It was another roller-coaster week. Swiss Franc ended as the strongest one after SNB Chairman Thomas Jordan surprisingly said it’s ready to act if inflation solidified. But it should reminded that he reiterated the readiness on intervention too. Euro was somewhat pressured due to selling in crosses. Dollar, Canadian and Yen were the worst performing ones.
Stocks in the US displayed some resilience in spite of the volatility. There is prospect of fulfilling an oversold bounce soon. At the same time, benchmark yields were extending their near term consolidation. The developments could cap any rally attempt in Dollar, and even trigger some deeper selloff for the near term. Meanwhile, as Chinese market stabilizes, Aussie could try to lead other commodity currencies for an extended rally ahead.
“Delayed” oversold bounce due for US stocks
It’s another week of roller-coaster ride in US stock markets. But after all, DOW, S&P 500 and NASDAQ did manage to close above prior week’s low. While the call for bottoming last week was too early, the outlook still warrant an oversold bounce very soon.
S&P 500 has already met correction target of 38.2% retracement of 2191.86 to 4818.62 at 3815.20. A firm break above 4090.72 resistance in the coming days would set the stage for stronger rebound back to 55 day EMA (now at 4248.79) in early June.
Similarly, NASDAQ’s low at 11035.68 last week was just an inch above correction target of 100% projection of 16212.22 to 12587.88 from 14646.90 at 11022.56. A rebound is due and break of 11988.42 resistance in the coming days would set the stage for further rise back to 55 day EMA (now at 12870.73).
10-year yield extending correction, more downside
US 10-year yield extended the correction from 3.167 short term top last week. Considering that it faced an important resistance at 3.248 (2018 high), the correction should take some more time to complete. Deeper fall is expected towards 55 day EMA (now at 2.628). But strong support should be seen fro 38.2% retracement of 1.682 to 3.167 at 2.600 to contain downside to bring rebound. The range for the corrective pattern should then be set, between 2.600 and 3.167.
Dollar index risks deeper near term correction before up trend resumption
Extended correction in US 10-year yield would exert some downside pressure in Dollar. If markets do turn risk on as expected above, the pull back in Dollar could accelerate. Dollar index’s retreat from 105.00 is so far shallow. But firm break of 102.35 support will raise the chance that it’s correcting whole up trend from 89.53. In this case, deeper decline would be seen back to 55 day EMA (101.14) and possibly below.
But even in the bearish case, downside should be contained by 38.2% retracement of 89.53 to 105.00 at 99.09 to bring rebound. DXY is expected to resume the long term up trend through 105.00 at a later stage.
Chinese Yuan to extend rebound as short term bottom formed
If the markets develop as above, with rebound in stocks and extended pull back in yield and Dollar, commodity currencies could have a chance to stage a more sustainable rebound. In particular, the selloff in Chinese yuan should have passed its climax. Rebound in the Chinese currency together with stabilization in the markets here, could give Aussie (and Kiwi too) an extra hand.
The firm break of 6.8730 support indicates short term topping in USD/CNH at 6.8372, on bearish divergence condition in 4 hour MACD. That also came after initial rejection by 61.8% retracement of 7.1961 to 6.3057 at 6.8560. Deeper fall would be seen back to 38.2% retracement of 6.3057 to 6.8372 at 6.6342 to contain downside to bring rebound. Nevertheless, sustained break there will raise the chance of deeper fall back to 61.8% retracement at 6.5087.
Break of 91.15 in AUD/JPY would confirm completion of correction
To secure a sustainable rally, Aussie will also have to overcome Yen too. That is, AUD/JPY will need to break through 91.15 minor resistance. Such development would add to the case that whole corrective fall from 95.73 has completed with three waves down to 87.28. Further rise should be seen back to 94.00/95.73 resistance zone. That could also help set AUD/JPY up for medium term up trend resumption.
EUR/CHF Weekly Outlook
EUR/CHF’s decline last week argues that corrective rebound from 0.9970 has completed with waves up to 1.0513, after rejection by 1.0505 key resistance. Initial bias stays on the downside this week for 1.0186 support first. Break there will target 1.0086 next. On the upside, above 1.0359 minor resistance will turn intraday bias neutral first. But risk will now stay on the downside as long as 1.0513 resistance holds.
In the bigger picture, as long as 1.0505 support turned resistance (2020 low) holds, long term down trend from 1.2004 (2018 high) is expected to continue. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. However, firm break of 1.0505 will suggest medium term bottoming, and bring stronger rebound towards 1.1149 structural resistance.
In the long term picture, capped below 55 month EMA, EUR/CHF is seen as extending the multi-decade down trend. There is no prospect of a bullish reversal until some sustained trading above the 55 month EMA (now at 1.0876).
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