A selection of comments from analysts on important technical developments in the foreign exchange market.
EURO/DOLLAR: "Recent bearish developments magnify the double top that is in place at $1.2897, and indicate that the medium to long-term uptrend that has been in effect is beginning to reverse itself. Therefore, we are now shifting from a bullish (medium-term) trend bias to a neutral one.
However, our new price target is only established at $1.1900, a cautiously neutral outlook for the recent trend reversal based on the fact that our studies are now in oversold territory and a potential outside day is developing today.
This suggests that moves below the April-May 2004 double bottom at $1.1762 will be difficult to sustain without a price correction beforehand.
Resistance at $1.2067-$1.2199 is likely to attract corrective selling pressure as the dollar is expected to maintain an overall bid tone ahead of the US payroll release.
Immediate support is located at $1.1956 and $1.1899, followed by the key double bottom at $1.1762 that serves as a barrier to the November 2003 low at $1.1383."
DOLLAR/YEN: "Quickly approaching the key 29-month trendline resistance at 113.00 yen, as rising oil prices and a weak Nikkei weigh on the yen.
A test of 113.00 yen appears increasingly likely from an intermarket perspective, as the dollar index and euro/dollar have already exceeded equivalent resistance and support levels respectively this week.
We also point out that dollar/yen is resolving a rare diamond pattern that was formed between December 2003-July 2004 to the topside as prices remain above the 200-day moving average at 108.58 yen."
STERLING/DOLLAR: "With the recent price correction justifying our cautious outlook, we now focus on the key 10-month trendline support at $1.8041.
We suggest using the $1.8041 level as a key pivot point for sterling/dollar as a daily close below this level would reverse the medium-term uptrend that is in place, causing us to shift from a bullish to a neutral trend bias, projecting another move toward the May reaction low at $1.7486.
However, with our studies reaching oversold levels as an outside day is traced out today, moves below key support at $1.8041 and the double bottom at $1.8016 are unlikely to be sustainable without a price correction first (the 200-day moving average is also located nearby at $1.7996).
Nonetheless, resistance between $1.8341-$1.8453 is likely to now attract selling pressure in cable, highlighting a $1.7900-$1.8450 trading range."
DOLLAR/YEN: "The downtrend in dollar/yen has been losing momentum all year and positive divergence on the weekly chart above warns a sustainable recovery is possible.
Following the recovery above 110 yen last week, it should also be noted that over the past six months dollar/yen has been making higher price lows and highs: it could be argued using Dow Theory that a recovery has already begun!
"Weekly Ichimoku cloud resistance (currently 113.55 yen) has proved a significant barrier to major corrective rallies over the past two years and is reinforced by the 21-month moving average at 113.80 yen.
As the resistance associated with both these trend-following techniques is within striking distance we are also alert to the risk of a cross-driven move squeezing dollar/yen higher.
EURO/YEN and STERLING/YEN: "Last week, we saw both euro/yen and sterling/yen reverse near-term trends for yen appreciation as the price of oil surged to an all-time high. These cross markets are threatening to rally out of well-established contracting ranges and if resistance at sterling/yen of 205.20 yen and euro/yen of 135.80 yen were to fail, it could fan the flames of a dollar/yen rally. Obviously if the price of oil breaks above $45 a barrel, the pressure on the crosses could intensify."
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