Reversal candles on charts

In the days ahead, the US dollar looks very likely to retrace its strong gains from last week as the market braces for the US non-farm payrolls (NFP) on Friday. With USD testing the boundaries of ranges against the euro and the yen, I’m thinking there’s a big chance that traders/investors would take profits at the current EUR/USD levels, instead the pair going downward smoothly. As for USD/JPY, it could be a different story as the pair will be influenced by the Tankan survey released in the early morning of Monday. Technically speaking,…

in Friday’s trading, USD/CHF gave back more than half of its gain by the end of the trading day, forming a bearish candlestick pattern. The chances of USD/CHF testing or going beyond the upper end of the range around 1.2600-1.2620 at the moment are as good as a meteorite hitting earth. Next support around 1.2500, then 1.2460.

GBP/USD, after falling by around 400 pips last week, ended last Friday with a bottoming tail on the daily chart, which strongly signals a bullish pullback, coinciding nicely with USD/CHF’s bearish pattern. Possible resistance around 1.8800, then 1.8850.

(The pound got pounded for a Wednesday announcement by the UK Office for National Statistics (ONS) that it had overestimated the cash value of national income last month. Traders interpret this to mean the Bank of England (BOE) won’t be as quick to raise interest rates.)

Let St Louis Fed President Poole’s dovish comments last Friday reverberate in your mind. He said that he is eyeing interest rate cuts at some point, which typically weakens a currency (US dollar in this case).

Poole will be voting at the next Fed meeting in October, substituting retiring Atlanta Fed’s Guynn, and will serve as a voting member of the FOMC through 2007. I suspect the US dollar would lose some of its shine given this rate cut possibility.

If you trade USD/JPY, watch out for the all-important Tankan survey released at 2350 GMT on Oct 1.

Monday’s US focal point will be US ISM Manufacturing, which will be out at 1400 GMT. Eurozone and UK manufacturing at 0800 GMT and 0830 GMT respectively. (Refer to the Economic Calendar)

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