Welcome to Technical Tuesday, a weekly report where we highlight some of the most interesting markets that will hopefully appease technical analysts and traders alike.
In this week’s report, we are getting technical on the EUR/USD, FTSE, Nasdaq and Copper.
- EUR/USD bulls eye 1.10
- FTSE reclaims 200-day average
- Nasdaq stuck inside handle of cup
- Copper on the verge of breakout?
The mood in the markets has been noticeably brighter at the start of this week. Investors’ assessment of the risks to European lenders have improved. They are hoping that authorities and regulators would be able to ring fence stresses within the banking sector. This has supported the European stock markets, crude oil and risk-sensitive currency pairs like the EUR/USD.
EUR/USD bulls eye 1.10
Assuming the calm in Europe continues, then investors’ focus will return to monetary policy. The divergence in monetary policy between the Fed (becoming dovish) and the ECB (remaining hawkish) points to appreciation in the EUR/USD exchange rate.
The EUR/USD has been trending higher in recent days. After bouncing multiple times around key support circa 1.0500 area, the market decided to break higher and move above interim resistance at around 1.0750 on Tuesday of last week. It then went on to climb above the 1.09 handle, before coming back down sharply from there.
However, the retest of the 1.0750 level from above has held so far on a daily closing basis. Thus, the bulls are still in control of price action. What they need to see now is for price to break above the high of Friday’s range at 1.0840 to potentially trigger a short-squeeze rally. If this condition is met, then the next stop could be above last week’s high at 1.0930, followed by 1.1000 handle, and possibly a new high for the year above 1.10333.
This bullish idea will remain valid for as long as price holds above the shaded grey area around that 1.0750 level.
FTSE reclaims 200-day average
The FTSE 100 managed to rise sharply from its low on Friday. Although it has come off the earlier highs, the underlying strength remains with commodity stocks finding support along with banks. Should the calm in the banking sector continue, then we may well see further recovery – especially given the bullish signal the UK index has just formed.
The index looked quite bleak last week when it fell below the 200-day average. But that sharp recovery from the lows on Friday and the subsequent follow-through on Monday has raised bullish hopes over a recovery. Today’s slight weakness may be faded into now that the index is testing the breakout level around 7475ish.
This bullish idea will become weak if the bulls fail or refuse to defend the 200-day average now. A daily close below the 200-day sMA is what the bears would be looking for.
Nasdaq stuck inside handle of cup
The Nasdaq has been stuck in a sideways trading range in recent days. Will it be able to stage a more decisive rally, given that it continues to find support on the dips?
Well, that’s how things are looking given that we have not seen any downside follow-through despite the formation of several bearish patterns lately – including that large inverted hammer candle around former resistance area of 12880.
Therefore, the larger “cup and handle” formation observed on the larger time frame still remains valid. The cup & handle formation is a bullish continuation pattern. The fact the handle has a shallower dip than the cup part of price action means the pressure is building for a bullish breakout.
The fact that the Nasdaq has managed to reclaim its 21-day exponential average and held above the 200-day average earlier this month is another sign of bullish strength.
So, a bullish breakout may still be on the cards above 12880ish resistance area, for as long key support around 12465ish is defended by the bulls. If that happens, look out for follow-up technical buying above that zone.
Copper on the verge of breakout?
The price of copper has been stuck inside a consolidation pattern for a while now. But the recent recovery has lifted the metal above the 21-day exponential average and is now on the verge of a bullish breakout from the long-term bull flag pattern. A clean break above 4.1000 area could see copper rise above the bull flag at 4.3515 in the days or weeks ahead. However, if support in the range between 4.000 to 4.0400 breaks first, then this would raise doubts over the validity of the abovementioned bullish pattern.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
Technical analysis FAQs
What is technical analysis?
Technical analysis is a method used to evaluate financial markets using historical price data to identify trends and patterns. The theory is that previous trading activity can give insight into future price movements.
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Head to our news and analysis section for the most recent updates. Alternatively, you can access a live Reuters newsfeed on our trading platform.
How do you analyse DXY?
You analyse the US dollar index (DXY) in the same way you would a currency pair or stock index. The key difference is it’s not just one currency against another, but the dollar against six others. So, if the dollar is expected to decline against one – but not all – of the currencies, the DXY may not move.
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What does it mean if DXY goes up?
If the US dollar index (DXY) goes up, it means that the US dollar is gaining in value compared to a basket of other global currencies. Alternatively, if the DXY falls, it means the dollar has lost strength in comparison to other currencies.
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What is the best indicator for GBP/USD?
Technical analysis of the British pound against the US dollar (GBP/USD) is commonly based on indicators such as moving averages and oscillators. These give traders insights into the direction and strength of trends and areas of support and resistance.
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