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FX snapshot – US Dollar Index, USD/CAD, EUR/GBP, EUR/CAD

Euro weakness dominates as ECB gets its way once more.

A Canadian dollar coin in front of a US dollar note
Source: Bloomberg

US Dollar Index catch leg up from ECB

Yesterday’s dovish ECB managed to have a profound effect upon the US Dollar Index, which saw a major move higher yesterday. The Dollar Index comprises of six weighted currencies against the US dollar, yet the weighting is heavily towards the euro, which makes up 57.6% of the index. This explains the size of this move yesterday and the fact that euro volatility will heavily affect this market. Thus as the PMI readings come out this morning, we are likely to see movement with strong readings treated as Dollar Index negative while weak readings would boost the index.

We have since seen the index drift lower in a flag formation, and as such I expect to see another leg higher soon. Downside support is provided by the Fibonacci levels of 23.6% ($96.40) and 38.2% ($96.19).

We may have to wait for the PMI readings to all be announced, but ultimately I expect a resolution towards the upside, with a move back to $96.89.

Dollar Index chart

USD/CAD pulls back following inverse head and shoulders

The USD/CAD pair has been trading lower throughout yesterday, following on from the significant spike higher which saw the creation of an inverse head and shoulders formation.

The key support level of C$1.3047 is going to be the one to watch in my opinion and this is joined by an ascending trendline taken from the two troughs seen on 15 and 20 October. Given the creation of this inverse head and shoulders, the outlook is certainly bullish, with the formation’s projected target coming in around C$1.327. I would need the price to move all the way back down below C$1.2934 to negate my bullish view, yet it seems likely that we will turn higher well ahead of that, with the C$1.3047 area seeming a good place for it.

I am bullish both for the day and for the medium term. As ever, watch out for oil prices, given the close relationship between crude and CAD.

USD/CAD chart

EUR/GBP breaks lower from wedge

Yesterday saw the EUR/GBP fall out of the rising wedge that was in play over the past two months. A dovish ECB means the move lower was stronger than would ordinarily be the case, but we have now returned to the key £0.7197 support level.

Seemingly, we are simply seeing a short-term pause before another move lower, with £0.7223 providing short-term resistance. However, I will await the break out of this short-term consolidation to take my lead and while I am bearish, I would expect upside volatility should the price close back above £0.7223, whereas a move below £0.7197 would point towards another leg lower towards £0.716.

EUR/GBP chart

EUR/CAD also breaking out of wedge formation

The EUR/CAD pair has seen a sharp move lower following resistance provided by both the C$1.49 level and descending trendline. A swift return to the bottom of this formation has ultimately seen the price breaking through the lower trendline, and thus we seem destined for further downside.

I see C$1.4386 as the next major level of support to watch out for, yet we may see a retracement back to trendline resistance beforehand.

EUR/CAD chart

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