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The dollar sank aggressively versus the yen on Tuesday, while the pound dragged the European currencies slightly higher. Expect further choppy and divergent trading amid suddenly sliding US equity indices and subprime woes, with dollar/yen lower and the European currencies lower as well. Focus further on the yen crosses, and even on the carry trades.
Euro/dollar
The euro/dollar retained only some of its gains after reaching yet a new high for the uptrend. The pair is overbought in both the short and medium terms, but sell it only on a confirmed decline. If that happens, the slide should be quite aggressive. Initial support comes at 1.3800. Next level is at 1.3740 and only a break below 1.3705 would signal a more sustained decline toward 1.3625 Resistance comes at 1.3853. If the euro/dollar manages to break above it, then look for a test of the resistance at 1.3900. Even the 1.4000 area might be seen, even though profit taking and barrier defense should not allow it.
Oscillators are rising.
NEAR-TERM: Mixed with downside bias
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Dollar/yen
Dollar/yen remains weak after sliding to a 2 ½-month low and there is ongoing threat of liquidating standard yen crosses and carry trades. It formed a head-and-shoulders pattern, and the close below the neckline at 121.16 adds confidence. Mild selling pressure should continue. Initial support is at 119.65 from another 50-point pivot that targets 119.15 and 120.15. The target of the bearish reversal pattern is at around 118.00. Immediate resistance is at 120.75. Key level remains at 121.05, a 50-point pivot, which targets 120.55 and 121.55. Only a break above 122.15 would signal a more aggressive recovery to 122.50, which is a 50-point pivot, which targets 122.00 and 123.00
Oscillators are falling.
NEAR-TERM: Bearish
MEDIUM-TERM: Mixed
LONG-TERM: Bullish
Sterling/dollar
Sterling/dollar surged to a new 26 ½-year high on Tuesday. It is more overbought by the day, but hold long positions and sell it only a stop-loss order basis.Initial support is at 2.0550. Next level follows at 2.0500. A break below 2.0460 would signal a slide to 2.0400. Resistance emerges at 2.0630 and at 2.0654. The next level looms at 2.0765. Distant resistance is at 2.0845.
Oscillators are rising.
NEAR-TERM: Mixed with downside bias
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Dollar/Swiss franc
Dollar/Swiss franc fell on Tuesday, as expected, but got stuck in an inside range. However, it’s trading one day up and one day down, and today should be an up day. Again, for this silly quasi-pattern to work, the 23.6% Fibonacci retracement level at 1.2083 must hold If it doesn’t, then look for a test of the next resistance at 1.2140. It would take a break above this level to increase the odds that a significant low is in place and the pair would shoot for 1.2215. Immediate support is at 1.2012. Strong support is at 1.1962. If this pivotal low gives way, then the downtrend is rejuvenated and dollar/Swiss should challenge 1.1835.
Oscillators are mixed.
NEAR-TERM: Mixed with upside bias
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
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