The dollar failed to break above a key resistance area at the first time of asking a couple of weeks ago which suggested further downside pressure may follow, but no longer necessarily looks the case.
A combination of resistance levels all converged around 121.80-122.20 including the 61.8 fib level – 12 August highs to 24 August lows – the ascending trend line that it previously broke below – 16 January lows. This was also previously a notable level of support and resistance.
The failure at this level appeared to be confirmation of the initial trend line break and an indication that the rally was merely a retracement. Moreover, the lower highs and lows the followed on the daily chart appeared to support this.
However, today’s rally suggest this may not in fact be the case. The pair has broken above the September highs which means it’s no longer in the technical downtrend that it entered after failing to break through the previously mentioned resistance.
Today’s rally has also been quite strong and it only appears to be gathering momentum.
The fact that we’re seeing this move after the pair failed to come even close to 24 August lows does not make me very bearish. In fact, the pair has actually rallied off the 50% retracement of the move from 24 August lows to 28 August highs.
We could get a much clearer indication of the market bias if the pair retests the same resistance it failed to break above a couple of weeks ago, in the coming sessions.
A break above here would be very bullish and we could see last year’s highs targeted in the coming weeks. A second failure on the other hand would suggest the pair has found a new ceiling.