After breaking out from a clean consolidation pattern the US Dollar Index (DXY) has come under serious fire and finds itself at an important crossroad. Naturally, this has the euro at its own important spot of interest. Gold has undergone a decent rally off a capitulation low, looks like more follow through could be in store following a pullback.
Technical Highlights:
- US Dollar Index at an important crossroad
- EUR/USD testing strong resistance, watch how it responds
- Gold is set up to continue moving higher
To check out our intermediate-term fundamental and technical outlook on major markets and currencies, see the Q3 Trading Forecasts.
US Dollar Index at an important crossroad
The decline the past few sessions was as strong as the rise earlier this month out of an extended ascending wedge formation. This has the DXY testing the upper portion of the pattern and trend-line from April. The quick rise and fall out of a consolidation pattern gives rise to the risk of a broader reversal. For now, though, support will be given the benefit of the doubt.
However, a break much lower could find the dollar reeling as the wrong-way crowd is caught leaning long. Sentiment as per futures market positioning is suggesting such an event could happen, with large traders having been persistent buyers of dollars in recent months.
US Dollar Index (DXY) Daily Chart (On the verge of a bigger reversal)
Check out the Q3 US Dollar Forecast for a broader fundamental and technical view.
EUR/USD testing strong resistance, watch how it responds
Effectively flipping the DXY chart upside down, EUR/USD is above the 11500 level and trading at trend-line resistance. Heading into the week it seemed like a counter-trend move would fizzle before taking the euro lower, but with the bounce gathering momentum the risk is now that we will see a continuation of the rally. The euro is at resistance as the DXY is at support, so for the immediate moment we will respect that, but it may not last long.
Check out the Q3 Euro Forecast for a broader fundamental and technical view.
EUR/USD Daily Chart (testing resistance)
Gold is set up to still continue moving higher
The bounce in gold off the low has been in-line with expectations so far for a market that became deeply oversold last week. We may see a hesitation of pullback here, but still looking for the last leg of the decline to soon be erased (~1210 target).
Gold Daily Chart (Looking higher still)
Check out the Q3 Gold Forecast for a broader fundamental and technical view
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
