Technical Analysis: Forex update – Dollar raise but market seems weary despite upbeat job report July 6, 2020 484

  • The U.S market dollar index (DXY) reached the highest point in two years at 102.99, falling short of the 103.00 psychological mark.
  • Slight rebound to happen due to the positive outcome of Non-Farm payroll. However, prices remain fallen short of 98.00.
  • We expect short term upside to the dollar before a bearish sell-down resume.
  • All in all, the dollar index will be trending in ranges.

 

Soon after the index topped 102.99 in mid-March, the dollar completed Wave I of the primary phase (denoted by the red I). Subsequently entered an ABC corrective wave, which made up a potential Wave II (denoted by the red II).

Focusing on C, the sub wave (iv) may enter a regular flat corrective wave after prices fail to rally beyond 98.00. Another point to note is that the Dollar Index has formed a potential bearish flag and there is an attempt to break below the flag. Should prices continue lower, the next potential rebound should be at 94.64-95.22, which confluence with the 127.2 extension level of the flag. Should prices break past beyond 94.00, then the index’s primary Wave I will be invalidated.

 

Like the Dollar Index price structure, the EURUSD rebounded to new high on late Feb from 1.0800 region to 1.1522. However, the subsequent sell down saw price breaking the February low before a recovery which took 3 months and a series of corrective flats.

Moving forward, we shall see the EURUSD heading lower into Support Zone 1 which confluence with the 50% Fibonacci retracement level of 1.0638-1.1522 after the price breaks the flag and the rally capped at 1.135. After which, the potential sell down will continue to test Support Zone 2 at 1.0700 region.

 

The weakness in the pound is displayed from start of this year when the sub bearish 5-wave is formed. Subsequent rebound sees prices still retest 1.2689 region which confluence with the 78.6% retracement level of wave (iii) and (v).

To add on, prices had broken out of the rising wedge which consist of the whole sub-corrective (a)(b)(c) wave and a further sell down was seen after the rebound to test the lower bound of the wedge. As such, we see prices testing the immediate support zone.

The only question left is whether the major waves shown in the chart is either a bigger corrective wave or an impulse wave. If the prices revert higher above 1.3300 after testing the support zone, the major wave will be a corrective action. In this case, we will see a greater price fall in the long run.

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About the author

Profile photo of Chua Wei Ren

Chua Wei Ren
Technical Analyst
Phillip Securities Research Pte Ltd

Wei Ren specialises in Technical Analysis and has 11 years of experience in studying classic technical price action. He also study and research extensively on Elliott wave theory, Dow Theory. He believes that history plays an important role in how the market is reflected in the future.

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