Welcome to The Weekly Edge report, a technically-oriented newsletter aimed to help traders better navigate the FX markets with the assistance of unique research and unbiased market analysis.
Top Level Summary
The main theme in FX continues to be the weakness in the USD. Buyers’ hopes to see much of a recovery were inflicted a further blow by last week’s close. This still makes me largely bearish in the US Dollar. On the contrary, I am expecting dip buying interest in the Euro given the close it accomplished last week. The Canadian Dollar is also looking extraordinarily strong after an impressive absorption from a deep pullback last week. The Kiwi has joined that bullish party and the Aussie might too soon enough. This leaves the tight ranges in the CHF and JPY vulnerable to an ultimate breakout lower, especially on the latter, not as linked to the price action of the EUR as the CHF tends to be. Lastly, the GBP bulls are at risk of giving up near term.
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 as taught in the Academy course.
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 – Dip buying eyed
The steady downtrend was truncated last week after what’s commonly known as a bullish outside weekly candle. While the bearish momentum had already been faulting, as depicted via the SMT indicator, last week’s bullish price action solidifies the shift of trend as the EUR achieved a close above a major structural resistance area. It did so with a close on the upper 90% percentile, which essentially translates in robust buy-side pressure as sellers finally give up. With the structure and momentum bullish, the prospects to encounter solid dip-buying this week is there. Should this eventuate, there is quite some room until the next weekly resistance. This bullish profile would be invalidated should the index close back below the structural resistance.
CHF INDEX – In range mode
By squeezing the chart far enough, you can probably understand why the Swissy bounced from the level it did. Not only it aligned with the late ’19 swing low, but it also coincided with a symmetrical projection target of 200% from the bracketed area broken earlier this year. The eruption of demand from the lows, however, has encounter sticky resistance at the previously penetrated 100% projection target, further re-affirming the relevance of this level as a key inflection point in the chart. Ever since, sideways action has been the norm with a resolution outside of the current tight box a pre-requisite for technicals to unravel and gain clarity. Until that happens, this is not a market offering a clear technical read to capitalize on in my view.
USD INDEX – Strongly bearish
Last week marked yet another blow for the interest of sellers as the price closed below a critical level of support. If we go back to the range in dominance earlier in the year, the level USD sellers just cleared represents a key battle ground. Once this area is broken, it has a history of acting reliably well this year as a turning point for the market. What this suggests is that unless the level is re-taken on a weekly closing basis, the path of least resistance appears to be clearly skewed towards a retest of this year’s low. Both momentum and structure do agree.
JPY INDEX – Consolidation at trend lows
A tight range for the last 2 months is what we’ve had to contend with. As in the case of the CHF, we are required to find a resolution outside of the box before clarity is re-gained. Judging by what’s unambiguously been the strongest trend this year, the odds continue to be stacked for a break lower in line with such steady pattern of Yen depreciation this year. Also, it’s worth pointing that as I reiterate many times, the previous 100% projection target, first tested and rejected, is now acting as backside resistance after being broken in late February. Never underestimate it.
GBP INDEX – Encountered sellers’ stronghold
The odds for the near-term path to be skewed towards the downside are increasing. This is predicated on the basis that not only a major resistance line got tested with a resounding failure as sell-side pressure overwhelmed buyers, but the retest of that point of origin where the supply imbalance was initiated has seen a second rejection off higher levels. This clearly communicates to me that buyers’ hands are weakening as it reinforces the sellers’ stronghold. I can foresee further follow through until the next support over 1% below last week’s close.
CAD INDEX – Uptrend resumes
The heavy buy-side absorption seen last week was a precursor of what might be to come should buyers break the previous week’s high. Well, that’s happening only 24h into the new week. This aggressive buy-side action is re-setting in motion a targeting of the previous trend high. Not surprisingly, what marked the trend high (on a closing basis), was once again a symmetrical target. With the validation of a renewed buy-side campaign underway, any dips should be seen as buying opportunities this week.
AUD INDEX – Range breakout?
In the big picture, the Aussie remains one of the darlings of FX. The fact that it found a lofty and lengthy consolidation not far from a multi-year trend high is a testament of that. This acceptance suggests that the risks are building up for an eventual break into higher ground. Should this even occur, an initial appreciation of about 1% more or less could be expected.
NZD INDEX – Resistance eyed
There is very little in the way that may obstruct the NZD from further appreciation until it meets its next resistance line. This is where the next tug of war between buyers and sellers will happen. In light of the structure and the momentum that keep carrying the Kiwi higher, I can’t see how sellers can exert that much pressure to prevent an 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. Looks pretty rosy for the Kiwi.