Forex: The Risk Today

The Risk Today:

EurUsd Our head and shoulders pattern on the daily chart is now complete after hitting its target of 1.3330 yesterday afternoon, and securing over 100 pips of profit. As we had asserted previously, there was a good chance that the sell-off would overshoot our original target given that next downside support does not come in until 1.3268 (25 March low); and thus far, the bearish momentum has skimmed lows of 1.3286. There is very little expected out of today’s ECB meeting, and Eurozone retail sales data is expected to be another subdued affair; so we strongly oppose any temptation to go long on this pair looking for a sneaky short squeeze –especially with the 4-month downtrend undeniably in full force. Instead, we move to the sidelines for now, looking to sell on rallies back up towards 1.3460 (recall this is the old neckline of our head and shoulders pattern), and wait to see the developments on the next challenge of 1.3268 major support. Another reason we favour a resolutely short-only approach for the time being is that the support levels from here are far fewer and more sparsely situated compared to the numerous resistance levels above. On the downside, 1.3268 support is really the last bastion of EURUSD buying interest expected until 1.3000 levels, with only a spurious horizontal support at 1.3093 to break the fall. Rallies should struggle around 1.3385, then 1.3460 before the daunting major downtrend at 1.3505.

GbpUsd Consolidation is the theme for GBPUSD, and whilst the broader range seems likely to be encapsulated by 1.5130-1.5350, we also see a possible symmetrical triangle formation being etched out on the hourly chart, with the lower bound at 1.5145 currently being tested by a morning burst of USD strength. Obviously, we are proposing this formation after only two rebounds off the lower trendline so it is far from robust, but it could still be useful to factor in the current 1.5145 support and 1.5275 resistance into our intraday trading. Even if the triangle formation is negated, expect good bids around 1.5115-30, with resistance at 1.5326 (50-day moving average) and 1.5350. Given the break of the significant downtrend at the end of March, our gut instinct is that the eventual breakout will come to the topside; however the bullish bias is contingent on 1.4780 major support remaining intact.

UsdJpy USDJPY continues its correction lower from the dizzy peaks of 94.82 (Monday’s high), although the sell-off is very gradual in its pace, and we (amongst others) who are waiting for a deeper correction lower before re-entering core longs are being forced to wait patiently. As we have declared already, the risk-reward ratio of new long entry would only start looking more attractive to us back below 92.50 levels (ideally just ahead of the major support level at 92.15), but we are also open to the possibility of going long higher up if we see a confirmed break above the 95.00 resistance. In this latter scenario, the exhaustion of selling interest ahead of 95.00 would open us up to the exciting prospect of targets around 97.80 not seen since 7 August last year. In the meantime expect rallies to struggle back up at 93.77 which coincides with former resistance (7 Jan highs) and the upper edge of a very short-term downtrend, with weak support due at 92.85.

UsdChf Well this morning’s surge of USD strength looks to have breached the downtrend vibration channel at 1.0765, negating yesterday’s proposed range and thereby shifting our attention back towards the topside targets of 1.0800 and 1.0900. En route to breaching the downtrend at 1.0765, we also burst through the 1.0750 resistance from 25 March, so from here we would use that level as a platform for long entry. Obviously, the thing to be wary of is the very choppy and directionless manner in which USDCHF has traded since the break of its major downtrend on 4 February, so it may take a number of false breaks before we get a satisfactory move higher. Price action below should be sticky all the way down through the downtrend channel with major support only expected around 1.0473-82 (200-and 100-day moving averages).

Resistance and Support:

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