I communicated the following in Friday’s technical briefing for the ‘Technical Expectation’ (italics):

The weekly decision point at $1.1751-1.1413 (merging with daily trendline resistance) and the $1.1410 resistance on the weekly chart, in addition to daily RSI resistance between 60.00 and 50.00 places a (technical) bearish light over this currency pair.

For that reason, any upside attempts from the H1 AB=CD bullish base ($1.1117) are likely to be fleeting, and could motivate bearish positions from the H1 Fibonacci retracements at $1.1264 and $1.1352 (targets).

As you can see from the H1 chart, the unit’s reaction from $1.1117 was indeed short-lived (failing to reach either $1.1264 or $1.1352) and exposed Quasimodo support at $1.1070 (mounted just ahead of a 1.272% Fibonacci projection at $1.1046 [alternate AB=CD pattern]). If we continue on this bearish trajectory, short-term flow is likely to zero in on $1.10. And seeing as there’s limited support beyond the psychological base until $1.09, a stop-run is unlikely. Therefore, a test of $1.10 could prove fruitless for bids and unlock the trapdoor for breakout selling.

Technical Expectation:

From a medium-term perspective, bearish players remain in the driving seat and, according to chart studies, may take aim at the February 1985 low at $1.0520 (and the record low of $1.0357). This shifts attention to the possibility of a $1.10 break this week on the H1 timeframe, and the likelihood of continuation selling to at least $1.09. So, taking on board the above analysis, the reaction from H1 Quasimodo support at $1.1070 is unlikely to be anything ‘to write home about’ and may struggle to find acceptance above $1.11.

GBPUSD-FPMARKETS

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