Currencies Weekly Analysis(Oct 10)

Currencies Weekly Analysis(Oct 10)

Despite losing some ground early last week, the U.S. dollar managed to regain bullish momentum to end the week higher against most major currencies except the Canadian dollar.

EURUSD Weekly Analysis

Weekly Yield Differential

The chart below is the 2-year yield differential between the euro bonds and the U.S treasury bonds.

The differential chart illustrates which bond yield is rising or falling faster than the other. A rise in euro bond yield faster than the U.S. bond yield result in a rise in the light blue line and vice versa.

It’s useful to look at the differential as there is to a certain extent a positive correlation between the EURUSD price and the yield differential. Both yield differential and the EURUSD usually (not always) move in the same direction.

Euro/dollar 2-year bond yield differential
Euro/Dollar 2-year bond yield differential

Recently, the EURUSD and the YD(Yield differential) diverged. Note the shaded areas on the chart. The YD trended lower while the EURUSD bounced higher. Usually, this divergence hints at a possible reversal in one of the two or both.

This divergence hinted at a possible downside reversal in the EURUSD. Which indeed started to re-adjust, moving back lower the last few days.

Weekly Technical Analysis

Highlight: The main downtrend continues. The bearish bias is favored so long as below parity(1.00).

EURUSD_daily chart 2022-10-09
EURUSD daily chart 2022-10-10

The downtrend structure is clear on the daily chart. The price has been trending lower forming lower highs and lowers lows.

Upside corrections were all stopped around the 50-day moving average. And the most recent one we witnessed last few weeks was also halted at the 50-day SMA and the descending resistance for a falling channel.

The RSI has also failed to record a new high, stopping near the 65-level with each upside correction.

Hence, a possible scenario is that the pair has formed a new lower low(orange arrow). And could be heading for a new test of the long-term support level at the previous swing low, the 0.9550 area.

EURUSD 4-hour chart 2022-10-10
EURUSD 6-hour chart 2022-10-10

Looking deeper into the shorter time frame. After the correction was halted near the 50-day simple moving average (green line), the price managed to form a series of lower highs and lower lows. But, we haven’t seen a break below the most recent swing low of the short-term bullish uptrend around 0.9735.

Therefore, a breakout below 0.9735 would break the short-term uptrend structure and may confirm a new test of 0.9550 major long-term support.

Only a break back above 0.9835 would suggest a retest of the 50-day SMA and the falling channel resistance shown on the daily chart.

GBPUSD Weekly Analysis

Highlight: 1.1500 should limit the upside. Sideway movement in the coming few weeks is likely.

GBPUSD daily chart 2022-10-10
GBPUSD daily chart 2022-10-10

The GBPUSD reversed sharply higher towards 1.15 resistance level. The bullish rebound was rejected there, and the price failed to hold above the short-term falling trend line.

Is this a new lower high in the downtrend? It is too early to conclude. However, it’s highly unlikely that the price heads toward new lows below 1.0356 in the coming few weeks. As usually such a sharp rebound could be followed by high volatility sideways market.

We may trade between the 1.15 high and 1.0356 low for the coming weeks.

GBPUSD 4-hour chart 2022-10-10
GBPUSD 6-hour chart 2022-10-10

Shorter term, the price has formed a series of lower highs and lows(red arrows) and is currently testing the most recent swing low and support for the previous upside correction around 1.1025. Which also coincides with the minor upside trend line for the recent upside correction.

So long as the price is above 1.1025 the bullish resumption towards another 1.1400 test remains in play. and a break above 1.1235 should confirm this scenario.

Only a breakout below 1.0925 would signal more downside. Passing by 1.0760 towards 1.0540.

USDJPY Weekly Analysis

Highlight: 145.90 is the key resistance. A breakout above it could extend the uptrend to 147.60. To the downside, 143.50 is the short-term support.

USDJPY daily chart 2022-10-10
USDJPY daily chart 2022-10-10

A major uptrend. The USDJPY continues to maintain the bullish trend as the price approaches the most recent high at 145.90.

145.90 is the high of a major high-wave candle, and may act as resistance. I prefer to stay on the sidelines until I see a break above that high. A break above the high should signal a test of the long-term possible resistance level at 147.60.

At the same time, going short against a strong trend is not a good idea. Unless I see enough confirmation to do so.

On the other hand, 143.50 is the key support to watch in the near term. A break below it may signal another push towards 141.50 and 140.30.

Further sideways bias is expected so long as the 140.00-146.00 range is not broken.

USDCAD Weekly Analysis

Highlight: Oil, yields support the Canadian dollar. Looking for 1.3850 resistance to hold.

USDCAD Correlations 2022-10-10
USDCAD Correlations 2022-10-10

Despite that the sharp rise in crude oil prices and yield differentials in favor of Canada, The Canadian dollar failed to sustain its strength against the dollar.

This divergence between oil prices, yield differentials, and the Canadian dollar might be an indication of the loonie regaining strength again.

USDCAD daily chart 2022-10-10
USDCAD daily chart 2022-10-10

The main long-term resistance among 1.3835-1.3855 should hold in the near term if this scenario is valid.

However, a confirmation of the short trade is needed. I will be looking for another rejection candle at that 1.3850 resistance area. Or, a break back below Friday’s low at 1.3675, targeting a retest of 1.3500.

AUDUSD Weekly Analysis

Highlight: The AUDUSD trend is bearish. Shorting remains favored for now and so long as no breakout above 0.6550.

AUDUSD daily chart 2022-10-10
AUDUSD daily chart 2022-10-10

The price is pushing the most recent swing low at 0.6363 after the recent sideways consolidation. If the price manages to break below that level, that suggests the consolidation may have ended and the bearish wave to extend to the next potential support at 0.6250.

AUDUSD 6-hour chart 2022-10-10
AUDUSD 6-hour chart 2022-10-10

Short term, a break back above 0.6435 could signal the sideways consolidation between 0.6550-0.6360 is still in place.

Only a break above 0.6550 may warn of a medium-term trend reversal.

Lu'ay Af.
Written by
Lu'ay Af.
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