FX snapshot – EUR/USD, EUR/GBP, AUD/USD, Dollar Index

Dollar weakness has been a feature of the market recently and signs point towards a likely continuation, for now.

Pound coins stacked in front of a US dollar note
Source: Bloomberg

EUR/USD strength proves short-lived, with bearish engulfing pattern in play

Yesterday saw a bounce from the 50% retracement and an attempt to create a new high. However, this has proven to be short-lived, and this morning’s four-hour candle has just formed a bearish engulfing pattern. This, coming after a failed attempt to break to a new high, is a worry for EUR/USD bulls and especially so if the pair moves below yesterday’s low of $1.102.

Given the inability to create a new high, coupled with the bearish engulfing pattern, I am bearish for a move back towards $1.1027. Below that, the 61.8% retracement is also of interest as support, given the previous legs of this move higher.

There are signs that the dollar is going to come back to strength, so this could mark the beginning of a period of weakness in EUR/USD. However, a move below $1.102 would give me more confidence that we are seeing this reversal.

Spot FX EUR/USD chart

EUR/GBP showing signs of weakness

Yesterday saw the £0.7102 support level fail to hold, and the pair is beginning to look significantly more bearish. The failure to break above that level overnight means we have a potential head and shoulders formation in play, which would be a bearish signal. Ultimately we would need to see the price move below £0.7053 to give me confidence that we have seen a top here. However, with the ascending neckline broken, a move below £0.7071 would also provide another bearish indicator.

With the stochastic oversold, there is a possibility that we could see some strength come back into play, at which point the £0.7102 level is crucial. Should the price hold below that level, it would give me more confidence of the possible move lower.

Given the long-term downtrend in play, a bearish head and shoulders projection of £0.7 could just be the beginning of matters, with a return to the recent lows of £0.694 likely at that point.

Spot FX EUR/GBP chart

AUD/USD begins to selloff from moving average

AUD/USD is beginning to selloff today, following a short-term period of upside, which appears to be over. The 50-period SMA seems like the key resistance point here, as it has been in the past. Given the long-term downtrend in place, along with a stochastic rolling over, I believe we will see a return to the recent lows of $0.726 in the near future and on towards further losses.

Spot FX AUD/USD chart

US Dollar Index could be key to FX market movement

I do not usually include the Dollar Index, yet I believe today it is more important than ever, with signs pointing towards a possible reversal in fortunes for the dollar. The trend over the past month has been one of dollar strength, but the past week has seen it fall back somewhat.

With the uptrend remaining intact, it makes sense that we would soon revert to a bullish mindset. Given that we have seen it create a new higher low, I believe this could be the beginning of that next move higher, which would have implications for the other currencies being traded against the dollar. Hence I am bearish for both EUR/USD and AUD/USD (alongside many of the other currencies vs the dollar). The important thing here is a move above $97.24, which would mean a new higher high in play. Currently we have just one piece of the puzzle, yet the second seems likely to come today.

Dollar Index chart

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