Technical Analyst, Saxo Bank Group
Summary: Dollar Index dancing around key support at 103.20.
EURUSD in and uptrend closing in on key resistance at 1.08
USDJPY downtrend continues could be looking at 126 level
GBPUSD seems strong. Can it break resistance and move to 1.27?
The Dollar Index closed yesterday below key support at 103.20. Despite this lower close the RSI is still showing divergence i.e., not supporting the lower level. RSI closing below its rising trendline will be a strong indication for further downside on the Dollar Index, because trend is down short- and medium-term.
For a short-term rebound a close above 105.50 is needed but upside seems limited. The medium-term 55 daily SMA is declining and close to break below the 200 daily SMA supporting the underlying bearish trend.
Next support is at around 101.30.
Weekly chart strongly indicates we will see a test of 101.30 support. The Dollar Index is trading below 55 weekly SMA, Bollinger bands are still expanding and RSI is showing negative sentiment.
If the Index closes below 101.30 a move to test the 200 weekly SMA is in the cards.
EURUSD uptrend seems a bit stretched short-term. The higher daily close has not pushed the RSI to a higher level. RSI has even failed to break the falling trend line and is still showing divergence. Resistance at 1.08 could be a struggle to break at first attempt. But if EURUSD closes above and RSI closes above its falling trendline there is more upside.
A daily close below 1.0480 could see EURUSD drop back to around the 200 daily SMA. Key strong support at around 1.0240.
USDJPY is trading in a falling channel pattern having failed a couple of attempts to close above the upper falling trendline.
The bounce from support at 130.38 and the divergence on RSI suggests a correction but if RSI closes below its rising trend line and USDJPY closes below 130.38 a move to support at around 126.30 is likely.
If buyers manage to lift USDJPY to close above the upper falling trendline there is strong resistance at around 138.
Weekly chart medium-term trend is down but 130.38 is still holding on. RSI below 40 showing negative sentiment. USDJPY seems set for lower levels. Support at 126.3 is key.
RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
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