Top Five Interesting Chart Set ups this week (August 1 – 5)

Aug 01, 11:05 am
Chart set ups

Market Context: The US dollar sold off on Friday as the ICE Futures US dollar index fell to 95.52. The greenback was beaten by the BoJ’s easing which was greatly short of what the markets were expecting and followed by the Q2 GDP print which showed that the US economy expanded at a meager 1.20%, just 0.1 percentage points higher than Q1’s GDP growth.

With a new trading month ahead, the markets will be busy with the PMI surveys. In the US, keep an eye out for ISM manufacturing & non-manufacturing data, and nonfarm payrolls report on Friday.

Broadly put, a weak NFP print, lower than that of June’s could renew the confidence in USD bears. In Japan, economic data is light but as per the market reports last week; PM Shinzo Abe is expected to outline the 28 trillion fiscal stimulus spending plans.

In New Zealand, the quarterly employment data is due out on Tuesday. Also watch for quarterly inflation expectations, which, if data shows has deteriorated further could see the markets start to price in the RBNZ rate cuts, at its meeting on August 10th.

Chart 1: US Dollar Index (95.63)

Friday’s (July 29) sell off saw prices fall right into the support zone at 95.50 – 95.75. This horizontal support, which previously acted as resistance around late May marks the first-time test and is supported by the dynamic support from the rising pitchfork’s lower median line. We could, therefore, expect a bounce off this support level. Whether the dollar index can gather the momentum off this support level is the big question. A breakdown below 95.50 could trigger a move towards 95 – 94.75 support and could signal an early weakness that could set in; to the upside watch for resistance at 97.35.

US Dollar Index stalling at support 95.50 – 95.75
US Dollar Index stalling at support 95.50 – 95.75

Chart 2: EURUSD (1.1166)

Using the US dollar index outlook, EURUSD technical set up shows price breaking out above 1.110 on Friday. It is still too early to tell whether we will see a reversal off Friday’s close at 1.1177. Watch for a test of 1.120 – 1.1275 for a dip to 1.110 followed by 1.10. Alternately, if EURUSD dips back to 1.10 without establishing resistance at 1.120 could signal a near-term upside towards 1.130.

EURUSD – Resistance needs to be confirmed near 1.120 – 1.1275
EURUSD – Resistance needs to be confirmed near 1.120 – 1.1275

Chart 3: USDJPY (102.40)

USDJPY could signal a near-term rally, following the bounce off 102 support. Price is still in the 102 – 103 support zone and resistance at 104 is likely to be challenged. Watch for a bullish divergence to unfold over the next day or two, signaling a correction to 104 in USDJPY. To the downside, 102 is showing weakness, and we could expect a break down in USDJPY to 101.40 – 101.50 lower support.

USDJPY – Watch for resistance at 104 – 103.5
USDJPY – Watch for resistance at 104 – 103.5

Chart 4: XAUUSD (1349.09)

Gold prices have reversed off 1348 – 1350 resistance level after Friday’s last H4 session closed with a doji. The current weakness in price should not be viewed as a longer-term decline as support near 1341.85 – 1340 is strong to hold the declines. Also note the bull flag that has formed, which gives an upside minimum target to 1356 – 1355.

XAUUSD – Watch for a pullback to 1341.85 - 1340
XAUUSD – Watch for a pullback to 1341.85 – 1340

Chart 5: NZDUSD (0.7196)

NZDUSD rallied to 0.72 – 0.725 resistance level and had formed a potential top in the right shoulder from the evolving head and shoulders pattern. Readers should note that this pattern is still evolving, and the price could head either way. Still, watch for a bearish candlestick pattern near the current levels which could establish near-term declines. Support is seen as the neckline of the head and shoulders at 0.70. A dip to 0.70 from the current level near 0.72 could form the right shoulder, and we can anticipate a breakdown of the neckline support. The minimum measured move to the downside comes in at 0.67, but it would be safe to book profits near 0.69, 0.68.

NZDUSD forming a potential head and shoulders pattern
NZDUSD forming a potential head and shoulders pattern
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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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