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The FX Weekly Edge: Context Is King

Top Level Summary

The main takeaway by aggregating the performances of the G8 FX currencies is the ongoing amplitude of movement by the CAD. It’s also worth highlighting that the US Dollar continues to trade very fragile on the verge of a what may constitute a very important technical break. Should this occur, the next phase of USD weakness, lasting weeks if not months, may be upon us. Not yet validation though. The Yen is another currency that looks poised to extend further down. Other markets are quite choppy with the GBP another standout performer even if it’s now revisiting an area that has proven to act quite reliably for the interest of sellers. To get all the details, keep reading…

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 – Eternal sideways action

Price action in the Euro keeps validating the notion of a market going nowhere. The valuation has been well anchored within well defined parameters, gyrating up and down within the confinements of a 1% established range. Until the conditions evolve into a discernable directional bias, you won’t be blamed looking elsewhere to pick the most lively currencies to trade. The advantage of picking the EUR as a proposed long idea, nonetheless, originates from the stability it exhibits within this range.

CHF INDEX – Have we reached a top?

On the back of the rebound away from the late ’19 swing low + symmetrical projection target, the CHF has made it all the way back towards the origin of a strong supply imbalance from late February. These are typically areas where the price tends to show a response. I’ve outlined in a magenta area what could signify a projected top. In this region, buyers are faced with the mentioned supply + a structural previous low that is undoubtedly going to become a strong resistance. This reinforces the credence of the area to act as a role reversal location.  Besides, this rise remains very corrective in nature, well depicted by the velocity of the candles, the amplitude of moves, structure and momentum.

USD INDEX – Playing with fire at the lows

Last week I reported how much of a blow was for the USD to accelerate so rapidly into its trend low. Well, it’s not looking any better, as a punchy bounce in the last weekly print was welcomed with a sizeable absorption as portrayed by the wick. The currency is really on the brink of breaking loose should the area of macro support be compromised. So, either this is the location of maximum opportunity to long the currency or the pain the currency may undergo might be quite substantial based on the importance of this support level. I sit on the latter camp. I think is just a matter of time until a fresh 2021 low is printed.  Again, once 2021 low is broken, watch for an acceleration.

JPY INDEX – On course to further downside

With the previous range left behind, the projected path of least resistance keeps playing out. The current ongoing bearish phase still has further to go until the first initial target. Shorting the Yen has been and continues to be a solid play. Notice, it has been, for the most part, the strongest trend to capitalize on this year, so this obviously draws more and more capital into the asset providing the best prospects of return.

GBP INDEX – Resistance hit, big momentum behind

The short term dynamics in the GBP have certainly turned more alive. We’ve quickly transitioned back up to revisit a sticky resistance after a 1.5% acceleration. Remember, this resistance has proven to be a very tough nut to crack on the first pass through March/April. This time around, with renewed momentum and the structure still very much constructive, the GBP may indeed find a better outcome. Until that happens, treat GBP longs with a fair degree of caution as the prices currently delivered are not the best unless jumping on the momentum.

CAD INDEX  – Relentless run that keeps on going…

The aggressive buy-side action in the CAD is all the more surprising in the context of a Forex market, where for the most part, the main feature has been range-bound conditions in most FX indices. The CAD is the one out-shining the rest of the market by far. I speculated that a potential top may be forming around the current vicinity, but with such strong momentum, it clearly will take time to mature if it happens. In fact, the persistent rise obviously makes me question if the CAD is really on a trajectory to the next 100% proj target. If so, this means we could still witness an additional 0.8-1% of gains in the currency going forward. Long CAD is the gift that keeps on giving.

AUD INDEX – Sits at the range bottom

If you are macro bullish in the Aussie, the current price advertised looks as attractive as it’s ever been this year. In the context of a prolonged bullish trend since the COVID-19 low, the Aussie currently sits at the very bottom of its range. I still think there is a valid scenario where this hefty and lengthy consolidation around this multi-year trend high is a precursor to an eventual break into higher ground.  This scenario, however, will only be validated upon acceptance outside of the range on a weekly basis. Should the opposite occur, a depreciation of the AUD to the tune of about 1% may be in store. This calculation, as usual, is predicated on the use of symmetrical patterns.

NZD INDEX – Choppy within broad range

After failing for a second time at the resistance outlined above, the conditions are such that we are likely to see further choppiness until a resolution beyond either extreme of the range occurs. At present, the Kiwi has landed at an area of previous demand after this very same location produced a decent bounce last week. Will this area continue to act as a springboard for price? Nonetheless, this is all happening right in the middle of a range, so fort the most part this is all pretty noisy and far from the technical clarity one wishes to find.

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.