End of the week wrap up: what will continued dollar weakness mean?

The U.S. Dollar’s resumption of weakness has carried it lower through two key levels I have been watching all week: 78.40 and 78.00. I believe the breakdown through the major psychological level at 78.00 is the most important of these support levels because the significance of the shift through any “00” can often accelerate – in this case – the negative sentiment and momentum. The break through 78.00 however must also translate into this level becoming resistance so that when price attempt a move back higher we can see that the “00” now attracts selling resistance.

Remember that throughout the three days of neutral trading sessions, the U.S. Dollar Index was not able to break higher through 79.00 and this was an important level that the bears were watching and the bulls could not rally through.

Since the previous trend (before the neutral market shift) was down, the market was neutral to bearish at best. From my observation, too many traders will pigeon-hole themselves into a bullish versus bearish bias when in fact, there is a valid standpoint of being neutral as a trend transitions. Just because there is a bounce within the context of a downtrend, it does not mean there is a trend reversal. The dollar’s rally from February 2 to 12 was, in my opinion, simply a correction – a relatively shallow 38.2% Fibonacci Retracement – from the January 10 to February 2 decline.

EUR/USD: The EUR/USD has resumed its bullish ways after the transition to a sideways market trend, however– remember that the move higher has not (yet) transitioned the 34EMA Wave back into a “twelve to two o’clock” uptrend and therefore be watchful of potential exhaustion at recent highs. This is currently a distribution market trend on the daily time frame and the three recent highs at 1.3758, 1.3744, and 1.3736 could potentially create exhaustion and an overbought environment. If prices make it higher towards 1.3850 to 1.3861, there could be a double top in place. Until or unless the Wave transitions into an uptrend look for ceilings that could be levels at which the bears are ready to step in.

*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results.

GBP/USD: This swing buy is one that I have been harping on and continue to feel confident about. This being said, I am also respecting the 1.6200 level as a target that should be seen as a level to peel off part of a long position. While the pound sterling has held its own while the dollar rallied, the pair is headed right into the February 3 high at 1.6278. Expect the 22 pips between that high and the 1.6300 major psychological level to be resistance. In fact, it’s my feeling that if you’re not already long, don’t trade the swings from the 60 or 240-minute time frames instead focus on the shorter-term intraday five, 15, or 30-minute charts for nimble long entries.

*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results.

USD/JPY: I am making a significant update from my bearish/exhaustion expectation on this pair. Despite the weakness today, I am going to watch the 83.50 level for resistance and will likely not take a rally through this level again. It will be key to further downside continuation that the bears be able to push this pair lower through 83.00 as the yen rallies against the weaker dollar. The 34EMA Wave is dangerously close to transitioning out of the distribution market trend (that made the distribution fade short-sell from resistance valid in the first place) and into a shallow mark up trend. If this is the case, the 34 period EMA high at 83.10 will present the first swing buy opportunity. Keep in mind that the intraday time frames are either in mark down (five, 15, 30-minute) or trading with red GRaB candles indicating negative sentiment and momentum (60 and 240-minute). Please trend carefully here: Transitional markets are notoriously difficult to trade, so do not be overly aggressive here and stay on the sidelines or keep to a smaller position size.

*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results.

*Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose. Read the full risk disclaimer and privacy policy on trading at www.ibfx.com. Learn currency trading with a free forex trading account at Interbank FX. 

 

 

Similar Posts:

Share
February 23rd, 2011 in Forex News | tags: Weakness, Weakness Mean

Leave a comment

Your comment