Here’s a technical snapshot of the major currency pairs:
Post-election ‘pop and drop’ is the headline today following Emmanuel Macron’s decisive win over the weekend.
The single currency appears to have run out of steam after spending the last month at the top of the relative strength charts – reinforcing the old adage ‘buy the rumour sell the fact’.
Before we get too bearish it’s important to remind ourselves that EUR/USD’s technical structure remains bullish. The market held the end-April gap with prices consolidating before breaking higher last week. For now it is far safer to assume that today’s sell-off is simply a retracement within an emerging uptrend rather that a short-term top. However, for this assumption to hold we will need to see EUR/USD find support within the broken resistance zone at 1.0930, an area that is confluent with an ascending trendline.
Bull flag, breakout, bull flag, breakout…it’s a simple observation but one that most accurately reflects cable's structure right now. Last week’s price action saw the market find support at previous resistance and break higher once again.
Whilst trend and momentum lie firmly in favor of the bulls we should note that the size of the last ‘trend leg’ (directional move) was relatively muted. With this in mind Friday’s breakout will need to make progress in order for the trend structure to remain healthy. Clearly, Thursday’s BOE Quarterly Inflation Report will have a large say in this.
USD/JPY’s risk-on retracement has taken prices up into a cluster of resistance levels.
113.00 marks the intersection of a descending trendline, the 50% retracement of the Jan-April high-low, the 61.8% Fibonacci retracement of the March-April high-low and it also coincides with the top of the Keltner channel.
Whilst this confluence of key levels is compelling we would like to see further evidence that selling pressure has resumed before getting short.
The failed battle to defend the 0.7500-0.7450 support zone has left the Aussie looking battered and bruised.
Last week’s collapse in metal prices created the catalyst required for AUD/USD to break and close below 0.7450. Whilst Friday’s price action formed a bullish hammer candle this should be taken with a pinch of salt given its location and the sheer strength of AUD/USD’s bearish short-term momentum.
Our strategy on this pair is clear: Any retracement up into broken support at 0.7450 should be seen as a short opportunity. Further still, failure to mount any relief rally should also be treated as an opportunity to join the emerging downtrend.
