Analys från DailyFX
US Dollar Finds Support, Bias Is Bullish
Talking Points:
- Dollar finds major support from two different angles
- At the least, higher in the near-term most likely
- Selling USD-based pairs – EUR/USD, GBP/USD look like good ways to play
Last week brought some much desired fireworks to the FX market, creating a few interesting scenarios. There was a lot of chatter surrounding the breakout, fake out in the Euro, caused by Draghi and Co. The Euro went from a bullish breakout to a bearish breakdown in one fell swoop.
The Euro wasn’t the only one to get rejected at new highs, I’m looking at you Cable (GBP/USD). Both the Euro and Cable are trading near major long-term levels: 1.4000 EUR/USD (by a 6-year trend-line from 2008 highs) and 1.7000 GBPUSD (the level goes back to 2009, 2005, even the late ‘90s).
GBPUSD/EURUSD – Monthly
Charts created by Paul Robinson using MarketScope 2.0.
This brings into my crosshairs the Dollar Indices – $USDOLLAR (DJ FXCM Dollar Index) and $DXY (Ice U.S. Dollar Index). $USDOLLAR had a weekly reversal off 1-year horizontal support as well as a trend-line extending back to August of 2011. This confluence makes 10370/55 a critical area. A descending trend-line back to July of 2013 then crossing over the January highs is creating a massive triangle.
$USDOLLAR – Weekly
There are three scenarios of which one will likely play out:
1. The Dollar continues wedging itself for a while longer into a tightly coiled triangle, set to break out one way or another a little later in the year. (Short-term move would be higher.)
2. It gathers momentum in the near future and barrels right through the descending trend-line with little pause.
3. The low last week turns out to just be a minor bounce off support and the trend lower in the Dollar resumes shortly with EUR and GBP set-backs turning out to only be minor bumps in the road.
It seems at this point the first two scenarios are most likely, so I will play it out as follows. Initially give last week’s lows the benefit of the doubt and look for bearish set-ups in USD based pairs – right now, namely – EUR/USD and GBP/USD and their respective crosses. I am curious to see how USD/JPY responds to a broad Dollar rally. If we go into any type of real ‘risk-off’ mode, then USD/JPY will likely sell-off while strength in the Dollar is exhibited elsewhere. So, for now, I will focus my efforts on set-ups which have a bullish bias.
–Written by Paul Robinson of FXSimplified.com
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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