An interesting week for the US dollar, which finally managed to find some traction on Thursday and Friday, bringing a temporary halt to the long bear trend of the last few weeks. For the euro vs dollar, this was reflected on Thursday with a wide spread down candle, which broke below the 9 day moving average, but stopped just short of the 14 day average on the daily chart, as Trichet adopted a less hawkish tone in his statement on Thursday following the ECB decision to keep interest rates on hold for the time being, with the euro falling as a result. This was followed on Friday with shocking NFP data which saw jobs created fall to 36,000 well short of the 138,00 forecast, yet the headline rate managed to fall from 9.5% to 9.0% for the month, with Friday’s candle just failing to touch the key 100 day moving average and closing at 1.3583 in the spot market.
From a technical perspective we are now left with an interesting picture on the weekly chart, with the deep shooting star candle of last week suggesting a temporary pull back for the EUR/USD, following the smaller shooting star candle of the previous week. It is also interesting to note that both these candles failed to test the pivotal 200 week moving average, which now sits in the 1.3951 region, and with Friday’s close ending below the 100 week moving average, then this would confirm the analysis of the daily chart, and suggest a pull back, possibly to re-test the 1.3300 area where potential support awaits.
Turning our attention to the dollar index, this too looks set to bounce higher this week, with the deep hammer candle on the weekly chart, suggesting a reversal in the recent bearish trend since late November, but for any rally to have momentum, we need to see a break and hold above the 200 week moving average, which currently sits in the 79.52 area on the weekly chart, and a clearance at this level would then open the way for a further move higher to test the 81 region in due course. So, expect to see a rally for the dollar this week with a consequent fall in the majors as a result. The key Fibonacci retracement level from the recent low is now at 78.50, and any move through here could open up the possibility of a move to the 50% level at 79.10 in due course. Any break above 79.60 would then suggest a reversal in trend beyond the 61.8 level.
This potential dollar strength is also reflected in the GBP/USD weekly chart which appears to have run into resistance in the 1.6302 area, where we saw a failure at this level back in November 2010, with a consequent test of the 1.55 region as a result, and indeed we may see this replicated once again. However, this pullback may only be temporary and in the case of Cable, we could see the pair finding support from the 9 and 14 day moving averages which lie below in the 1.6000 region, and remained untested on Friday with the pair recovering to close at 1.6109.