The yen and the franc are again in the spotlight as profits shake the markets

It’s not Omicron or the Fed rate hike, it’s earnings. Bullish investors appear to have finally given up after Netflix’s disappointing report last week. The NASDAQ dragged other major indices down and also dragged down cryptocurrencies. Given that Apple and Tesla will come next, there is a risk of even more dip in sentiment.

In the currency markets, the yen and the Swiss franc finished as the strongest while the dollar was a distant third. The New Zealand Dollar was the worst performer, facing additional selling pressure against the Aussie. The pound sterling was the second worst, followed closely by the euro. The Canadian dollar has actually been very resilient, thanks to support from the prolonged rise in oil prices, but is also starting to look vulnerable.

NASDAQ in medium-term correction, to target 12.5k

The NASDAQ free fall was a surprise, even more the strong break of the 14100 cluster support level. The breakout of the 55 week EMA on the back of the bearish divergence condition of the weekly MACD is a rather bearish development. The NASDAQ may now be in correction from the entire uptrend from 6631.42 (2020 low).

With that in mind, any attempt to rebound should be capped by 14860.03 support turned resistance. The fall from 16212.22 should aim for a 38.2% retracement from 6631.42 to 16212.22 to 12552.35 before bottoming out.

The S&P 500 in medium-term correction too?

The break of the S&P 500 trendline support and the drop of the 55-day EMA is also rather bearish for the S&P 500. The index will now have to defend the structural support at 4278.94, which is close of the 55-week EMA (now at 4285.89).

A sustained break will align the outlook with the NASDAQ and indicate that SPX is also correcting from the uptrend from 2191.86 (2020 low). In this case, SPX would be targeting a 38.2% retracement from 2919.86 to 4818.62 at 3815.19.

DXY recovered before the 93.97 Fibonacci level

The Dollar Index extended the rally from 94.62 and closed above the 55-day EMA, indicating some stabilization. There is no change in the view that the price action from 96.93 is simply correcting the uptrend from 89.20. That is, in case of further dips, strong support is expected from the 38.2% retracement from 89.20 to 96.93 to 93.97 to contain the decline.

However, a sustained break of 93.97 will indicate that the trend may have reversed and a deeper drop may be seen to a 61.8% retracement at 92.15 and possibly below.

NZD/JPY to complete the top head and shoulders pattern

In the currency market, NZD/JPY was the strongest last week, losing -1.90%. The development now confirms that the rebound from 75.95 ended at 79.22. More importantly, the drop from 82.49 is ready to resume. The immediate focus is on the support at 75.95.

A sustained breakout of 75.59 will also complete a head and should be in the lead (ls: 80.17, h: 82.49, rs: 79.22). In this case, the NZD/JPY should break the support at 74.54 at a 100% projection from 82.49 to 75.95 from 79.22 to 72.68. The reaction from there will decide when such a decline will be a correction of the uptrend from 59.49. Or else it is already reversing the trend.

GBP/CHF to extend the 1.3070 correction with another leg.

GBP/CHF was also one of the biggest movers, losing -1.12%. The pattern suggests that the rise from 1.2134 has already ended at 1.2606, having been rejected by the medium term downtrend line. The pattern from 1.3070 is probably in its fifth stage. Further decline should be seen to 1.2134 low.

The broader outlook isn’t too bearish though, as the pattern of the fall from 1.3070 still looks corrective. This is more likely an uptrend correction from 1.1107 than not. Nonetheless, GBP/CHF may attempt to reach the 61.8% projection from 1.1107 to 1.3070 to 1.1857 before bottoming out.

Bitcoin Extends Downtrend, Above 29261

Bitcoin’s downtrend resumed last week but hit 40,000 and reached as low as 35,102. The 61.8% projection from 68,986 to 41,908 from 52,101 to 35,366 has already reached, but there is no clear sign of a bottom yet. Overall the decline from 68986 is still seen as part of a long term range pattern between 29261 and 68986 only. Therefore, momentum should start to diminish below 35366, and a bottom should form above the 29261 low.

Nonetheless, the break of 41908 support turned resistance is needed to be the first sign of a bottom, or risk will remain sharply to the downside even if there is a rally. In an unlikely more bearish scenario, bitcoin could extend the downtrend to a 100% projection at 25023 if it cannot defend the 30k handle.

USD/CAD Weekly Outlook

USD/CAD’s late rebound and break of minor resistance at 1.2569 last week suggests a near-term bottom at 1.2448, after touching trendline support. Initial bias is back up for 1.2619 support turned resistance first. A firm break will signal that all pullback from 1.2963 is over and bring a stronger rally through 1.2812 to retest 1.2964. Nonetheless, the rejection of 1.2619 followed by a break of 1.2448 will retain a short term downtrend for a deeper decline to 1.2286 support next.

Overall, the focus remains on a 38.2% retracement from 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. A sustained break should confirm that the downtrend from 1.4667 has ended after defending 1.2061 long term support. A further rise would then be seen towards a 61.8% retracement at 1.3650. However, the rejection by 1.3022 will maintain the downtrend in the medium term. The breakout of 1.2005 will resume the downtrend from 1.4667 and this also has more significant downside implications.

Longer term, we view price moves from 1.4689 as a consolidation pattern. Thus, the uptrend from 0.9506 (2007 low) should still resume at a later stage. This will remain the preferred case as long as the support at 1.2061 holds which is close to a 50% retracement from 0.9406 to 1.4689 at 1.2048. However, a firm break of the 1.2061 support will indicate that USD/CAD has already entered a long-term downtrend. The next target is a 61.8% retracement from 0.9406 to 1.4689 at 1.1424.

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