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FX Weekly Edge: USD Vol About To Spike?

Top Level Summary

For the most part, the Forex market remains in a holding pattern. What I mean is that the majority of currencies continue to exhibit choppy volatility around the edges of what may be the most significant levels we’ve tested this year. That’s certainly the case in the likes of the EUR or the USD, which alone make up most of the trading volume in the currency space. The Sterling is the currency that appears to show the most attractive technicals. Others like the AUD or the NZD, while price action last week felt like two worlds apart, which is not typically the case, nearby supports or resistance don’t clear up the picture near-term.


Video Analysis

In the video below, I distil the technical outlook in the main Forex indices. These views are 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 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 – Flurry of buying clashes w/ huge resistance…

Back-t0-back attempts to poke through a sticky resistance have yielded limited gains. This action tends to typically result in an eventual exhaustion of buyers. More so at the location tested, a perfectly confluent horizontal resistance level that matches the 50% retracement from the 2021 dominant bearish trend. This area has a proven record of acting as a role reversal level, so I’d be surprised if this time it doesn’t. Be wary to be long EUR nearby this vicinity as gains harder to come by. So, my main take away continues to be that longing the EUR this week remains a dangerous business until/if the resistance above is broken.

CHF INDEX – Buying slows down where you’d expect…

An analogous context to the Euro can be found in the Swissy market. As warned in the last report, the currency has so far struggled to record further gains at this key intersection outlined in a red line, where I’ve speculated that a potential topping formation may be in store. This region where price has stalled to the tick refers to a structural previous low and just like in the case of the EUR, also aligns perfectly with a 50% retracement. A break of last week’s low is the next evidence needed by sellers that the 2-month long correction might be over and sellers about to re-take control of this market.

USD INDEX – Calm before the storm…

We’ve had the tightest range period since the beginning of the year. Back to back doji candles sends a clear message on how undecisive this market remains. The stalling of price at its yearly low with so low price amplitude tends to be a precursor of an expansion in volatility. Whenever a market enters a range, I always tend to assign higher probabilities that it will break in the direction of the dominant trend as that’s proven to be the path of least resistance. I will reiterate where I stand on this market. Either this is the location of maximum opportunity to long the currency or the pain the currency may undergo might be quite substantial.

JPY INDEX – Sellers arrive to the 100% proj destination…

The Yen extended further down to hit almost to the tick the 100% measured move target that I had projected. Shorting the Yen has been paying off consistently, with a few brief but most insignificant bumps along the way. The last one that buyers had to go through was a 2-month consolidation; but once that broke, over a month ago, it unleashed the next wave of selling pressure in what now appears to be a potential pause in the trend based on the projected area reached.ย  Structure and momentum certainly don’t suggest this trend is over, but the location makes is rather expensive to short the Yen.

GBP INDEX – Buyers get away with a key breakout…

Out of all the indices scanned, the Pound certainly looks like the most promising to build up on its recent gains. This view is backed by buyers culminating an important technical feat through the acceptance above a key resistance level, continuously outlined in this report for weeks. Now that this resistance can be stared from the rear mirror, there is likely going to be a re-assessment of the new unfolding range, with the potential for this resistance to flip its role into support. Should further evidence of this dynamics unfold, we are looking at a potential appreciation of the Pound in coming weeks to the tune of around 1.5%.

CAD INDEXย  – Stubborn buyers keep at it…

We saw the first signs of weakness in the CAD in 6 weeks yet buyers returned in earnest to bid the currency back up. This strong buy-side interest signals that a break beyond last week’s high may endanger the outlook for any contrarians and set us out on a path to the next 100% projection target. Note, however, that 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 few signs of the trend reverting just yet, so treat this as speculation from my side, but something I am definitely prepping for in coming weeks.

AUD INDEX – En-route to hit the 100% proj…

The index saw acceptance outside of its range on a weekly basis. A depreciation of the AUD to the tune of about 1% was my default view ever since that event occurred. That view is near completion now. This calculation, as usual, is predicated on the use of symmetrical patterns to come up with the 100% proj. Note, this level where the Aussie may find a bottom aligns with a previous structural low, which makes it even more compelling to see buying returning.

NZD INDEX – RBNZ-led mark up meets resistance…

The NZD portrayed a complete different dynamics compared to its neighboring peer the Aussie. The mark up in the Kiwi was fueled by the unexpectedly hawkish turnaround by the RBNZ, which caught the market by utter surprise. At present, the Kiwi has landed at a key resistance level, which contextualize wise, constitutes the top of its 3-month long range. Longing the Kiwi into this resistance warrants prudence as the upside is limited until more technical evidence. Just as I warned to be cautious shorting the Kiwi last week purely on the basis of the support revisited, the same applies on the opposite side now. It’s always safer to allow the price to show its hand via an acceptance beyond a particular level before committing to a certain direction, or else you are asking for trouble.

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.