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FX Weekly Edge: The USD Roars Back

Top Level Summary

Talking about Forex this week makes it inevitable to think of the US Dollar. The currency saw its largest weekly gain in 2021. An overly saturated short market, the FOMC making the wrong soundbites in its ultra-loose monetary policy commitment, led to a monumental rise in the USD. That appreciation has nothing to compare with the sea of tranquility if trading the Euro. The index remains stuck in no man’s land. Worse is the outlook for the Swissy one would think judging by the juncture it’s reached. This is now starting to be reflected through price action. The Sterling is putting up a real fight in what I deem a bullish consolidation. The worst outlook heading into this week, as the technicals can attest, include the riskier beta-type FX, with the Aussie and Kiwi looking especially vulnerable. The Yen, after a prolonged bearish trend, may be, alongside the US Dollar, one that stands to benefits should the risk-off dynamics extend.

Video Analysis

In the video below, I distil the technical outlook in FX. These views are relevant and actionable for the members of the Global Prime Discord room the following week. I am yet to find other traders that conduct the technical study of currency indices on an equally-weighted basis the way is put together in this report.

Forex Indices Break Down

If you are interested in a deeper dive into my prop equally-weighted indices as a true teller of the performance of each G8 FX currency, then keep reading…

EUR INDEX – Don’t diddle in the middle…

The currency has traded uneventfully stuck right in the middle of its 2021 range. There are well defined extremes rejected in multiple occasions. This has made these lines of support and resistance, hands down, the best locations to attempt a play in the Euro. The current price, anchored right in the middle of the range, alongside the doji-type formation last week, makes the outlook for this week  a coin-toss. There is near 0 technical evidence of which way the Euro may go. The one piece of advice that will serve you well if trading the Euro is to trade away from resistance and support as opposed to into it. It’s worked really well so far.

CHF INDEX – Disruption in flows…

The Swiss currency struggled to record further gains at a key weekly resistance juncture outlined in a red line. From there, speculators appear to be jumping back in, printing a sizeable bearish outside candle in the process.   This region where price has stalled to the tick refers to a structural low that converges perfectly with a 50% retracement. Where it happened, how strong the rejection was, and judging by the underlying bearish trend, this has written all over the wall that near term, the risk is shifting towards CHF weakness in coming weeks. The disruption in flows is a reality that can be attested by the bearish weekly print.

USD INDEX – Strongest appreciation this year…

The USD has concentrated all the talk and headlines on the back of last week’s hawkish FOMC outcome. The 2%+ appreciation in the currency over last week cannot be ignored, especially after such a clean wickless candle. The acceptance at the highest point on Friday reinforces the notion that the USD is pack leader. Interestingly, the currency has stalled its movement where one would anticipate, right ahead of its weekly resistance line. Directionally wise, the technicals hint at a bullish continuation, just be aware that we are far from any discounts advertised. If one is to jump on the USD bandwagon, be ready to pay up. In other words, adjust your view in accordance with such reality and either tighten up stops or be ready to let price action mature if it represents a macro trade. The location for maximum opportunity in the USD existed down at the bottom near the 2021 low as opposed to the current pricing. A clearance of the overhead resistance still sees buyers confronted with a second layer of resistance not far above. One must reconcile with these walls of expected offers. Allowing dips to then be bought makes sense.

JPY INDEX – An ugly candle to sell into…

The Yen has clawed back its recently lost ground, spurred by the selling of risk assets. The strong weekly close above its previous range low is a positive development, as it is the equilibrium found at the highest point last week. The overall trend is still down, but this contrarian candle penetrating the previous resistance sends a warning sign that near term the tide may be turning in favor of the Yen bulls. In the grand scheme, structure and momentum certainly don’t suggest this trend is over, but the price action is one hard to sell into. Watch the red lines of support (at 1% intervals) for buyers to re-emerge.

GBP INDEX – Bullish consolidation…

The Pound has been, for the most part, holding up extraordinarily well the spell of weakness in risk assets. This view is backed by the price holding in a tight range just under a resistance line for over a month. An important technical feat would be the breakout of the key resistance level overhead, outlined for weeks. On the way down, buyers can lean against a line of support that was first found after the surge in demand during the 1st week of May. The verdict in this market is that the market remains bullish but near term balanced flows don’t yet suggest buyers are ready to resume the uptrend just yet.

CAD INDEX  – Bull trend rolling over?

We’ve seen follow-through signs of weakness in the CAD. In fact, the currency has sold off for 4 weeks in a row now, further evidence that this gyration has more meat in the bone. Remember,  if history is any indication, ever since 2015, around these highs is where a macro rotation back down in the CAD tends to occur over and over. There are now stronger signs of the trend reverting. The unwinding of longs appears to be accelerating with a decent risk reward up for grabs.

AUD INDEX – Sellers in clear control…

The index saw acceptance outside of its range weekly support. The penetration and close beyond the previous weekly low is a bearish development that is likely to carry with it further sell-side interest on bounces.  A depreciation of the AUD to the tune of about 1% from the weekly opening level is technically doable. Once/if that occurs, a new millstone will be completed as that will result in the AUD landing at the next structural line of support. Nothing appears to be at a near-term appreciation in the Aussie now that new lows have been made and there is little in the form of support to lean against.

NZD INDEX – Piggy-backing the Aussie lower…

The NZD portrays an analogous bearish picture to that of the Aussie. The dynamics of selling on strength, which are the ones supported in the Aussie market, should see a replica of behavior in the Kiwi currency. We’ve broken the range low, and that now clearly paves the way for further follow through until the next support. Not even the recent hawkish turnaround by the RBNZ has been enough to weather the storm. The AUD and NZD remains the two currencies most susceptible to weakness in the event of equities unwinding and USD surges. This has been so far beautifully reflected through the charts.

About the author

Ivan Delgado

Ivan Delgado is a decade-long Forex Trader. Feel free to follow Ivan on Youtube. Join thousands of traders who follow Ivan's insights to increase their profitability rate by learning the ins and outs of how to read and trade financial markets. Ivan has you covered with in-depth technical market analysis to help you turn the corner.


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