The US dollar’s decline has accelerated as forex traders follow other financial markets in a return to risky assets. The correction will offer a welcome opportunity for traders looking to enter the long-term US Dollar up trend with better risk-reward parameters.
EUR/USD Euro tests range top – breakout imminent? We sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. The pair is now trading at 1.2882 bringing our floating profit to 2628 pips. Last week we maintained that EURUSD was poised for a bullish correction having traded a Falling Wedge formation for a range but still showing positive divergence with the RSI oscillator. This week opened with a Bullish Engulfing followed by a decisive rally pausing just at the range top near 1.30. While final confirmation remains elusive with the range still intact, this is the strongest we have seen the bulls in a long time and it looks plausible that a meaningful upswing is in progress. As we mentioned before, we see this correction as a selling opportunity to trade with the broad down trend. EUR/USD Strategy 1. Continue holding short EURUSD at 1.5510, looking to add. 2. Retain stop loss to 1.4893. 3. Next “soft target” aims for a test below 1.2160. For more resources on the EURUSD, please visit the DailyFX Euro Currency Room. GBP/USD British Pound bulls gain momentum Last week we indentified GBPUSD showing a Bullish Engulfing having tested the bottom of its Falling Wedge formation. Positive divergence with the RSI oscillator further bolstered the case for an upside correction. Indeed, we see our analysis has begun to be validated as GBPUSD advanced to test the Wedge formation’s upper boundary showing a very bullish Three Inside Up formation. A breakout above the Wedge top would offer final confirmation, telegraphing a forthcoming opportunity to enter the bearish trend with favorable risk-reward parameters. GBP/USD Strategy Pending short. Updates will be posted throughout the week at the Candlestick forum. For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room. USD/JPY Yen weakness likely to continue Last week, we suggested the medium term outlook called for Yen weakness as safe-haven assets correct for recent strength. Indeed, we have seen USDJPY race higher to the top of a Triangle formation showing a slightly imperfect Three Outside Up formation (imperfect in that the first up day was not a strict Bullish Engulfing because the high did not surpass the upper wick from the previous day). A daily close above the Triangle opens the door to further upside challenging the 100.00 level. This is the November top and the proverbial line in he sand for the current down trend. We will remain on the sidelines for the time being as positioning yields more favorable entry parameters. USD/JPY Strategy Flat. Updates will be posted throughout the week at the Candlestick forum. For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room. USD/CAD Canadian dollar gains on broad USD weakness Writing in a mid-week update, we saw USDCAD break above the range top at 1.2470 and suggested entering long with an initial target at 1.3015. The pair rallied as expected but failed to reach as far as we thought: the bulls managed to push the pair to 1.2982 but then lost momentum. USDCAD has since put in a double top and rushed lower showing a Long Black Candle. We will exit our trade here, booking a loss of 157 pips, as the outlook for the pair turns bearish in line with broad-based US dollar weakness. On balance, we still see the USDCAD trend as cautiously bullish and will look for new buying opportunities as the current correction reverses course. USD/CAD Strategy Exit long position, remain flat. Updates will be posted throughout the week at the Candlestick forum. For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room. AUD/USD Australian Dollar upswing pushes forward Last week we suggested AUDUSD looked to be showing an inverted Head and Shoulders bullish reversal pattern. While the second shoulder has certainly become quite extended, the implications of the formation appear intact. As before, positive divergence with the RSI oscillator offers confirmation. Current AUDUSD positioning is showing a highly bullish Three Inside Up formation, bolstering the bulls’ case. Still, final confirmation on a break of neckline resistance currently near 0.6800 remains to be seen. We will remain hopeful that a meaningful upside swing materializes, offering an opportunity to enter the down trend at a better price. AUD/USD Strategy Pending Short. Updates will be posted throughout the week at the Candlestick forum. For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room. NZD/USD New Zealand Dollar mirrors Australian counterpart Last week we saw New Zealand dollar positioning remain in line with that of AUDUSD, and this time around is no exception. The second shoulder of an inverted Head and Shoulders pattern looks to be coming in, with positive RSI divergence and a Three Inside Up formation supporting a bullish near-term outlook. As elsewhere in the majors, we will view this period of US Dollar weakness as corrective and as an opportunity to get short NZDUSD at a better price. NZD/USD Strategy Pending short. Updates will be posted throughout the week at the Candlestick forum. For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room. To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com