With many of the major trading centres closed yesterday for public holidays, and with little in the way of meaningful fundamental news to drive price action, trading volumes in currency futures remained thin, with the Aussie dollar, the British pound, the Canadian dollar and the euro, all consolidating further following the volatile price action of last week.
If we start with the Aussie dollar, the good news from China helped to lift the negative tone for the AUD/USD with the price action closing as a relatively wide spread up candle, but on low volume, as the pair continues to consolidate in narrow range. The key platform of support remains the blue dotted line at 0.8620, where we have seen eight previous levels of accumulation. To date this has held firm having been tested earlier in the month. Last week’s rally higher stalled in the 0.8870 area, with the wide spread up candle and deep upper wick, coupled with high volume, duly validated as weakness, and further confirmed with a pivot high to the candle.
In early trading this morning, the pair again look weak, with the overnight rally having stalled in the 0.8780 region. In the longer term the platform below is now seminal, and any break and hold below this level, will then signal a further move to the downside. Moving to the currency strength indicator to the left of the chart, the Aussie dollar, the blue line, has reversed lower once again and now looks to be heading back towards the oversold region on the daily timeframe and confirming the bearish tone.
Moving to the GBP/USD, this too reflects a similar picture, with the recent rally in the pair having been capped by a deep area of resistance now immediately overhead in the 1.6230 region. Again this weakness was duly confirmed with the pivot high. However it is interesting to note that the subsequent move lower has been accompanied with falling volume, although yesterday was distorted by the holidays.
As with the AUD/USD, we now have a sustained platform of support in place below, in this case in the 1.6000 region, and if this breached, then the pair are likely to pick up the bearish tone once again in the longer term, a view reflected by the currency strength indicator to the left, with the British pound, the yellow line, now looking set to decline further, with some way to go before reaching an oversold condition on the daily time frame.
For the euro, it’s a case of rising from the ashes of despair, as once again, the single currency looks set to defy the pundits as it attempts to reverse the longer term bearish trend, building a base in the 1.2500 region and despite yesterday’s relatively weak price action on low volume. Overnight the pair open gapped up, but have since fallen back to trade at 1.2698 at the time of writing, as we now appear to be moving into a congestion phase between 1.2800 to the upside and 1.2600 to the downside.
For the euro, it will be the German ZEW release due shortly which is likely to impact the pair today, and given the speed of descent of this number since January, and the consequent message this is sending about the German economy, it is surprising to say the least, to see the euro clawing its way back. Nevertheless, it is, albeit in a modest way, and longer term, the currency strength indicator to the left is signalling further strength for the euro (the gold line) in the longer term.
Finally to the CAD/USD, which continues to remain heavily bearish, following the recent attempt to rise, with this move being snuffed out with the deep area of price resistance in the 0.9000 region. This is an extremely well defined level as shown with the blue dotted line, and one which is now weighing heavily on the pair. With the selling volumes increasing last week, the pair are now looking to test the 0.8850 region, and if this is broken as expected, the pair are likely to pick up momentum once again, for a sustained move lower in due course. The currency strength indicator to the left of the chart is confirming this picture, with the purple line ( CAD ) descending sharply and with some way to go before reaching an oversold state on the daily time frame.