Top Five Interesting Chart Setups This Week (Aug 8 – 12)

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Market Context: The US dollar got off to a weak start last week managed to gain some bullish momentum after Friday’s job report. The dollar index was seen heading higher mid-week and gathered the momentum with the Bank of England’s policy easing measures while Friday’s jobs report sealed the deal. July nonfarm payrolls report showed that the average hourly earnings increased 0.30% on a month over month basis in July while the US economy added 255k jobs, beating estimates of 180k.

Last week also saw the release of global PMI’s from the manufacturing, construction and services sector, which was largely mixed. The UK PMI’s confirmed the view that the economy was more or less likely expected to contract while in the US manufacturing, and non-manufacturing PMI both fell slightly below expectations and easing back from the gains seen in June.

Chart 1: US Dollar Index (96.18)

US Dollar Index – Support found at 95 – 94.75
US Dollar Index – Support found at 95 – 94.75

Last week the US dollar index slipped to 95.00 – 94.75 support level but managed to post a fairly decent reversal off this support. If the US dollar continues to gather momentum, we could expect to see the gains extend towards the 96 – 97 resistance zone which previously saw the dollar index reverse its gains. The Stochastics on the chart shows a hidden bullish divergence as well with the oscillator posting a slightly lower low compared to the higher low in price at 95.0 – 94.75 and also coinciding with the broken resistance being tested for support. Watch for near-term strength in the US dollar towards 96 – 96 price level.

Chart 2: EURUSD (1.1087)

EURUSD: Support at 1.10 likely to hold out on the first test
EURUSD: Support at 1.10 likely to hold out on the first test

The euro is expected to extend its declines after the reversal near the 1.120 region. With Friday closing just below 1.110, any short-term pullback in prices could be limited while EURUSD could fall towards 1.10. The Stochastics show the hidden bearish divergence validating this view. The single currency could remain range bound within 1.10 and 1.110

Chart 3: XAUUSD (1336.74)

XAUUSD: Inside bar break out
XAUUSD: Inside bar breakout

Gold prices broke down on Friday from the inside bar range low of 1347.20. This could see the declines likely to extend towards the support near 1315 – 1300. Following the lower high near 1367.32 last week, the test of support near 1315 – 1300 was critical as a breakdown below this level could see gold prices likely to extend the correction lower towards 1250.

Chart 4: WTI Crude Oil (41.96)

WTI Crude Oil: Rising wedge on H4 chart
WTI Crude Oil: Rising wedge on H4 chart

Crude oil was in the news last week after the declines over a previous couple of weeks sent prices to sub-40 levels. While oil managed to bounce off this level, the upside gains are likely to resume. The 4-hour chart shows a rising wedge pattern with price seen testing the previous highs near 42. A breakout to the upside above $42 could signal a continuation of the correction with prices likely to test the resistance at $44, while to the downside, the price could retest the lower support near 40.00.

Chart 5: NZDUSD (0.7135)

NZDUSD: Head and Shoulders pattern continues to evolve
NZDUSD: Head and Shoulders pattern continues to evolve

We continue to watch NZDUSD which has been hovering near the 0.72 – 0.725 region for the most of the last week. The RBNZ’s meeting this week will be key as the central bank is seen cutting the OCR by 25bps. The head and shoulders pattern is still evolving, but a test to 0.70 can be expected. Will price bounce off this level or will the declines continue is a question worth bearing in mind. In the event of a breakdown from the neckline support, expect the declines to slide to 0.68 and 0.67 eventually.

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