The USD has shifted lower with an across the board downturn while positioning for a test of the next line of important
support levels. The focus is now on the 1.3125 area for EUR/USD which represents the 38.2% retracement from the 2009
cycle high. While we still sense the short term setup can allow for some pause, sustained breaks here particularly on a
weekly closing basis would shift the focus to the 1.35 area. Moreover, the DXY Index is quickly approaching the 81.44
support level and 50% retracement from the 2009 low.
With these levels intact, the short term setup suggests some consolidation is due given the extent of the declines, proximity
of the key levels and the state of the current momentum setup. In that regard, we note that a number of USD pairs reflect an
extreme momentum condition coupled with a divergent setup. Importantly, while some pause can develop from here, the
risks continue to point to additional USD weakness beyond any consolidation phase that can develop.
In that regard, we still see an important test for AUD/USD at the .9075/.9110 resistance zone which includes the 76.4%
retracement from the April peak (.9078). Similarly, NZD/USD failed to sustain above the key .7300/30 April highs while
failing at the next zone of key resistance at .7383/.7443 which includes the similar Fib retracement levels. Importantly, the
overbought and diverging momentum setup is consistent with the view for additional short term consolidation. Note that
today’s NZD underperformance has led to a potential short term base breakout in AUD/NZD through the key
1.23625/1.2410 resistance zone while raising the risk of a deeper upside retracement. Also, USD/CAD has thus far
effectively held key support at the 1.0277/60 support area (mid-July low and April upTL) while suggesting additional pause
in line with the oversold and diverging momentum setup.
A key focus stays on USD/JPY as the failure against the key June downtrendline resistance is intact. As we’ve highlighted
over the past few days, the price action from the July low still reflects an overall corrective bias which seems consistent
with the view for new lows. As such, the 88.00/12 area should maintain the more immediate downside bias for new lows.
