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Technical Update - Seems like correction time in USDJPY, EURUSD and Dollar Index
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: USDJPY bouncing from key support at 130.38
EURUSD breaking bearish out of rising channel
Dollar Index finding support at 103.20 and could bounce to 106
USDJPY is jumping around key support at 130.38 but has not closed below which is key. There is massive divergence on RSI since mid-December indicating the downtrend is exhausting and a rebound should be expected. A rebound that could take USDJPY to the 0.382 retracement of the downtrend since October peak at 138. The 200 daily SMA will provide resistance, however. And declining 55 and 100 daily SMA’s will provide overhead resistance
If on the other hand Bears manage to push USDJPY to close below 130.38 the downtrend is likely to be extended down to around 126.35.
EURUSD broke bearish out of its rising channel yesterday after a couple of weeks with divergence on RSI thus indicating an exhaustion of the uptrend.
A correction down to around 1.04-1.03 is in the cards where 55 and 200 daily SMA will provide some support. 1.0332 is the 0.786 Fibo retracement of the channel uptrend.
If EURUSD crawls back above to close the lower rising trendline in the channel we are likely to see the uptrend resume to test resistance at 1.0780
The Dollar Index is forming what appears to be a falling wedge like pattern. Bouncing from support at 103.20 a correction sems likely. A correction that could take the Dollar Index to the 0.618 retracement of the wedge like pattern move at around 106 but a spike up to 106 is not unlikely. Divergence on RSI supports the correction scenario.
However, if the Dollar Index drops lower to close below 103 a sell-off down to support at around 101 should be expected.
RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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