FX analysis – technical outlook – July

<p>EUR/USD EUR/USD (daily chart shown below) has dropped to a seven-week low, closely approaching its downside support target at the key 1.0800 level. This level […]</p>

EUR/USD

EUR/USD (daily chart shown below) has dropped to a seven-week low, closely approaching its downside support target at the key 1.0800 level. This level was last approached on a dip in late May.

Despite some positive developments in the Greek debt discussions in the past couple of weeks, recent euro rallies have been short-lived. Compounding this general failure to rebound has been the persistent strength of the US dollar, which has been propped up by increased expectations of a 2015 rate hike and some better-than-expected US economic reports.

As a result, EUR/USD weakness has continued to be the norm, generally weighing the currency pair down below both the 1.1100 resistance level as well as the 50-day moving average. Price action also continues to trade well below its key 200-day moving average, which has been the case for more than a year.

EUR/USD Daily Chart

 

Last week’s sharp bearish run has pushed EUR/USD closer to continuing the long-term bearish trend that has been in place since the 1.4000-area high was reached in May of last year.

Having declined close to the major 1.0800 support target, the currency pair continues to carry a long-term and short-term bearish bias towards further potential lows. On a breakdown below the 1.0800 level, the next major downside support target remains at the 1.0500 level, which is in the approximate vicinity of March’s 12-year low, and also the recent site of this year’s rough double-bottoming pattern.

Any sustained breakdown below this 1.0500 support level would confirm a continuation of the longstanding bearish trend and potentially begin to target further downside around 1.0200.

Upside resistance within the context of this bearish trend remains around the noted 1.1100 level.

USD/JPY

USD/JPY (daily chart shown below) has continued to rise for the past week as the US dollar has continued to strengthen on rate expectations and market risk perceptions have become relatively subdued, decreasing reliance on the yen in its traditional safe haven role.

These factors have contributed to a USD/JPY rise that has tentatively pushed up above the 124.00 resistance level. This rise is currently testing highs from mid and late June.

The climb to current levels followed a dip in early July down to 120.40, just above both the 120.00 support level and the key 200-day moving average, which was caused in part by elevated market volatility due to risk factors surrounding the unresolved Greek crisis and China’s turbulent equity markets.

USD/JPY Daily Chart

 

From a longer-term view, USD/JPY continues to trade within a strong bullish trend extending back to 2012 that began to accelerate just last year. The most recent culmination of this long-term uptrend has been June’s 13-year high of 125.85, which fell just short of reaching the original upside target of 126.00.

With any sustained breakout above 124.00, the clear upside target remains at this 126.00 resistance level, with any further upside momentum potentially targeting further resistance around the 129.00 level.

Downside support within the context of the bullish trend remains around the 122.00 level.

AUD/USD

AUD/USD (daily chart shown below) has established a new six-year low of 0.7327 to begin the trading week and continues to be pressured to the downside by a strong US dollar coupled with weak gold and commodity prices, among other factors.

After its drop below the major 0.7500 psychological support level in early July, AUD/USD has spent the past two weeks consolidating within a bearish pattern below 0.7500. This pattern has confirmed a continuation of the year-long downtrend that has been in place since the 0.9500-area high in July of last year.

AUD/USD continues to carry a strong bearish bias from both a technical and fundamental view. If the currency pair continues to trade below the key 0.7500 resistance level, the primary bearish target immediately to the downside remains at the 0.7300 level, followed by the 0.7000 psychological support level.

AUD/USD Daily Chart

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