Technical Market Outlook and Review for 31 January

EUR/USD

Ahead of what is considered a bumper week of events, Monday delivered a largely calm tone across the FX space. Limited tier-1 data and mild risk aversion witnessed a modest dollar bid unfold, consequently weighing on any upside in Europe’s shared currency.

The technical framework, particularly the bigger picture, remains unchanged. As a result, the following analysis of the weekly and daily chart will echo thoughts put forward in Monday’s Weekly Technical Briefing (italics).

Weekly:

The EUR/USD shook hands with major resistance on the weekly timeframe last week at $1.0888: a Quasimodo support-turned resistance. This, in addition to the pullback off late September lows at $0.9536 in a market trending south since 2021, might be viewed as a sell-on-rally opportunity. $1.0888, consequently, will remain a key watch as rupturing this base undermines hopes of a bearish showing and unearths fresh weekly resistance as far north as $1.1174.

Daily:

Price action on the daily chart is testing the spirit of a prime resistance at $1.0954-1.0864, an area boasting a connection with the current weekly resistance level. Adding to the bearish vibe, the daily chart’s Relative Strength Index (RSI) reveals early signs of negative divergence ahead of overbought space. A downside (price) move could take aim at support coming in at $1.0602.

While the above is meaningful technical bearish confluence, bullish factors are at play and splitting the current prime resistance paves the way to Quasimodo resistance at $1.1138. On the daily chart, an uptrend is clear through the series of higher highs/lows since $0.9536, as well as price crossing above its 200-day simple moving average, currently fluctuating around $1.0311. We can also see that the moving average is starting to level off from its down move: another sign of a potential trend reversal to the upside.

Things become interesting on the H1 scale. Regular readers may recall the research team highlighted the following in recent analysis (italics):

The H1 timeframe is poised to form what is known as an Adam and Eve double-top pattern just shy of resistance coming in at $1.0934. Last week’s short-term bearish display hauled the pair south of the $1.09 big figure; continued underperformance opens the door for a break of the double-top pattern’s neckline at $1.0835, a move shining light on the $1.08 handle.

As evident from Monday’s action, the currency pair rotated north and whipsawed above $1.09, pencilling in what is referred to as a bull trap. As of writing, we are trading at unchanged levels. Those short Monday’s $1.09 retest, therefore, have potentially swiped a more favourable entry in anticipation of the H1 double-top pattern playing out: price breaching $1.0835 and targeting at least $1.08. For those who missed this move, short-term breakout opportunities may surface on a H1 close under $1.0835.

S&P 500

Major US equity indexes kicked off the week on a vulnerable footing, with the S&P 500 forging a downward gap at the open. Although attempts were made to fill the gap are visible, a moderate falling window emerged between 4,068 and 4,063 on the H1 which could deliver resistance. Additionally, the open saw price gap under H1 support coming in at 4,050, which, as we can see, has so far been respected as resistance.

While the immediate trend is evidently northbound, the recent corrective movement could stretch as far south as H1 Fibonacci support, made up of 61.8% and 38.2% Fibonacci retracements at 4,005 and 4,011. Therefore, this may be a location buyers make a show from. Note also that there is a nearby H1 trendline support, taken from a low of 3,803.

Higher timeframe analysis taken from Monday’s Weekly Technical Briefing (italics):

The monthly chart has remained in a dominant uptrend since early 2009. We had two notable corrections in that time, one in early 2020 (COVID), dropping 35%, and one in play since early 2022 (27% from 4,818, as of writing) which was accompanied by negative divergence out of the Relative Strength Index (RSI).

The weekly chart reveals buyers absorbed offers at the underside of trendline resistance, taken from the high at 4,818. The close higher indicates buyers are looking to change gears and perhaps pursue higher terrain, in line with the monthly timeframe’s longer-term uptrend. Despite a healthy bullish close, though, overhead resistance at 4,085 is nearby, potentially discouraging further buying and opening up the possibility for a bull trap to form.

Bolstering the bullish case, the daily timeframe had price movement breach (and retest) the 200-day simple moving average at 3,955 last week. Holding above this dynamic value brought resistance from 4,087 into the mix Friday (lines up closely with the weekly resistance noted above). Harmonic traders might also note the possible AB=CD bearish formation at 4,137, marked by a 100% projection, and a nearby 78.6% Fibonacci retracement ratio at 4,146.

Given the collective analysis, the 61.8% and 38.2% Fibonacci retracements on the H1 at 4,005 and 4,011 will be an interesting area to watch, in view of the immediate trend, as well as the weekly and monthly technical structure. The caveat for buying the aforesaid support, of course, is current daily resistance mentioned above at 4,087.

XAU/USD (Gold)

Although movement in XAU/USD was limited on Monday, the yellow metal is on the edge of completing a head and shoulders top pattern on the H1: $1,942, $1,949 and $1,935. The neckline (drawn from the low $1,917) is joined closely by a trendline support, taken from the low $1,797. Of course, both the aforementioned lines would need to be engulfed to uphold a short-term bearish picture. A decisive H1 close south of the noted technical structure exposes H1 Quasimodo support from $1,903.

From the daily timeframe, the recent rising wedge pattern (between $1,929 and $1,896) experienced a breach in recent days, leaving nearby resistance at $1,966 unchallenged (Quasimodo formation). Continued bearish pressure on the daily chart will see the unit challenge the spirit of trendline support, etched from the low $1,616, and perhaps pave the way back to a fresh decision point at $1,867-1,886. However, would this be enough to alter the current uptrend?

As a reminder of trend direction on the daily chart, here is where the research team stands (italics):

The trend is now technically higher, shown by way of steep trendline support, extended from the low $1,616. The trend upside reversal presented itself in early December last year following the break of the $1,786 previous high in November 2022. Since then, the precious metal also recently welcomed what is known as a Golden Cross, which is the 50-day simple moving average ($1,830) crossing above the 200-day simple moving average ($1,776). This is a pattern trend followers tend to watch and can signal the possibility of a long-term uptrend.

Weekly support remains at $1,916. Note that price is retesting this level following a breach of the base in recent weeks with room to push higher on the weekly scale to $2,070.

Considering the above analysis, technical eyes will remain on the daily trendline support and the H1 support structure: the double-top pattern neckline and the neighbouring trendline support. Breaking the aforesaid levels places a bold question mark on the weekly support as it could serve as an early cue for a break towards the daily decision point, which may be an area the chart welcomes fresh dip buying.

BTC/USD

Against the US dollar, Bitcoin was on the ropes on Monday, down more than 2.0% as of writing, a move erasing the entire portion of Friday’s upside. Albeit lacking resistance on the daily timeframe (resistance is not seen until $24,666), upside momentum for the major crypto has slowed in recent days, as demonstrated through negative divergence out of the Relative Strength Index (RSI). Additional underperformance casts light on support coming in from $21,924.

Higher up on the curve, nevertheless, things remain optimistic. The research team noted the following in recent writing (italics):

Up nearly 40.0% (MTD), its largest one-month gain since October 2021, technical elements on the weekly timeframe favours outperformance. In the company of the Relative Strength Index (RSI) voyaging north of its 50.00 centreline (followed by positive divergence), BTC/USD appears poised to target a falling wedge (between $25,214 and $17,567) pattern’s profit objective at $25,698, closely trailed by resistance at $28,844.

Therefore, a retest of the daily timeframe’s support mentioned above at $21,924 could be somewhere buyers warm to, particularly dip buyers in anticipation of further buying. Supporting this is current trend structure. Early January forged a fresh higher high (breaking the $18,385 14 December high), and crossed above both the 50-day and 200-day simple moving averages, currently trading at $18,846 and $19,681, respectively. Consequently, the trend is showing early signs of an upside reversal.

Shorter term, buyers and sellers are battling for position around a local H1 ascending support, drawn from the low $22,338. Below has nearby Quasimodo support in view at $22,914, with a break of here possibly looking as far down as familiar Quasimodo resistance-turned support at $22,490. Taking into account that there is room to navigate south on both the weekly and daily timeframes (despite each also displaying room to move higher), a H1 close under the local H1 ascending support could open the door for breakout selling in anticipation of a break of Quasimodo support at $22,914. However, should the current ascending support hold ground, this may be enough for buyers to consider entering the market, targeting the $24,000 region.

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