The near term outlook in dollar index stayed bullish. Despite all the volatility, it’s staying well inside the rising channel and breach of 99.11 suggests that rise from 91./91 is resuming. However, we maintain that such rise is not having a clear impulsive structure and is more likely corrective. And the medium term sideway pattern from 100.39 could still extend with another fall. Hence, we’ll be cautious on strong resistance below 100.39 to bring reversal. But, based on market development elsewhere, we’ll all keep an eye on upside acceleration in the index. Strong break of 100.39 will resume the larger rise from 78.90.
Regarding trading strategies, we’d anticipate further weakness in Yen as dragged by rally in stocks and treasury yields. However, with the exception of GBP/JPY, the signals of trend reversal in other Yen pairs like USD/JPY and EUR/JPY are not clear. Hence, instead of jumping the gun in USD/JPY and EUR/JPY, we’d prefer to buy GBP/JPY on retreat to 133.00 this week, with stop at 131.00, for at test on 138.81 resistance as first target. Meanwhile, the lack of reactions from Aussie to strong risk appetite is seen as sign of underlying weakness. EUR/AUD dipped to 1.4072 through 1.4125 support, but no follow through selling was seen and the cross recovered to close at 1.4372. AUD/USD is also showing sign of near term reversal. So, we’d just sell AUD/USD at market this week, with a stop at 0.7630. Break of 0.7441 support should at least bring a test on 0.7144.
GBP/JPY’s rebound from 112.36 extended higher last week and took out 132.21 decisively. Initial bias remains on the upside this week for 138.81 key resistance level. As noted before, bullish convergence condition in daily MACD raises the chance of trend reversal and focus will be on 138.81. On the downside, break of 130.23 support is needed to indicate completion of the rebound. Otherwise, further rise is in favor even in case of retreat.
In the bigger picture, fall from 195.86 (2015 high) top has met 100% projection of 195.86 to 154.70 from 163.87 at 122.71 already. There is increasing chance of medium term bottoming at 112.36. Break of 138.81 would turn GBP/JPY into corrective phase and bring rebound to 38.2% retracement of 195.86 to 122.36 at 150.43 to limit upside. Meanwhile, break of 122.36 will extend the down trend to 116.83 (2011 low).
In the longer term picture, the momentum in the current fall from 195.86 argues that it could be developing into a long term move that resumes the down trend from 251.09 (2007 high). And in that case break of 116.83 low could be seen. Based on current momentum, this will be the preferred case.