Ranges seen holding
The dollar was stuck near recent record lows versus the euro on Tuesday, with investors focusing on worries about the U.S. financial sector.
The U.S. currency got a slight boost the previous session from Bank of America results which were better than expected, but dismal earnings after the bell from other companies reinforced gloom on the economy, according to Reuters.
With no first tier euro zone or U.S. data on the calendar until Thursday, trading was subdued and moves limited.
EURUSD might continue its range trade effort with channel support at 1.5835 capping the downside, while 1.5950 should limit gains. The 1.5950 is important to hold since it forms a perfect shoulder-head-shoulder pattern on the weekly charts. Break of 1.5950 on a NY closing basis is likely to trigger another run at last week’s all-time high of 1.6040, above which opens the way for a continuation of the rally to 1.6110, then 1.6210 and eventually the medium term resistance line of 1.6300. Readers however, should note that anything beyond 1.6040 is likely to increase the possibility of triggering coordinated intervention from the central banks. On the other hand, if the 1.5950 holds, then we are likely to see renewed decline to 1.5835 with a good possibility to test 1.5785. Only if 1.5750 support gives way on a NY closing basis we are likely to see a further decline to 1.5610 major support area. We are neutral playing the ranges.
USD/CHF: The dollar remains within its downtrend and only a break above trendline resistance at 1.0260-90 would provide clear evidence of a near-term reversal. On the downside, expect the 1.0110 to provide near term support but the strong support area is seen at 0.9995-1.0010 area, which needs to hold to keep the dollar from falling to 0.9925, then 0.9880. On the upside, a clear break above 1.0260-90 opens the way for a rally to 1.0420, our near term target.
USD/JPY: If the rally in financials continues in the very near-term we could see some near-term support to USD/JPY even with USD sentiment somewhat lacklustre. Hence, we expect 106.25 triple low to hold followed by a break of the 107.10 level.
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