FX analysis technical outlook

The US Non-Farm Payrolls and Unemployment Rate data came and went this past Friday, leaving in its immediate wake a weaker dollar and significantly stronger gold prices, as the markets began to doubt that the disappointing employment numbers were sufficient to prompt a 2015 Fed rate hike. While gold kept its gains as of Monday morning, the US dollar was able to claw back much of Friday’s losses and once again show its relative resilience.

EUR/USD

The past week saw EUR/USD continue its prolonged consolidation generally between 1.1100 support to the downside and 1.1300 resistance to the upside. The currency pair briefly rose above 1.1300 on Friday when the dollar plunged immediately after the US employment data was released, but soon retreated off those highs and back down well below 1.1300. As the new trading week begins, EUR/USD continues to be pressured to the downside despite Friday’s weak employment data and expectations of a potentially more dovish Fed. The noted 1.1100 support level continues to serve as the downside level to watch in the event of any breakdown of the current consolidation. Any breakdown below 1.1100 and the 200-day moving average that is currently running directly underneath that level could prompt a return to the long-term bearish bias that has been in place since the current downtrend began in May of last year. In the event of this breakdown, the next major target to the downside is at the key 1.0800 support level. To the upside, the 1.1400 level should continue to serve as major resistance on any significant EUR/USD rebound.

GBP/USD

Like EUR/USD, GBP/USD initially rose this past Friday as the dollar fell after disappointing non-farm payrolls data was released in the US. GBP/USD was able to break above the key 1.5200 level, but only briefly, as it retreated later on Friday. In fact, the past week has seen GBP/USD continue to attempt a climb back above 1.5200 after the prior week’s 2% plunge from the 1.5500 area down to below 1.5200. Early Monday morning saw another attempt to breach 1.5200 resistance, but a worse-than-expected Purchasing Managers’ Index (PMI) reading out of the UK once again pressured the pound. This data could contribute to a further delay of a potential Bank of England rate hike. If the GBP/USD continues to wallow below the 1.5200 level, the next major bearish target is at the 1.5000 psychological support level, which has served as both support and resistance since the beginning of the year. Any further downside move could then begin to target the key 1.4800 support objective. To the upside, on any rebound above 1.5200, the 1.5300 level should serve as a key resistance barrier.

USD/JPY

USD/JPY initially spiked below its current triangle pattern this past Friday as the disappointing US employment data prompted an immediate drop in the US dollar and global stock markets. Again, however, this reaction was short-lived, as USD/JPY recovered by the end of the trading day, with the dollar and equities rebounding from their lows. The new trading week has seen a full recovery for USD/JPY back above the key 120.00 level and well inside the noted triangle pattern that has been in place since late August. The 50-day moving average has recently crossed below the 200-day moving average, creating a potential “death cross” technical scenario that could presage further downside for USD/JPY on further global market volatility and a potential flight to the yen. In this event, a breakdown below the triangle pattern could prompt the currency pair to target the next major objectives at the 118.00 and then 116.00 support levels. Upside resistance on any sustained trading above 120.00 continues to reside around the upper border of the noted triangle pattern.