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ST Topping Pattern Begins to Emerge in USDOLLAR

ST Topping Pattern Begins to Emerge in USDOLLAR

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- EUR/USD challenges daily 8-EMA; daily MACD turning higher.

- AUD/USD holds gains post-RBA, well-positioned if USD weakens broadly.

- Read why a Fed rate hike in December may not be bullish for the US Dollar.

On a fundamental basis, we were already concerned about the viability of a USDOLLAR Index bull flag breakout given the wave of impending "high" level event risk at the end of this week. Now, after what may have been a false breakout yesterday, there could be a short-term topping pattern emerging - an evening star candle cluster.

While no individual component of the USDOLLAR Index is doing the heavy lifting, there are a few warning signs out there. For one, EUR/USD is testing its daily 8-EMA, which it hasn't posted two consecutive closes above it since before the October 22 ECB meeting. For another, AUD/USD has maintained its bounce despite the RBA's assessment that the currency was continuing to adjust; it's technical resiliency leaves it well-positioned to take advantage of broad USD weakness, should that emerge.

See the above video for technical considerations in EUR/USD, EUR/JPY, GBP/USD, USD/JPY, AUD/USD, and the USDOLLAR Index.

Read more: USDOLLAR Bull Flag Looks Promising, but Looks are Deceiving

Lastly, with this wave of event risk forthcoming, and it coinciding with the holidays and end of the year - typically a less liquid time historically - it's worth reviewing principles that help protect your capital. We call these principles the "Traits of Successful Traders." These types of low liquidity environments can result in sporadic price movements, especially around major event risk, which could result in brokers - FXCM or otherwise - having to raise minimum margin requirements to cope with changing market conditions. Traders active in the market over the coming weeks - especially around the ECB on December 3 and the Fed on December 16 - might find it beneficial to adjust their trading execution strategy to account for potential price gaps in less liquid environments.

--- Written by Christopher Vecchio, Currency Strategist

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

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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