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Forex Indices: The Breakdown [01-13]

The USD was sold harshly as a solid 10y UST auction led to market participants have second thoughts over the recent bond sell-off. In fact, the USD set a record down day for 2021 after three days of upside.

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Opportunities in the Forex indices (video below)

The USD was sold harshly as a solid 10y UST auction led to have second thoughts over the recent bond sell-off. In fact, the USD set to record a down day for 2021 after three days of upside. Still, do remember where we stand in the grand scheme of things via this video analysis. The major sell-off makes me near term agnostic of further downside in the USD, especially in light of the pocket of demand retested in the USD index. Looking at the broader market spectrum, the EUR, CHF, JPY all hold a bearish outlook, while the GBP, AUD, NZD are gaining traction, but too much too quick.

In my video analysis below I use concepts taught in the brand new Academy website such as momentum, volatility measures and market structures to come up with the daily outlook in the currency market.


The single currency holds an outright bearish outlook heading into Wednesday. The aggregation of flows on a session-by-session basis portrays a gloomy stance after 5 consecutive bearish candles. It is not coincidence that the sell-side pressure in the Euro has picked up momentum ever since the breakout of a major battleground colored in purple. Since then, and upon the clearance of a second key support on the way down, it’s been off to the races for bears. I can frankly see much more downside from here on out until the November lows (circa 0.45-0.5% downside potential).


In stark contrast to the Euro, the Sterling has gone through heavy buy-side flows. It has now reached an important level of resistance where the first signs of profit-taking are starting to surface. Five buy-side candles in a row and a 1% gain from its latest valuation (bottom-side of a consolidation area) warrant a cautious stance near term. There is little value to be chasing the market now that the index trades above its 1-time average ATR deviation from the mean.


There has been a significant setback in the US Dollar as US Treasury bond yields slumped quite sharply. The currency now sits at a key area of support where I’d imagine supply could easily exhaust and/or be absorbed. Despite the US Dollar is below its control ‘mean’ line, which makes it overall bearish, I can’t help but anticipate near term buy-side flows. Hence, anyone looking to short the US Dollar into this area may be asking for trouble.


The currency trades right at the control ‘mean’ line with the prospects not that clear for the time being. The CAD, not coincidentally, has paused its sell-off through the North-American session at what has constituted the most important area of resistance through December. Since it was cleared back on Jan 8th, buyers are trying to establish their footing above it but are being met with grateful seller. Still, we are not far from another potential buy-side signal.


The Japanese currency fired a sell-side signal in the last 24h of trading. The grey vertical line exhibits the entry level. While we’ve had follow through continuation, the momentum has been stagnating even if the technical metrics applied to the charts in order to determine the length of the exposure still keep us in. Overall, the Yen is one of the most bearish currencies out there, alongside the Swiss Franc and the Euro as other close candidates.


The Aussie extended its month-long impressive rally by initially retaining the bullish bias after a near-term pullback. Once the control line (13-period moving average) got re-taken, implying that the buy-side flows were making their way back, a resumption of the underlying bullish trend ensued. The Aussie is now testing its highest levels in years. It’d be worried to gain long exposure in the currency at this point unless we can clear the top-side of the range.


The Kiwi is back from its lowest in 2021 with a vengeance. There has been an aggressive buy-side campaign emerging that has resulted in the creation of a bullish outside candle in the last US session. The follow-through currently underway is looking like it has further momentum to target the next area of resistance over 0.25% away from the US candle close. It’d imagine a retracement from there even if it may prove short-lived given the dominant uptrend.


As in the case of the EUR, the Swiss Franc has also recently cleared a huge area of support. The backside retest of that area has led to the bailing of structural CHF long positions I’d suspect. The flip-effect off this support turned resistance is paying dividends for those with short exposure in the currency. As a matter of fact, the bearish technical picture earlier this week was reinforced by the confluence of the control line at the SR flip vicinity.


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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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