It has been a surprisingly powerful show in the USD so much this year following the back nine months of 2020 saw a combined sell-off from the money. But, as I had cautioned in the Q1 technical forecast, the build of a falling wedge together with some extreme oversold conditions coming into 2021 commerce left the door open for a pullback situation prior to the larger image bearish theme might return over.
Well, now that we're halfway through Q1, that's basically what we've seen. The USD bounced in the opening weeks of 2021 trade and within the past six weeks, we've seen the construct of back-and-forth cost action. This gyration has taken on the form of some other formation, however, as there's been a head and shoulders pattern that is shaped with a neckline just over the 90.00 handle on DXY.
This confluence around support can complicate breakdown situations since there's just more reasons for buyers to encourage the bidding given that we have not just trend/neckline support; but also emotional level support around the 90.00 handle on top of a run of prior price actions swings.
Going down to a shorter-term graph and we can see where bears have been making incremental progress. The trendline making the neckline of the head and shoulders formation captured another support inflection yesterday, just a week following the previous inflection; but vendors remained competitive on that most recent iteration and proceeded to drive thereafter, finally pushing the trendline and temporarily entering the 90.00 level on DXY.
But, that is when purchasing pressure dried up -- costs popped, albeit temporarily, and cost action has tilted down to this zone for another test. So, it would seem that support remains under assault, at least for now, and the USD may require a bit of help from the other money, looked at a little afterwards, for this zone to finally give way.
EUR/USD SNARED AT RESISTANCE
If the US Dollar is going to break down, then it's likely going to want a portion of an assist from the single currency.
EUR/USD remains snared at a big place of resistance, running between 2 amounts derived from longer-term Fibonacci studies and crossing from 1.2134-1.2167. This zone has been in play since early-December, as both support and resistance, and like the 90.00 degree on DXY, this area of immunity has enabled for the build of a formation; although, this could be the mirror image of the above since USD is at the denominator of this EUR/USD pair.
On the beneath four-hour graph, we're looking at an inverse head and shoulders pattern. This will frequently be approached with the purpose of bullish breakouts, searching for purchasing pressure to eventually break through the neckline and leave the prior resistance behind.
GBP/USD RIDES TO FRESH HIGHS
As I had looked at a week, for short-side USD plays, it appeared as though there were more amenable pastures elsewhere, including GBP/USD.
That pair has continued to climb, even as the USD continues to be bandied around crucial support and EUR/USD has been caught by resistance.
Cable is currently trading above the 1.4000 handle for first time since April of 2018. The tendency is, by some reports, overbought; but there is support possible around that 1.4000 psychological level that are able to keep the door open for bullish stage scenarios.
Also looked in last week's webinar -- Yen weakness. This may really be a more attractive subject for risk-on drives than the premise of USD weakness.
I had looked to a bullish breakout in AUD/JPY a few weeks ago, looking for a topside breach of a reverse head and shoulders pattern, and then that is filled-in as prices in the group have jumped to new two-year-highs. And as the pair currently hangs very close to that high water mark, support possible stays just a little lower round the 82.26 degree of prior immunity.