The U.S. Dollar’s 77.00 Breakdown Impact
How the dollar’s push through support has me reevaluating my positions.
The U.S. Dollar Index broke lower through the 77.00 low from February 2 and this represents not only a range breakdown but also a push through a major psychological level. This also puts my near-term expectations for dollar support to the test and is now causing me to rethink my positions and position sizing. I believe this is all necessary and good since it’s the cues from price levels not only in the forex pairs I trade that impact my analysis, but also cues from price levels in my forex market pulse that will cause me to do the same. Let’s examine the pairs that are being impacted:
EUR/USD: I have been setting up a distribution fade on the daily time frame based upon the volatile, sideways range that would present an opportunity to sell at the range highs and buy at the range lows. The daily EUR/USD *appears* to be overbought AS LONG AS prices remain below the 1.3861 high from February 2. Notice the EUR/USD put in its near-term high the same day the U.S. Dollar put in the 77.00 low. The dollar’s low has now been broken so it must be asked: Will the bears maintain selling pressure between 1.3855 and 1.3861? With this week’s rate decision and ECB press conference (Thursday), there’s a good chance we’ll see the answer to that question. There is the chance that a rate hike expectation was partially responsible for the rally to the 1.3861 level in the first place. There is still an open and valid fade short sell that will remain so unless prices can rally through 1.3861. I think it would be prudent to shorten the time frames of my entries and stay more nimble. The economic calendar for the week could present very high volatility and that mean significantly more risk tolerance for traders.
GBP/USD: The daily cable has continued to cooperate and has required little chance to my approach which has been to buy pullbacks into the support of the 34EMA Wave because of the solid “twelve to two o’clock” uptrend. This strategy however will begin to be tested – not because the uptrend is fading but because the ceiling overhead is closer than ever – at the 1.6274 to 1.6278 area. This presents potential selling pressure for cable bulls and could create a near-term sentiment shift, however keep in mind that the dollar’s weakness below 77.00 is important for further strength and therefore a bounce back above the dollar’s major psychological level could cause exhaustion for the cable. For trades who would rather stay more short-term with their GBP/USD bullish expectations, look to the 15 and 30-minute charts which are both setting up swing buys if prices correct lower to 1.6222 and 1.6192 respectively. The 1.6205 level could also be another buy trigger using the 1.6200 psychological level as support.
USD/JPY: The yen is weaker against the dollar despite the greenback’s weakness today. The equities market could be making some inroads into the carry trade once again as the yen may be sold/borrowed as the Dow Jones is up nearly 100 points. Keep in mind that this equities-yen correlation has been neither strong nor reliable. The bigger picture does have the yen heading towards the distribution range support waiting at past lows at 81.34, 81.13, and 80.93. The daily Stochastic (21/1/3) has not yet reached the oversold (20) level so there could be more downside before buyers support the USD/JPY. I believe buying into today’s bounce would be premature on the daily therefore any entry long would best be waiting on a shorter time frame such as the five, 15, or 30-minute chart, if at all.
USD/CHF and USD/CAD: I speak of these two markets together because they both were the first two pairs to strengthen against the dollar in a significant way AND break through lower their respective daily trading ranges. Certainly the concern over events abroad helped the franc gain on the dollar so further unrest could help the pair continue to push to 0.9700. In my opinion, the previous lows at 0.9329 and 0.9301 must considered upside resistance if the pair is to begin to stabilize. The USD/CAD has been benefitting from the rally in crude which took on the $100/bbl psychological level and allowed the loonie to climb against the weakening dollar. There was a delayed reaction to the crude oil spike and this could be attributed to the expectations of loonie and crude oil bulls as to whether the move was sustainable not necessarily in its momentum but in support at the higher levels – which does seem to be holding after a $2-3 pullback.
* 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 .
Learn with a free forex trading account at .
Similar Posts:
- No Game-Changer Here: Dollar Resumes Downtrend, Dow Holds 12,800
- USD/JPY and USD/CAD Distribution Fades
- Observations on the U.S. Dollar: Will the greenback break 78.00?
- Bullish Dollar Sentiment Still Rules
- Expectations for Support at the Current Levels in the U.S. Dollar
