As Q2 comes to an end there has been an increasing flow back into the USD. The strong USD trend has dominated major forex throughout Q2 and even as book squaring takes hold, there is still a bias towards pushing for a stronger USD. This is impacting the technical analysis outlook for major forex pairs.
- A stronger USD is once more set up to test the key supports on EUR/USD and GBP/USD
- AUD and NZD are creaking under the pressure as AUD/USD and NZD/USD already test their crucial supports.
There is a safe haven bias into the end of Q2
The USD had been on a slight corrective unwind since the Fed meeting on the 15th June. However, just in the last few days there has been a move back into USD. This has once more rejuvenated a 5 month uptrend on the Dollar Index that has accelerated away from the longer term USD uptrend that has been established over the past 12 months.
This move seems to have come with renewed safe haven flows across broader markets in recent days. We can see this with declines accelerating across equities and crypto especially. However, we are also coinciding with US bond yields falling away again. The US 10 year yield has dropped by around -20 basis points since Tuesday. Remember, yields fall as investors buy bonds, with bonds seen as a safe haven asset.
We can also see that this renewing USD strength is maintaining the outperformance that has dominated throughout Q2. As we can see in the relative performance chart of the major currencies versus the USD during Q3, the USD is clearly the best performing currency. Furthermore, the performance of these other currencies seems to be rolling over again in recent days.
The impact on EUR/USD and GBP/USD
We see the consistent trends are once more re-establishing on the charts of major forex.
Looking at EUR/USD (which is often seen as a mirror image to the Dollar Index due to the EUR accounting for c. 58% of the index) we see the strong downtrend re-asserting. With the breaching of support at 1.0470 yesterday there is growing momentum for a move back to test 103.50 which was the key May low. Rallies remain a chance to sell.
The big question is whether 1.0350 support gives way, there is a big low at 1.0325 from December 2016. However, if these supports are breached, with the market at 20 year lows, there is nothing to stop a retreat towards parity (1.0000).
It is a remarkably similar outlook on Cable too. GBP/USD is another chart that has formed lower highs and rallies are seen as a chance to sell within the downtrend. This week’s fall below 1.2160 support has once more opened the 1.1930 support from earlier in June. Significant reaction lows in the 1.1900s have been seen on a few occasions since 2016, however, if there were to be a decisive breach of this support area, there is no real support until the 1.1410 post-COVID spike low. Anyone long of GBP/USD will be nervously looking at the reaction to the 1.1930 low.
AUD/USD and NZD/USD already testing key supports
On a technical basis, the outlook for AUD and NZD is also in a precarious position.
With a series of lower highs over recent weeks, AUD/USD is consistently testing the support around 0.6930/0.6870. A breach of this support would be 2 year low with the next support around 0.6670. Momentum remains negatively configured and rallies are consistently failing. This week’s bull failure at 0.0.6965 is initial resistance with a rally above 0.7070 needed to engage a serious recovery.
For NZD/USD (the Kiwi is the biggest underperformer of major currencies in Q2) there is already a test of the key lows underway. The support band between 0.6195/0.6215 is already coming under significant strain. Longer term charts show that a break down of this support would again be 2 year lows, and move the market into the next support phase 0.5925/0.6150. Once more, rallies remain a chance to sell and initial support comes in at 0.6325 with 0.6395 needing to be broken to open a serious recovery.
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