EUR/USD Forex Technical Analysis for July 18, 2016

Technical Analysis

EUR/USD Forex Technical Analysis for July 18, 2016

Technical Analysis : The EUR/USD reversed course mid-day snapping a 4-day winning streak after testing highs in July at 1.1196. A stronger than expected U.S. retail sales took the luster off of the currency pair. Support is seen near the 10-day moving average at 1.1086. Momentum has turned positive as the MACD (moving average convergence divergence) index generating a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.
U.S. retail sales jumped 0.6% in June, and rose 0.7% excluding autos, much stronger than expected. But the 0.5% headline gain in May was bumped down to 0.2%, while there were no revisions to the 0.4% ex-auto figure. Sales excluding autos, gas, and building materials rose 0.4% versus the May 0.5% gain. Gains were broad-based.

In Other View Point : EUR/USD: Risk aversion to dominate weekly opening

EUR/USD Current price: 1.1068

Risk sentiment took a flip to the worst late Friday, after a military coup attempt in Turkey. Over 250 dead and the coup repelled was the result, with President Erdogan declaring it a failure on Saturday. Still, the event came after a terrorist attack in France, Nice, just a day before, with 84 dead and over 50 critical injured. Financial markets saw a limited reaction to the events on Friday, with US stocks retreating at the end of the day and closing generally flat. Among currencies, reaction has been also limited. Nevertheless, risk-averse trading will likely resume with the upcoming weekly opening, with EM currencies feeling the hit and pushing the greenback higher across the board.
Technical Analysis

Adding to the dollar’s bullish case has been the imbalance between macroeconomic data, as latest US figures suggest the country has return to growth in the second quarter. On Friday, upbeat retail sales, steady inflation and robust industrial production, revived speculation that the FED may have to reconsider the pace of tightening.

The EUR/USD pair closed the week near the lower end of its last three-week range, holding above the 1.1000 figure, but with an increasing bearish potential, given that in the daily chart, and despite some intraday spikes beyond it, the pair remained capped by its 200 DMA, around 1.1100, whilst the 20 SMA is also above the current level, with a sharp bearish slope. In the same chart, the Momentum indicator turned sharply lower and is back within bearish territory, whilst the RSI indicator resumed its decline below its mid-line. Shorter term, and according to the 4 hours chart, the price settled below its moving averages, with the 20 SMA currently around 1.1095, while the technical indicators held below their mid-lines, with no clear directional strength. As long as below the critical 1.1189 level, the post-Brexit high, the risk will remain towards the downside, with a break below the psychological 1.1000 level required to confirm a new leg south.

Support levels: 1.1050 1.1000 1.0960

Resistance levels: 1.1095 1.1150 1.1190

EUR/JPY Current price: 116.71

Despite retreating on Friday, the EUR/JPY pair closed at a fresh 3-week high, up roughly 5% last week as the Japanese yen entered selling mode on speculation the BOJ will embark in a new round of aggressive easing, after Abe won the Upper House elections. The pair topped at 118.39 on Friday, but closed in the red around 116.70, as risk aversion on Turkish military coup, fueled demand for the safe-haven currency. Technically, the daily chart shows that the price failed to establish above the 61.8% retracement of the post-Brexit slump at 117.20, now the immediate resistance. Technical indicators in the mentioned time frame have lost upward strength and turned south within positive territory, whilst the price keeps developing below sharply bearish moving averages, with the 100 DMA currently around 121.30, indicating that in the long run, the risk remains towards the downside. In the 4 hours chart, the price retreated a few pips below a bearish 200 SMA, the Momentum indicator is modestly bouncing from its 100 level, whilst the RSI indicator heads slightly lower around 56, not enough to confirm a downward continuation at this point.

Support levels: 116.30 115.80 115.35
Resistance levels: 117.20 117.60 118.00

GBP/USD Current price: 1.3218

Bank of England Governor Carney surprised markets by keeping the UK economic policy unchanged last Thursday, pushing the Pound sharply higher against all of its major rivals, and the GBP/USD up to 1.3480, its highest for this July. Market priced in a 25bps cut ahead of the announcement, the main reason beyond Pound’s gains that were quickly retraced after Carney hinted easing will come early August, with the next BOE’s meeting. The GBP/USD pair eased on Friday on dollar’s strength, closing the week at 1.3218, having erased all of its post-BOE’s gains. Political uncertainty has eased with Theresa May becoming the new UK Prime Minister and forming its cabinet, but the underlying risk is still negative for the Pound. Technically, the daily chart shows that after briefly advancing beyond it, the price is below the 23.6% retracement of the latest daily slump at 1.3320, whilst the 20 DMA heads sharply lower around the Fibonacci resistance. In the same chart the Momentum indicator has corrected all of its overbought conditions, but failed to overcome the 100 level and turned back south, whilst the RSI indicator also resumed its decline within negative territory, in line with the fundamental view. In the 4 hours chart, the pair presents a neutral-to-bearish tone, as the price is below a horizontal 20 SMA, whilst the technical indicators lack directional strength within bearish territory.

Support levels: 1.3175 1.3130 1.3080
Resistance levels: 1.3240 1.3285 1.3320

USD/JPY Current price: 105.44

The USD/JPY pair hit 106.31 last Friday, briefly surging above pre-Brexit levels, but shed some 100 pips ahead of the close, weighed by safe-haven demand by the end of the week. The yen collapsed by 4.8% against the greenback during the past few days, amid speculation Abenomics will continue with fiscal and economic measures which may include “helicopter money.” But things may have gone too far, too fast, given that the BOJ is scheduled to meet by the ends of this July, and it has the tendency to talk more than it does. More easing has clearly been priced in, and with an increasing risk-averse environment, the pair has it hard to keep on rallying. Nevertheless, and with both currencies expected to surge on safe-haven demand, the pair may enter a consolidative stage that could prolong until the BOJ’s meeting. From a technical perspective, the daily chart shows that the price stalled well below its 100 DMA, currently at 107.70, whilst indicators have recovered sharply from oversold readings, but lost upward momentum and turned flat within positive territory, supporting a consolidative phase ahead. In the 4 hours chart, the price holds above its moving averages, with the 100 SMA having turned horizontal, but the 200 SMA still heading south above the shortest. The Momentum indicator turned modestly higher within positive territory whilst the RSI heads lower around 61, indicating the downward potential is limited, at least as long as the price holds above the 105.00 figure.

Support levels: 105.40 104.95 104.40
Resistance levels: 106.35 106.70 107.10

AUD/USD Current price: 0.7597

The AUD/USD pair trimmed most of its weekly gains on Friday, closing the week however around the 0.7600 level and with the Aussie holding above the strongest currencies across the board. The pair reversed course with the latest upbeat US data and Turkish developments, which fueled dollar’s demand. Having set a fresh 2-month high of 0.7675 the daily chart for the pair shows that it has been unable to settle above the roof of the daily ascendant channel coming from June 24th low of 0.7303, but that it trades at the upper half of the figure, overall retaining its longer term bullish outlook. In the mentioned time frame, the price is well above its 20 SMA, currently around 0.7500, whist the technical indicators are retreating from near overbought levels, but remain well above their mid-lines, suggesting upcoming downward moves may remain as corrective. In the 4 hours chart, the risk is now towards the downside, as the price is below its 20 SMA, while the technical indicators hold within negative territory, with no certain directional strength. Friday’s low of 0.7580 is the immediate support, with a break below signaling further declines down to 0.7500. Nevertheless, buying interest will likely surged on dips towards this last, as the rates’ differential will likely keep the Aussie in favor.

Support levels: 0.7580 0.7545 0.7500
Resistance levels: 0.7620 0.7660 0.7710

By Valeria Bednarik