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4 Mar 2014
Flash: USD index still poses two-sided risks - JPMorgan
FXStreet (Bali) - The broad USD picture weakened over the past week, leaving technicians with unanswered responses as to whether the USD index is on a recovery phase or a deeper retracement can develop, notes Niall O'Connor, FX Strategist at JP Morgan.
Key Quotes
"The failure against key initial resistance levels has shifted the focus back to critical support levels which should define whether a recovery phase or deeper retracement can develop. While the current
oversold framework favors a recovery phase, the late-week decline raises some doubts."
"In turn, we highlight the key markers that should confirm the onset of a deeper extension for the USD. As mentioned in recent updates, the setup for the DXY is an important focus. After failing at the key 80.45/50 resistance zone, the 79.68/58 support zone is the critical test. This zone represents the December low and the 76.4% retracement of the rally from the October low."
"Again, a break above the 80.50 area which includes the 38.2% retracement from the January high as well as the mid-February breakdown zone is necessary to argue for a shift back to the range highs near 81.39/48. Another failure at initial resistance levels would suggest a growing risk of a break to the range lows which would imply a test of the October low."
"Moreover, this view is consistent with the setup for EUR/USD which is approaching the critical 1.3840/95 resistance area. This zone includes the downtrendline from the 2008 cycle peak and where we expect the current advance to retrace. Until a break of these levels, the two-sided risks are likely to prevail as we monitor key support levels for a potential bearish shift."
Key Quotes
"The failure against key initial resistance levels has shifted the focus back to critical support levels which should define whether a recovery phase or deeper retracement can develop. While the current
oversold framework favors a recovery phase, the late-week decline raises some doubts."
"In turn, we highlight the key markers that should confirm the onset of a deeper extension for the USD. As mentioned in recent updates, the setup for the DXY is an important focus. After failing at the key 80.45/50 resistance zone, the 79.68/58 support zone is the critical test. This zone represents the December low and the 76.4% retracement of the rally from the October low."
"Again, a break above the 80.50 area which includes the 38.2% retracement from the January high as well as the mid-February breakdown zone is necessary to argue for a shift back to the range highs near 81.39/48. Another failure at initial resistance levels would suggest a growing risk of a break to the range lows which would imply a test of the October low."
"Moreover, this view is consistent with the setup for EUR/USD which is approaching the critical 1.3840/95 resistance area. This zone includes the downtrendline from the 2008 cycle peak and where we expect the current advance to retrace. Until a break of these levels, the two-sided risks are likely to prevail as we monitor key support levels for a potential bearish shift."