Rupee’s descending triangle formation indicates weakness

The dollar index pulled back last week and then rallied to new highs as predicted, retaining its bullish bias since hitting support in the 80 area.

On August 13, the index had hit resistance at its 50-day exponential moving average at 83.05 and pulled back to 81.90 for three days last week, only to rally and hit 83.30 last Friday. The index faces quite a few resistance areas ahead — the first being in the 83.30 to 83.50 area and the next is in the 84.50 area. As the index moves higher, both strategies of going long at support and going short at resistance can be good trades.

Rupee-US dollar
The rupee continues to show weakness against the dollar, with the Indian unit making lower highs essentially forming a bearish chart pattern — the descending triangle. The rupee has support in the 46.80 area, which, if broken, can take the pair all the way to the 47.50 area. We had mentioned earlier that the rupee had hit the 47.50 support area a few times, weakening it. This increases the possibility that the rupee could fall further the next time the 47.50 area is tested.

Euro-dollar
In line with the rally in the US dollar, the EURUSD pair made new lows last week. The support of 1.2725 that led to a two-day rally last week was broken on Friday, which puts the 1.2550 area in play. Last week’s price action created a resistance zone in the 1.2925 area with the support at 1.2550 area.

Note that the pair has a bearish bias with prices below both the 50- and 200-day exponential moving averages. Other factors favouring the bears are that the 50-day average has stopped pointing up and is now flat, and the 200-day is pointing down.

Dollar-yen
The yen continues to consolidate in its wide support zone of 81 to 84 and has failed to show any bullish conviction as prices did not close above the 86.50 area. The good news for bulls is that the pair did not make a lower low last week in comparison with the previous week. But neither did it make a higher high, indicating a lack of conviction in either direction.

A lower low is when prices fall below the previous low and a higher high is when prices rally above a previous high. A series of higher highs and higher lows is bullish and vice versa. Currently the nearest resistance area on USDJPY is 86.50 and nearest support is 84.70. Since the pair has fallen substantially over the past few months and is at support, it’s not prudent to short. Maintaining a bullish bias till the 81 area is broken has a higher chance of success.

Pound-dollar
The GBPUSD pair has the potential of forming a golden cross which is bullish sign. A golden cross happens when the 50-day moving average crosses above the 200-day moving average. In case of this pair, the exponential moving averages are poised to cross over if the pound rallies a bit.

The writer is editor, www.capturetrends.com and based in Chicago.