- Retail crowd positioning is easing again now that the US Dollar is taking back its recent losses.
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It appears that price action at the end of last week and the beginning of this one can be characterized as a washout, or exhaustion low, for the US Dollar. After three strong days of upside action, the question has arisen again, 'is this the US Dollar bottoming process?'
Chart 1: DXY Index Daily Timeframe (July 12 to August 31, 2017)
As we have done previously, it's best to let the market dictate when it's trend reversal is going to take place. After the outside engulfing bar on August 25, the DXY Index now needs to clear 93.44 before we can say with confidence that a near-term bottom has been established. Concurrently, a close through 93.44 would also constitute a break of the daily 21-EMA, which the DXY Index hasn't closed above since June 27.
Chart 2: EUR/USD Daily Timeframe (July 12 to August 31, 2017)
The same can be said about EUR/USD (no surprise given that DXY and EUR/USD are basically mirror images). Price action has been weaker in recent days, but it's still too soon to say that a top is in place. Like DXY, EUR/USD hasn't closed on the other side of its daily 21-EMA since the end of June. Several tests of the key moving average occurred throughout August, but were fruitless in their attempts to break lower. It's possible that this time is different - especially if tomorrow's August US Nonfarm payrolls report comes in as strong as data ahead of time suggests it may be.
See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD, and Gold.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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