EUR/USD (1.10): Following the strong consolidation above 1.105, EUR/USD finally gave way as price broke down to test the lows below 1.10. However, the declines look to be limited in nature with the Stochastics on the daily chart pointing to a bullish divergence. We expect a correction towards 1.123 – 1.121 in the near term, provided EUR/USD can attempt to breach the immediate resistance at 1.105 – 1.1028 which broke down as support. The major support and resistance levels for EUR/USD remain at 1.1373 – 1.132 and 1.1081 – 1.1075. The bias remains to the downside for a test of support that was previously established around late December 2015. In this context, EUR/USD is likely to remain bearish with any rallies seen as a retracement of the declines.
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EUR/USD retracement to 1.123 – 1.121
USD/JPY (104.34): USD/JPY rallied strongly off the lows near 100.42 but prices were capped at the resistance level of 106.19 – 105.70. The current declines we see could be limited in nature as USD/JPY approaches 103.15 price level. This price zone of 103.15 – 103.00 previously acted as resistance, therefore a dip back to establish support makes for an ideal view. USD/JPY is likely poised to the upside if support at 103.15 – 103 is established. Further upside can be expected if the currently established resistance at 106.19 – 105.70 can be broken. In such an event, expect USD/JPY to extend gains to 111 – 111.81 where the next main resistance comes in. To the downside, in the event of a breach of 103.15 – 103, expect the declines to extend down to 101.54. However, a bearish close below 101.54 could potentially upside the bullish view and could see the declines extending down to 100.
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USD/JPY correcting to 103.15 – 103
GBP/USD (1.311): GBP/USD has been caught in the range of 1.322 – 1.3122. There is a minor inverse head and shoulders pattern that is forming, although not a text book pattern and far from posting any symmetry. Still, the bias remains to the upside, especially after noticing that the current consolidation is shaping out into a bullish pennant pattern. Resistance at 1.3478 will be key in this regard. A breakout above 1.3478 could ideally establish the tone for further upside in GBP/USD. Expect the unfilled gap at 1.3673 to be challenged, followed by a likely move to 1.40.
