Risk appetite in forex majors appears to be deteriorating. This is increasingly driving traders away from higher-risk currencies, and towards safer haven plays, where the US dollar and Japanese yen are increasingly preferred. The technical analysis is showing that some significant medium-term changes could be forming in some major pairs.
- The bulls continue to struggle as EUR/USD is weighed down
- GBP/USD is at a key crossroads as key bullish indicators are tested
- A multi-month top pattern has formed on NZD/USD
- The AUD/JPY cross is one to watch
Strengthening dollar still weighing on EUR/USD
EUR/USD bulls have been fighting the tide ever since the peak in early January. A series of lower highs and lower lows have formed since then and the chart has broken the key uptrend in place since May 2020.
The old support of 1.1950/1.2000 has been breached and this has changed the outlook. With old support now acting as key resistance, rallies are a chance to sell. With falling moving averages, this is also backed by the 14 day RSI momentum indicator.
We favor pressure on 1.1835, with a downside break opening 1.1600/1.1700. Closing above 1.2020 to sustainably improve the outlook.
[See in the chart below, pressure on 1.1835, with a downside break opening 1.1.1600/1.1700. Closing above 1.2020]
Cable on the brink
GBP/USD has retreated to a crucial medium-term support area. A five-month uptrend and the 55-day moving average are both around 1.3775/1.3800 and have been key gauges of support for months. These indicators are now beginning to creak under the pressure. The retreat is also testing the support of the old key January breakout levels between 1.3700/1.3775.
It means that how Cable reacts in this band 1.37/1.38 in the coming days could be crucial to its outlook. If support holds then the bulls can think about 1.4000 again. However, closing below 1.3700 would mean a serious rethink of how bullish the outlook is. The concern is that the 14 days RSI is already breaking down and could be leading the market lower.
[As seen in the chart below, the retreat is testing the support of the old key January breakout levels between 1.3700/1.3775.]
Kiwi breaking down
NZD/USD is under even more downside pressure than Cable. The market has now broken a 10-month uptrend. However, more importantly, an intraday breakdown below key support at 0.7095 is a year-to-date low and now looks to be completing a three-month top pattern. If this is confirmed by a two-day close below 0.7095, the top pattern implies 280 pips of downside in the coming months towards 0.6815.
The warning signals are certainly there too. The 21 and 55-day moving averages are close to a “death cross”, whilst 14 days RSI is at its lowest for a year., with the next real band of support around 0.6750/0.6800. The crucial breakdown would be confirmed if key support at 0.7000 is broken.
[As seen in the chart below, 14 days RSI is at its lowest for a year, with the next real band of support around 0.6750/0.6800]
A key gauge of risk appetite, the AUD/JPY cross, is looking vulnerable
JPY considered the ultimate safe haven and AUD being a higher risk major currency, looking at the cross of AUD/JPY gives a sense of broader market appetite for risk. Moving out of AUD and into JPY pulls the cross lower. The technicals are also looking increasingly at risk of a correction.
A 5-month uptrend is still intact, however, candlesticks have been increasingly negative in recent weeks. If the market closes around current levels today, the 14 days RSI will be below 50 for the first time since October and suggesting deteriorating momentum. This also comes with a bearish divergence with the RSI compared to the price recent high.
No support of significance has been breached yet, but initial support at 82.77 needs to be watched. A decisive change of outlook would come on a closing break below 81.98.
[As seen in the chart below, initial support at 82.77 but a decisive change of outlook would come once closing break below 81.98]