Key Takes from the Majors Currencies

View: Bullish USD snapback ideas

The last two weeks of US data confirmed my 2023 year ahead view that the DXY turns up from the 102/100 target area. I also favoured fading Euro in the 1.09s as a probable medium-term turning point (Chart 2). This trend change started with the market’s reaction to US non-farm payroll data on Feb 3, 2023, and remains underway in Q1.

A string of stronger than expected US economic data has continued in February. It is supporting the USD with terminal rate expectations rising consensus bearish views being challenged.

In my 2023 year ahead technical views I argued it tends to take time for the DXY to top after large / sharp periods of appreciation. Besides the one-off plaza accord spike and DXY collapse back in 1985, history suggests 2-5 swings sideways can occur in a range or topping process. Swing 2 up is underway and USD has upside in Q1 (Chart 2).

EUR/USD: Bull trap started a decline with initial target 1.0461

Bearish Euro in Q1 for initial Fibonacci retracement of 1.0461. Fade strength to 1.0775- 1.0802. Weekly MACD and RSI rolled over supporting this view.

GBP/USD: On watch for double top / range top pattern

Range 1.19-1.24. Double top pattern if below 1.1842 to project lower to 1.14/1.12.

USD/JPY: Channel break, cup & handle, Ichimoku target 137s

A bullish channel breakout, a cup and handle base, a break into the cloud, a pending bullish cloud cross and positive MACD point spot into the 137s.

EUR/USD Bull trap started a decline with initial target 1.0461

A bull trap pattern at the 50% retracement level confirmed the bearish oscillator divergences and started a correction in the Euro.

A modest correction targets 1.0461, half of the prior rally would mean 1.0285 and a deep 61.8% Fibonacci correction is 1.0108. I favor short Euro ideally at/below 1.0802 resistance line and would fade a bounce. If spot were to move back above 1.0930 resistance my bearish conviction will have weakened.

 EUR/USD Weekly:

The 1.09s was a clear point to consider reducing Euro longs and/or flipping short. Downtrend underway after spot tested and failed at the old trend line (dashed red). Oscillators have turned down in favour of a downtrend and retracement.

 EUR/USD: Risk of 2022 retest can’t be ruled out yet

I’d be remiss to not mention that when Euro forms a bottom below 1.15 it tends to retest the monthly closing lows at least once.

This means the risk of a retest of the 2022 closing lows in 1H23 still can’t be ruled out to form a bigger bottom. If the new downtrend in the daily chart forms a bottom in Q1 then the risk would be reduced. We don’t have that yet. The monthly closing lows is in the .9800-1.00 area.

GBP/USD: On watch for double top / range top pattern

The daily chart of GBP vs USD shows potential for a double top pattern and to be confirmed should the trough between the last two peaks break. This threshold is 1.1842. If it does, I estimate downside to 1.14/1.12. Until support breaks, the trend is still range bound between 1.19-1.24.

USD/JPY: Channel break, cup & handle, Ichimoku target 137s

Bullish technical price action shows a broken channel, cup and handle bottom pattern, bullish break into the cloud, a pending bullish cloud cross and a positive MACD trend. Bullish/buy a dip near 132 for rally into the 137s.

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