USD/JPY and GBP/JPY Snap Losing Streaks, US Dollar Selling Eases

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US Dollar Index (DXY) Technical Analysis: USD Trapped Between 100 and the 2024 low

Given the 11% drop in the US dollar (USD) between January and April, a retracement was increasingly likely. And while the USD managed to recoup 4% over a three-week period, it remains up for debate whether that correction has already completed and another leg lower is now due.

This week’s losses currently see the USD trading beneath its own 200-day average and back below the 100 handle. However, support has been found at the 2024 low, and the USD Index snapped a three-day losing streak on Thursday. The daily RSI has also rebounded from oversold territory, after reaching its most oversold level in a month on Wednesday.

Perhaps there’s still a little wriggle room for further upside over the near term and for a retest of trend resistance around 100.50 — though a decisive break back above the 100 handle would be needed to support that view.

My near-term bias on the USD index is for the dollar to rise for a second day and retest trend resistance, but there is also a reasonable chance that it could reverse lower and break beneath 99 as we head into next week. Failure to invalidate yesterday’s high invalidates this view.

EUR/USD Technical Analysis: Euro vs US Dollar

A break above 100 for the USD Index would also require EUR/USD to break beneath yesterday’s low. EUR/USD snapped a three-day winning streak and formed a bearish engulfing candle, with its daily RSI (2) also dropping from overbought territory — hinting at a stretched market in the near term.

However, with the next likely support level sitting around the 1.12 handle and the 2024 high at 1.1214, I’m not looking for an oversized move on either the USD Index or EUR/USD as we head into the weekend — unless we get market-moving headlines from the G7 meetings.

Counter to my USD index view, my gut feeling is that EUR/USD could retrace lower for a second day before finding support around the 1.12 handle before continuing higher as we get into next week. Failure to break beneath Thursday’s low invalidates that view.

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

The US dollar shows greater potential to make gains against the Japanese yen than the euro over the near term, which makes USD/JPY an appealing setup in my view.

In yesterday’s report, I noted that I was looking for another dip lower and for support to be found around the April VPOC (142.71) and the 6 May low (142.36). It’s encouraging to see that USD/JPY printed its first bullish candle in eight sessions on Thursday, with a spinning top low that held just above the aforementioned support zone. The daily RSI (2) also broke higher from oversold territory, after reaching its most oversold level in a month.

The 1-hour chart shows a bullish divergence on the RSI (14), which is now above 50 — indicating a shift to positive momentum. USD/JPY has rallied from its monthly S2 pivot and now trades around the monthly S1 pivot.

A break above yesterday’s high (144.40) would suggest bullish continuation toward the high-volume nodes around 145 and 145.86. Also note the 146 handle and monthly pivot at 146.38 as a likely resistance zone.

GBP/JPY Technical Analysis: British Pound vs Japanese Yen

A similar setup appeared to have emerged on GBP/JPY for bulls. And with the British pound (GBP) rising against the US dollar, GBP/JPY is arguable the higher probability setup of the two.

Note that GBP/JPY failed to close beneath the 200-day SMA on Wednesday and Thursday, with yesterday’s low also holding above the 50-day EMA and 192 handle. The daily RSI is also above the 50 level to show positive momentum after rising from its most oversold level in six weeks.

Bulls could retain a bullish bias while prices remain above Thursday’s low, on the assumption that GBP/JPY now wants to have another crack at the cycle highs around 196.

Economic Events in Focus (AEST / GMT+10)

• 08:45 – New Zealand core retail sales (Q1)
• 09:01 – GfK consumer confidence (May)
• 09:30 – Japanese national CPI (April)
• 15:00 – Singaporean core CPI (April)
• 16:00 – UK core retail sales (April)
• 16:00 – German GDP (Q1)
• 17:00 – Chinese foreign direct investment (April)
• 18:30 – ECB’s Lane speaks
• 22:30 – US building permits (April)
• 22:30 – Canadian retail sales, corporate profits, retail sales
• 23:35 – Fed Schmid speaks
• 02:00 – Fed Cook speaks

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge