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Trade Levels and Opportunities in EUR/USD, USDOLLAR around US GDP

Trade Levels and Opportunities in EUR/USD, USDOLLAR around US GDP

2014-05-29 11:30:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- USDOLLAR back to pivotal level from April and May at 10495.

- EURUSD rebound gathers pace above former pivot, 1.3645.

- Forex economic calendar stuffed with US event risk next two days.

Although FX market volatility is uncomfortably low for breakout and momentum traders, those engaging range strategies or those seeking shorter-term opportunities around event risk still have opportunity abound. A spike in volatility will likely come around 12:30 GMT, when a bevy of US economic data will be released and undoubtedly catch attention of placated market participants.

Primarily, we are looking to the Q1 GDP figure to set the tone for the morning, considering revised data during the interim reporting period has painted a dim picture. Weaker housing data, reduced residential and fixed investment, and downward revisions to inventory figures now have the market looking for a -0.5% annualized print, from the meager +0.1% originally reported.

For your consideration then, we see that the broader USDOLLAR index (measures the performance of the USD versus an equal-weighted basket of AUD, EUR, GBP, and JPY) has pulled back to a recent meaningful level, with several of the individual components at potential short-term turning points, depending upon the jolt provided by today’s 12:30 GMT US data purge:

Forex Technical Analysis: USDOLLAR Chart (Daily)

Trade Levels and Opportunities in EUR/USD, USDOLLAR around US GDP

- USDOLLAR has traded back above 10495 the past few days, which had served as support through March and early-April, and then as resistance in mid-April through mid-May.

- The result of today’s price action thus far has produced a bearish inside bar, and the weekly candle is shaping up to be a doji, or more aggressively, an inverted hammer.

- The Slow Stochastics have reached overbought conditions; and a sell signal alongside a close below 10495 would favor further USDOLLAR weakness.

Forex Technical Analysis: EURUSD Chart (H4)

Trade Levels and Opportunities in EUR/USD, USDOLLAR around US GDP

- Our focus here, however, is on EURUSD, which is currently experiencing oversold conditions in Slow Stochastics (21, 5, 8) and RSI (14) on the daily chart.

- The chart above shows the EURUSD H4 timeframe, which highlights the exhaustion seen on bigger timeframes.

- A potential bullish falling wedge has formed on H4, and divergence has formed between price and the Stochastic indicator over the past two weeks.

- A close above $1.3645, prior support in February and May, would offer a clearer opportunity for longs to reengage in the short-term.

- In context of the recent EURUSD drop through the rising trendlines dating back to July 2013, our bias in EURUSD would shift from bearish to neutral on a move back through $1.3645; we are wary about being long Euro anything ahead of the ECB’s policy meeting next week.

Read more: GBP/USD Nears Range Support at 1.6730 after Bearish Engulfing Bar

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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