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DXY Index, EUR/USD Inside Day Candlesticks Take Shape

DXY Index, EUR/USD Inside Day Candlesticks Take Shape

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- A stronger Chinese Yuan fix has helped ease concerns over an immediate response by China as trade tensions with the US rise once more.

- GBP/USD remains pressured as traders eye another crucial Brexit vote in the House of Commons.

- Retail traders have yet to abandon their bearish US Dollar outlook.

Looking to learn more about how central banks impact FX markets? Check out the DailyFX Trading Guides.

The US Dollar (via DXY Index) has failed to break through the weekly highs established yesterday, setting up the development of an inside day candlestick pattern. To little surprise, EUR/USD, as 57.6% of the DXY Index, is also carving out an inside day candlestick.

A quick recall of recent price action helps put these inside day bars in proper context. Inside days are typically viewed as pauses or potential turning points in trends, meaning that the US Dollar's recent bullish run - and the Euro's bearish slide - is entering a critical juncture.

DXY Index Price: Daily Timeframe (July 2017 to June 2018) (Chart 1)

DXY Index, EUR/USD Inside Day Candlesticks Take Shape

The DXY Index continues to contend with 95.17 - the high from the July 20, 2017 bearish outside engulfing bar, as well as the October and November 2017 swing highs. But until a daily close through 95.17 is achieved, traders may be best suited to be a bit more patient approaching new long USD-pair trades; the inside day bar that is forming suggests that recent buy signals issued by MACD and Slow Stochastics may be 'false starts.'

Elsewhere, in light of a rather absent economic calendar for the third day in a row, traders should continue to keep their attention honed in on the news wire (when they're not watching the World Cup). Later today, the British Pound will take the spotlight as the UK's House of Commons will be voting on a bill to determine whether or not Parliament has a say in the Brexit negotations.

Similar to the vote held last week, concerns are afoot that the passage of the amendment would bind UK Prime Minister Theresa May's hands with respect to the negotiations, raising the possibility of a no-deal, or hard Brexit, outcome. The uncertainty around the Brexit negotiations has in turnundercut August BOE rate hike odds, which have fallen to 45% today from their peak of 62% in the first week of June.

Read more: DXY Index Hits Yearly High as China-US Trade Tensions Rise

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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

Follow him on Twitter at @CVecchioFX

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

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