Dollar Retraces Away From Oversold But Remains Bearish

The market is still digesting the FOMC result last week, and is clearly more confused than before Bernanke’s announcement. Some commentators are pinning their hopes on "Octaper" while others, still licking their wounds from last weeks shock, are now firmly in the belief that a taper will be pushed to next year at the earliest. Suffice to say, taper forward guidance over this long a time-scale is turning out to cause more problems that in solves in terms of market stability. Angela Merkel looks set to be re-elected in Germany, which brings some welcome stability during these unstable times. Fundamentally, we can expect an easier ride this week with the following data points in focus:

Monday Sep 23
2:45am CNY HSBC Flash Manufacturing PMI
8:00am EUR French Flash Manufacturing PMI
8:30am EUR German Flash Manufacturing PMI
2:00pm EUR ECB President Draghi Speaks
4:15pm CHF SNB Chairman Jordan Speaks

Tuesday Sep 24
9:00am EUR German Ifo Business Climate
1:30pm CAD Core Retail Sales
3:00pm USD CB Consumer Confidence
11:45pm NZD Trade Balance

Wednesday Sep 25
1:30pm USD Core Durable Goods Orders
3:00pm USD New Home Sales

Thursday Sep 26
9:30am GBP Current Account
1:30pm USD Unemployment Claims
3:00pm USD Pending Home Sales

Friday Sep 27
10:00am EUR ECB President Draghi Speaks

All times are London Time (GMT+1)

USD% Index

We have retraced up to a long-standing bearish channel resistance and slightly pushed through before the weekend. The RSI is still reading quite oversold which indicates that we may see a further retracement before we return to bearish trend. My preference is to begin selling dollars with reasonably short stops once we get to the broken support turned resistance shown at EUR/USD 1.3465, and coincides with a steeper bearish trend line. A failure to turn around here would open the door for a decent rally higher to close the gap from last week’s open, with the Blue channel resistance being the next point of entry for dollar selling I am bearish USD following the completion of a retracement

USD% Index Resistance (EUR/USD support): EUR/USD 1.3521, 1.3469, 1.3400, 1.3350
USD% Index Support (EUR/USD support): EUR/USD 1.3560, 1.3685, 1.3759

EUR% Index

The EUR% index maintained the level from the post-FOMC shock which is something many others have failed to do. this can be a good indication of further strength once the dollar does turn begin dropping again, although with retail orderbooks quite oversold, we may need to retrace before continuation. If we make it down to the resistance show in Lime Green at EUR/USD 1.3450, i would begin buying euros provided we hadn’t broken out to the upside on the dollar index at that stage I am bullish EUR%

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EUR% Index Resistance: EUR/USD 1.3584, 1.3663
EUR% Index Support: EUR/USD 1.3500, 1.3450

JPY% Index

Trend for the JPY% index continues to be quite erratic with a slight lean towards bearishness as a result of the Major bearish trend line that was rejected from on Wednesday night. The index remains range-bound currently until the index can push through to the upside through the major bearish trend line or make a new low I am neutral JPY%

JPY% Index Resistance (USD/JPY Support): USD/JPY 98.83, 98.50, 97.76
JPY% Index Support (USD/JPY Resistance): USD/JPY 99.68, 100.00, 100.30

GBP% Index

Currently still very overbought the GBP% index may attempt a push through the recent, steeper aqua coloured trend line that has acted as support over the last few weeks but is the dollar returns to downward pressure as a result of the FOMC decision, then this should keep the pound well bid and see a continuation once we have moved away from such extreme overbought levels. 1.5874 may be a good place to enter for further GBPUSD longs with a target of 1.6280 if market conditions are right when we get there.

I am bearish GBP

GBP% Index Resistance: GBPUSD 1.6029, 1.6214, 1.6280
GBP% Index Support: GBPUSD 1.5967, 1.5874

AUD% Index

A slight gap lower at the open was quickly filled and the AUD% index remains in a bearish channel with further upside possible in the near term before the RBA will likely step in to prevent the rally gaining traction in the medium to longer term. 0.9350 may be a good place to enter long AUD/USD if the dollar has stopped retracing higher by then, otherwise a push to major trend line support at 0.9250 would be the next preferable long entry price.

I am short term bullish AUD

AUD% Index Resistance: AUD/USD 0.9530, 0.9572
AUD% Index Support: AUD/USD 0.9373, 0.9351, 0.9250

CHF% Index

Much like the EUR% index, the CHF% index maintained the high ground although is now quite overbought having managed to make a fresh high with a test of the 138.2% fib expansion. With quite stiff support just below now, we could see sideways price action until the dollar drops and drags the CHF% index higher from a loss overbought position. The USD/CHF psychological level of 0.9000 is not out of reach for the medium term if the dollar can push lower.

I am bearish CHF

CHF% Index Resistance (USD/CHF support): USD/CHF 0.9079, 0.9000
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9150, 0.9200

CAD% Index

A strong rejection last week from the top of a bearish channel has shown that the CAD index has the potential to drop lower over the next few weeks, with USD/CAD 1.0571 the first significant support if the downward pressure gathers momentum.

I am bearish CAD

CAD% Index Resistance (USDAD support): USD/CAD 1.0250, 1.0200,
CAD% Index Support (USDCAD resistance): USD/CAD 1.0571

Written By: Littlefish FX