Top Level Summary
The majority of FX indices have simultaneously landed at key inflection points. By that I mean that the price is sitting at areas that often represent either a pivotal area for an eventual price reversal of the recent momentum, or alternatively, an acceleration of the moves. Last week was characterized by price action that makes us none the wiser in picking the next directional bias, precisely for the reason I outline. Clusters of bids/offers are in the process of either being consumed or acting as walls too strong to penetrate. The jury is still out there.
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 – Topside failure as resistance holds
The next directional trajectory for the Euro remains a convoluted puzzle to decipher as the index stays trapped in a 1range. The valuation continues to be anchored within well defined parameters, gyrating up and down within the confinements of a 1% established range. Last week, an attempt to break past the outlined resistance failed as a by-product of the cluster of sitting offers. The window to long the Euro on the basis that a topside range retest would occur is now gone. The current price level with a rejected resistance right overhead makes any proposition of longing the currency this week dangerous business until/if the range is broken.
CHF INDEX – At last lands at structural resistance
As in the case of the EUR, if you find yourself aiming for longs in the CHF, just be aware that the currency index has landed it what should constitute a huge nut to crack. I’d be surprised if this area doesn’t exhibit a response. I’ve outlined in a red line this potential topping formation. This region where price has stalled to the tick refers to a structural previous low and therefore strong resistance. Another point to bear in mind is that the rise remains very corrective in nature, well depicted by the velocity of the candles on the way up and the amplitude of correction when compared to the overall structure from 2021 and its momentum. Volume on the way up is slowing down too.
USD INDEX – Support holds up for now
The index has managed to stall around its yearly low. There is currently uncertainly as to what the price may do next, well portrayed by the ‘dojo’-type candle with the lowest vol in over 2 months. The chart remains fragile to an acceleration of the losses should the area of macro support be compromised. As reiterated last week, 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 continue to sit on the latter camp even if this is just pure speculation and not backed up yet by price action until a weekly close below the outlined red support.
JPY INDEX – Pause in a downtrend
The index has been resisting from moving further down after leaving behind a 2-month range. The candle formation last week makes us none the wiser, as it simply communicates a pause in an otherwise well anchored bearish market. I still envision the potential for this market to keep selling off until the 100% proj target is met (black line below). Shorting the Yen has been and continues to be a solid play this year and from a technical perspective there is no reason to think otherwise. Structure and momentum certainly don’t suggest so.
GBP INDEX – Another one faced with key resistance
The index made further gains only to be faced and blocked from further upside by the resistance line I’ve outlined in this report for weeks now. Until this resistance line is taken out by getting a close beyond, it makes longing the GBP a risky business. Remember, this resistance has proven to be a very tough nut to crack on the first pass through March/April. Until that happens, treat GBP longs with caution. Besides, the amount of weekly price updates based on the aggregation of tick volume implies conviction to buy dying off a tad.
CAD INDEX – At a key inflection point with strong momo
The CAD keeps rocking even if I remain rather skeptical that this move can sustain for much longer judging by the macro structure. It’s going to take a lot of firepower by the buyers to keep penetrating into higher levels. Yes, we might make it to the next 100% projection target, but if history is any indication, ever since 2015, these are the levels where a rotation to a lower CAD tends to occur over and over. We are not there yet; in fact, there are no signs of the trend reverting, so treat this speculation with a grain of salt until more data becomes available. With such strong momentum, an ultimate topping formation may take time to mature when/if it materialized.
AUD INDEX – Range left behind hints more downside
The index has finally seen acceptance outside of the range on a weekly basis. A depreciation of the AUD to the tune of about 1% from its breakout point is now eyed. This calculation, as usual, is predicated on the use of symmetrical patterns. The candle close at the absolute lowest point for the week beyond the range floor implies that in the near term the prospects for the Aussie have darkened.
NZD INDEX – At support but lack of buyers’ presence
Unlike the AUD, the NZD is yet to break its range structure. At present, the Kiwi has landed at a support area, which happens to be the same location producing its latest bounce. One that if you notice, it didn’t achieve a successful rotation of price. Will this area continue to act as a springboard for price? I must say with the rotation failing and the price finding literally 0 buy-side activity overpowering sellers, the prospects are not looking too rosy heading into this coming week. A tricky place and action to make high-conviction judgements.