Forex Weekly Review and Outlook

EUR/USD

Roller-coaster day on Friday. After a brief rebound to 1.2235, EUR/USD turned south and fell steeply for over 140 pts to as low as 1.2084 before taking a breath. Such steep fall is once again telling us to respect divergence conditions. As discussed before, bearish divergence displayed in 4 hours MACD and now, with a break below short term rising trend line from 1.1776 to 1.2039, it's confirmed that at least a short term top is made at 1.2322 already.

Having said that, short term bias is now shift to the down side. Even though we could see a recovery to above 1.2159 resistance, we'd expect weakness from 1.2322 to extend towards cluster support of 1.2049/61 (50% retracement of 1.776 to 1.2322 at 1.2049 and 38.2% retracement of 1.1639 to 1.2322 at 1.2061).

Support zone between this cluster support and rising trend line from 1.1659 to 1.1776 (now at 1899) will be critical from a medium term angle. Any rebound from there will favor that the price action from 1.2322 is just forming a sideway consolidation to the rebound from 1.1639, which will resume for 1.2587 resistance again after completion. However, a firm break below will indicate further weakness is to be seen in medium term that will bring EUR/USD further lower to 1.1776 cluster support (with 78.6% of 1.1639 to 1.2322 at 1.1785) or lower.

Meanwhile, it will take a strong rebound to above 1.2235 resistance to reinitiate short term bullishness.

GBP/USD

Even though breaking mentioned cluster resistance of 1.7902 (with 100% projection of 1.7047 to 1.7809 from 1.7129 at 1.7891, and 61.8% projection of 1.7130 to 1.7725 from 1.7525 at 1.7893) briefly, cable failed to stay firm above it. Friday's sell off on bearish divergence condition in 4 hours MACD indicates at least a short term top is formed at 1.7935 already. Though short term rising trend line from 1.7130 is still holding, we'd expect it to be broken with extended weakness in cable early next week. Also, even though cable may recover to 1.7756 level or above, further weakness is expected to push cable lower towards cluster support of 1.7521 (with 50% retracement of 1.7130 to 1.7935 at 1.7533).

This cluster support of 1.7521 will be critical from medium term angle. Strong rebound from there will suggest price action from 1.7935 is possibly forming sideway consolidation to the rebound from 1.7130 only. And further rally to 1.8498 level should be seen after such consolidation. However, a firm break below 1.7521 will indicate medium weakness should push cable further lower towards rising trend line from 1.7047 to 1.7130 (now at 1.7211).

Meanwhile, it will take a strong rebound to above 1.7878 resistance to reinitiate short term bullishness.

USD/CHF

After meeting downside target of 61.8% projection of 1.3197 to 1.2674 from 1.2891 at 1.2568 and broke marginally lower to 1.2556, USD/CHF failed to trade lower and instead, rebounded strongly on Friday. The rebound from 1.2556, on bullish convergence in 4 hours MACD as discussed before, has now pushed USD/CHF above short term falling trend line from 1.3197 to 1.2890. At least a short term low is formed at 1.2556 already.

Having said that, though we may see a pullback to 1.2768 support or below early next week, this rebound is expected to continue to push USD/CHF to resistance zone between 50% and 61.8% retracement of 1.3283 to 1.2556, i.e. 1.2920 to 1.3005

This resistance zone will be critical from medium term angle. If USD/CHF turned south and fall steeply again after reaching this resistance, chances will favor the rebound from 1.2556 is just forming part of sideway consolidation to the whole fall from 1.3283. However, a firm break above 1.3005 will suggest further strength should be seen in medium term that could push USD/CHF to retest 1.3197 high.

Meanwhile, it will take a sharp fall to below 1.2680 level to reinitiate short term bearishness.

USD/JPY

USD/JPY was the tricky one based on previous weakness of dollar against other majors. However, it finally turns out that this 'trickiness' in USD/JPY is in fact a warning to dollar bears. As discussed before, USD/JPY's fall from 121.38 was contained at 113.41, failing to break firmly below mentioned key cluster support of cluster support of 113.74 (61.8% retracement of 108.75 to 121.38 at 113.57 and 38.2% retracement of 101.65 to 121.38 at 113.84) and medium term rising trend line from 104.20 to 108.75. With bullish convergence displayed in 4 hours MACD, a short term low was formed at 113.41 already.

Last week's strength in USD/JPY is indicating that this rebound is of the same degree as the fall from 121.38 and hence, further rally is expected to follow. Now with 50% retracement of 121.38 to 113.41 at 117.39 met, next upside target will be cluster resistance at 118.17 with 61.8% retracement of 121.38 to 1113.41 at 118.33 and 161.8% projection of 113.41 to 115.93 from 114.15 at 118.23. Upside could be limited by this level as USD/JPY is now in overbought condition as displayed in 4 hours RSI and turn into consolidation.

A drop below 116.88 support will suggest consolidation has already started but as long as 116.10 support holds, short term bullishness remains.