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FX Weekly Edge: USD In Trouble

Welcome to The Weekly Edge report, a technically-oriented newsletter aimed to help traders better navigate the Forex markets with the assistance of unique research and unbiased market analysis.

 

Top Level Summary

The main take away from this week’s analysis is the validation of bearish phases in both the USD and the JPY. This is inevitably building up the case for an eventual breakout in the most risk-friendly currencies the likes of the AUD or NZD. Interestingly, while such technical rhetoric should bode well for the CAD, a slowdown makes sense if one considers the level it hit. The EUR and the GBP remain within the confinements of ongoing range patterns while the CHF’s recent strength looks capped too.


Video Analysis

In the video below, I distil the technical outlook in the main Forex indices. These views tend to be relevant and actionable for the members of my mentor room the following week of price action. Humbly speaking, I am yet to find other traders that conduct the technical study of currency indices on an equally-weighted basis.


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 – Doing what it does best, range-bound…

Ever since the steady downtrend from Jan-March was truncated on the back of a bullish outside weekly candle, the index has ping-ponged between a level of resistance and one of support.  This has left behind a market with a range structure and fading momentum. Last week’s doji-like candle solidifies the current messy affair price action-wise. This makes the Euro a currency best traded around the edges if thinking about the most bang for one’s buck. Without any discernable directional bias, you won’t go wrong looking elsewhere for opportunities.

CHF INDEX – Relentless dip buying but…

It’s important to remember why why bounced from the area we did. The historical data sets in this chart will provide the answer. Not only it aligned with the late ’19 swing low, but it also coincided with a symmetrical projection target of 200% from a bracketed area broken. Fast forward, the Swissy has appreciated more than 2% with the most recent price action a clear statement of what dip-buying looks like when encapsulated within a weekly candle. Each and every setback has been consistently bought. Unfortunately, there doesn’t seem to be that much upside left for bulls until faced with a ridiculously strong resistance area as per early Jan structure low. Limited upside in my opinion.

USD INDEX – Lowest close in 3+ years…

Yet another blow for the interest of buyers as the weekly price close represents the lowest February 2018. All elements framing my directional thesis are screaming sell-side as the predominant bias here. I think is just a matter of time until a fresh 2021 low is printed. Last week’s candle registered the most losses since November last year with a close completely absent of any dip buying. Conviction in the USD is very low. This in my book translates in the momentum inertia alone taking us lower. Once 2021 low is broken, watch for an acceleration.

JPY INDEX – Range truly left behind…

A tight range for the last 2 months is now history. What this potentially means is that the market looks ripe to embark upon the next bearish phase with an initial target about 1.3% lower from the weekly open price. Shorting the Yen has been unambiguously the strongest trend to jump on this year, which only reinforces the notion on the odds continue to be stacked for a continuation lower to the next projected target.

GBP INDEX – Not a whole lot of clarity…

I personally cannot assign any strong conviction to this week’s directional bias based on last week’s price action. As in the case of the Euro, the Sterling appears to also be navigating through its own contained range formation. This dynamics have become even more clear following 3 out of 4 weeks where the topside has been capped by what’s turned out to now constitute the mid point of a broad range.  This clearly communicates to me the sellers’ stronghold at this vicinity, which must be reconciled with the overall bullish structure and momentum. A complicated puzzle to resolve near term until the trader is fed with more data points. Still, the GBP appears to be strong enough to outperform some of the weakest links such as the USD or the JPY.

CAD INDEX  – Potential top location…

The heavy buy-side absorption seen a few weeks ago eventually led to a resumption of the prevailing uptrend.  This aggressive buy-side action seen ever since has now met its next target a the March ’20 peak. What this means is that we’ve arrived at a well defined localized destination where an acceleration of profit taking activity may start to considerably slow down CAD’s momentum. The currency has been on an exceptional run but if history is any indication, building up on recent gains is going to get increasingly harder.

AUD INDEX – Range to contend with…

In the big picture, the Aussie remains one of the darlings of FX. Beside, the fact that it found a lofty and lengthy consolidation not far from a multi-year trend high is a testament that this may have been simply a much-needed pause ahead of the next bullish phase. This scenario, however, will only be validated upon acceptance outside of the range on a weekly basis. With the USD and JPY both breaking lower in earnest, it suggests that the risks are building up for an eventual break into higher ground. Should this even occur, an initial appreciation of about 1% may be in store. This calculation, as usual, is predicated on the use of symmetrical patterns.

NZD INDEX – Buyers are going for it…

There is very little in the way that may obstruct the NZD from further appreciation if it blows through the overhead resistance. Until that happens, be aware that buyers are going to have to battle this one through with conviction. However, I am starting to notice that dip buying into this resistance has eventuated, which suggests the heavy offers lined up above may eventually be consumed. The last 2 weeks worth of price action are revealing as we had an initial rejection off resistance followed by a bullish candle adding further pressure. I can’t see how sellers can exert that much pressure to prevent an eventual extension into higher ground. This view is reinforced by the failure to break any structural pivot points on the way down when the currency encountered sell side pressure a few weeks ago.

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.