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Technical Update - Correction time in EURUSD, GBPUSD and Dollar Index
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
Summary: EURUSD is bouncing from strong support at around 1.05. Could move to 1.0663, possibly higher before down trend likely to resume
GBPUSD forming bottom and reversal pattern indicating a bounce to 1.2353 , possibly testing 200 daily Moving Average
Dollar Index running out of steam and is back below key level at 105.80. Correction down to 104.39 in the cards
EURUSD has been in a downtrend for the past two months. But now a correction seems to be unfolding.
EURUSD has reached the strong support area around 1.0515-1.0480. RSI closed yesterday below 25 i.e., in oversold territory.
If RSI is closing above its upper falling trend there is great likelihood of a EURUSD correction to test the upper falling trendline and the 0.3825 retracement at 1.0663.
However, if EURUSD is closing above the upper falling trend line a correction could continue all the way up to the 0.618 retracement at around 1.0775
If EURUSD is closing this Friday above 1.0635 it has closed the week, the month and the quarter above a key resistance level. That could lead to the weekly RSI closing back above 40 meaning it would still be in positive sentiment.
If EURUSD is failing to close above 1.0635 today – the end of the week and month - the downtrend is still in play on all time periods.
If EURUSD closes below 1.0480 there is no real strong support until around 1.0240. Minor support at around 1.0438
GBPUSD formed yesterday a Bullish Engulfing candle. A fairly rare occurrences in daily FX and since FX is an OTC market it is not the most reliable one. However, the power between Sellers and Buyers has shifted and GBPUSD in in for a correction.
A short-term correction up to the 0.382 retracement at around 1.2353 is likely but a spike up to the 200 daily Moving Average should not be ruled out.
RSI is still showing negative sentiment and if it gets rejected at the 40 threshold the bearish trend is likely to resume.
If that scenario plays out GBPUSD is likely to move towards the 1.20 support
Weekly chart RSI closed last week below the 40 threshold i.e., showing negative sentiment medium-term. That is an indication of further downside after a correction. But for now the 545 weekly Moving Average is providing support
Dollar Index closed above strong resistance at around 105.80 and moved higher to the 1.764 projection at 106.37 before the Buyers got exhausted.
The Dollar Index is at the time of writing back below the key level at 105.80. IF breaking below lower rising trendline a correction down to around 104.39 could be seen
If closing the week below 105.80 the weekly chart could be forming a Shooting Star top and reversal candle. If that scenario plays out we are likely to see a correction to a least 104.39 possibly lower.
However, RSI on both daily and weekly is showing positive sentiment regardless of where the Index is closing the week. That is indicating likely higher levels after a correction.
If closing back above 105.80 there is no strong resistance until around 107.70-107.90
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