Technical Overview                                

• Euro stalls ahead of further collapse
• Australian dollar cave under pressure
• Canadian dollar signals reversal

Market Outlook

As with everything some things come to an end while other things continue to move in the original direction. After the broad dollar weakness attributed to high oil prices, hurricane Katrina and a general lack of liquidity, a large advance posted by the greenback is only a preview of thing to come as the overall trend has reversed its direction. A further advance by the US dollar will most likely see the majors retreat toward the 2003 lows over the course of six to nine month

1-Day Currency Pair Relative Strength

EUR/USD - Euro bulls fell back as earth parted under their feet after the greenback longs launched a broad based attack against the majors. As euro longs continue to give up ground to the advancing dollar bulls, a further collapse below the 1.2300 figure will most likely see the single currency breaking below the channel's lower boundary and head straight for the 1.2249, a level marked by the 23.6 Fib of the 1.3477-1.1869 USD rally. As further advance by the greenback longs will most likely see the pair test the euro bids around 1.2126, a level protected by the August 19 daily low, with a further break in euro defenses seeing the dollar bulls crash their way toward the psychologically important 1.2000 figure. Indicators continue to favor euro with momentum indicator and MACD both above the zero line, while Stochastic and RSI both tread below overbought thus adding to possibility of a pullback.

Key Levels & Technical Indicators

USD/JPY - Japanese Yen longs continued to retreat after giving up the psychologically important 110.00 figure to the greenback longs. As the price action continues to favor the dollar longs, a move toward the 110.98, a 50-day SMA will most likely see the greenback bulls bulldoze their way toward 111.48, a defensive position established by the Japanese yen longs with a help of the 23.6 Fib of the 104.18-113.74 USD rally. A sustained momentum of the greenback advance will most likely see the fall of 112.62, a yen defensive position established by the August 8 daily spike high and a gateway to the 2005 high at 113.68. A break above the 113.68 will most likely open the psychologically important 115.00 handle as a potential target as a break above that will most likely see a long term trend heading toward the 120.00 figure. Indicators support the yen longs with both momentum indicator and MACD below the zero line, while both oscillators remain neutral thus giving dollar bull's additional room to maneuver.

Key Levels & Technical Indicators

GBP/USD - British pound bulls remained on a rollercoaster ride as the pair tumbled just as swiftly as it went up with greenback longs hammering sterling longs below the 1.8200 figure. As cable longs continue to unwind their positions, a further invasion by the greenback longs will most likely see the dollar break below 1.8179, a level marked by the August 12 daily high, which is currently reinforced by the 20-day SMA. A further collapse of sterling's defenses will most likely see the greenback bulls take on the pound bids around 1.8032, a level marked by the 38.2 Fib of the 1.9214-1.7283 USD rally, which currently defends the psychologically important 1.8000 figure. Indicators are signaling weakening trend conditions as ADX declined to 26.84, while both MACD and momentum indicator above the zero line and both oscillators treading below the overbought line.

Key Levels & Technical Indicators

USD/CHF - Swiss Franc longs were in full retreat as the pair edged closer to the 1.2600 figure after easily giving up control of the psychologically important 1.2500 handle to the dollar bulls.  As greenback longs continue to exercise their newly found strength, a break above 1.2588, a level marked by the August 18 daily low, will most likely see the dollar bulls push their way toward 1.2705, a level marked by the 23.6 Fib of the 1.1492-1.3085 USD rally. A further collapse of the Swiss Franc defenses will most likely see the pair head toward 1.2786, an August 24 daily high and a gateway toward the psychologically important 1.3000 figure. Indicators continue to favor Swissie longs with both momentum indicator and MACD below the zero line, while neutral oscillators give either side enough room to maneuver. 

Key Levels & Technical Indicators

USD/CAD - Canadian dollar bulls were on the receiving end of the massive counterassault launched by the US dollar longs after the Loonie longs lost traction near the multi-year low set in November of 2004 during the broad anti-dollar rally. As the price sides with the US dollar as they push the pair toward the 1.1935, a 78.6 Fib of the 1.1720-1.2733 USD rally, which is further reinforced by the 20-day SMA.  As US dollar longs remain on a war path, a psychologically important 1.2000 handle remains a key target, as it currently acts as a gateway toward the 1.2106, a 61.8 Fib of the 1.1720-1.2733 USD rally. Indicators are beginning to favor greenback traders with Stochastic slipping below the oversold line, while MACD and momentum indicator below the zero line continue to support the Loonie traders.

Key Levels & Technical Indicators

AUD/USD - Australian dollar longs had their hopes crushed by the US dollar counterparts after the pair continuously failed to advance above .7750 level. As Aussie longs take a one way trip to the southern hemisphere, a sustained breakdown below the .7700 figure will most likely see the greenback longs push the pair  toward the .7678, a level established by the 50.0 Fib of the of the .7991-.7374 USD rally, which is further reinforced by the 200-day SMA. A further collapse of Aussie defenses will most likely see the US dollar retake previously lost territory and push the Australian dollar longs toward the .7604, a 38.2 Fib of the .7991-.7374 USD rally that is further reinforced by the 20-day SMA. A further advance by the US dollar longs will most likely see the Aussie head toward the psychologically important .7500 handle. Indicators signal a move to the downside with Stochastic treading above the overbought line, while positive MACD and momentum indicators continuing to favor Aussie longs.

Key Levels & Technical Indicators

NZD/USD - New Zealand dollar bulls continued to offer symbolic resistance as the pair edged closer toward the psychologically important .7000 handle, breaking of which will most likely see the Kiwi join its antipodean neighbor in a trip down under. As US dollar longs prepare the New Zealand dollar for a departure, a break below .7000 will most likely see the greenback bulls break Kiwi's defenses at .6986, a key 38.2 Fib of the .7468-.6681 USD rally. A sustained momentum on the part of the US dollar will most likely see the greenback bulls make their way toward the .6873, a 23.6 Fib of the .7468-.6681 USD rally. Indicators remain supportive of the New Zealand dollar bulls, with both MACD and momentum indicator above the zero line, while Stochastic dipping back below the overbought line adds to the outlook that Kiwi has reached the end of its travel above .7000 territory.

Key Levels & Technical Indicators

Sam Shenker is a Technical Currency Analyst for FXCM.