It is obvious that the USD has been on the receiving end at the back of a relentless Euro in the first half of the year. While this was partly due to political moves-Macron, Trump comments on a strong USD and a string of poor economic data, we can move on and reckon that the Euro bull rally is almost at the end. This is a position taken largely out of the DXY context. DXY is the basket of different currencies which measures the strength of the USD. In recent times, it has broken below the psychological 100 level and is now testing waters around 93 which is at the 200 period moving average. From the DXY, European currencies-Euro, NOK constitute 77% while CAD and JPY make up about 22% of the index.
The reason I’m pointing this out is from the technical point of view and what history has in store for us is that such strong rallies tend to reverse strongly after testing certain important level like 200 period moving average which has always proved vital. Case in study, the CAD. In July, you may have note that the CAD gained a massive 4% against the USD but then those gains are being reclaimed. The same is happening to Norwegian Krona, which has a pronounced buy signal against the USD.
Tomorrow as I have asserted over and over while make or break the USD, especially if there are marginal earning growths at or below the 0.2% mark recorded last month. Overly, today’s sentiment is all about the GBP. It’s all about what if and should the BoE surprise participants by hiking rates then this week’s GBP 1 year highs against the USD would be nothing compared to what will happen. On the other hand if inflation grows at a slower pace and the number of hawks reduce from 5-3 then it will be the beginning of a bear rally and in that case the USD should claw back some of its loses. It’s all about data in a data driven MPC. Bear in mind the most recent retail income and price stability were weak, Carney will most likely take a dovish stand.
Technically, I’m a CAD and NOK bear going forward. As these are commodity currencies just like AUD, NZD which by the way are retracing from their bull run. I will look to add to my USD longs against the Loonie and NOK just from what is happening in the weekly chart. As we can see, the DXY is testing the 200 period moving average with a buy signal printed by the stochastics. The same is panning out with USDCAD where there is a strong bullish engulfing pattern completing a double bar reversal pattern and a buy signal just before tomorrow’s NFP. Avoid the GBP pair at the moment until after there is a clear trend direction in the weekly chart.
I will trade as follows:
Stop Loss: 1.251
Take Profit: 1.300
Have a good day.