FX snapshot – US Dollar Basket, EUR/USD, USD/CAD, GBP/AUD

US dollar strength eases, yet another surge is expected, with consequences for EUR/USD and USD/CAD.

Dollar and pound
Source: Bloomberg

US dollar drifts lower within pennant formation

The US Dollar Basket has been moving gradually lower this week, following a major spike higher driven primarily by EUR/USD weakness after Thursday’s European Central Bank statement.

The move lower has formed a bullish pennant formation following a flag on Friday. Given the sharp move higher and gradual nature of this retracement, I am bullish yet await a break through $97.09 to price confidence we are set to see another move higher.

Resistance levels to watch out for come in at $97.33, $98.05 and $98.61. The support level to watch is at the top of Friday’s flag, at $96.74.

US Dollar Basket

EUR/USD tests support as new resistance

EUR/USD has seen a strong move lower following the ECB event on Thursday, with price now having broken out of a triangle formation that has been in play since March 2015.

The grind higher over the past two days has brought price back to both trendline resistance and the support level from the previous consolidation ($1.1072).

As such, I am bearish as long as the $1.1072 level resistance holds up. The first support level in view is clearly defined at the notable $1.1 level, followed by $1.0842.

EUR/USD chart

USD/CAD bounces off moving average following H&S

There's a nice pattern in play here for USD/CAD, with an inverse head and shoulders followed up by a retest of the right shoulder (C$1.3047) and gradual move higher from there.

The 20-period SMA (four-hour) has been providing support for each leg higher and we are clearly within the middle of such a move right now.

As such, I remain bullish and am watching out for the C$1.32 level as the next resistance. My bullish bias would only be negated should price fall back below C$1.312, especially if it was preceded by a failure to break back above C$1.32.

But, until then, I remain bullish and am looking towards C$1.32 and C$1.327 resistance levels.

USD/CAD chart

GBP/AUD turning lower once more

GBP/AUD has turned lower once more this morning, providing more confidence that the pair is set to see a strong move lower over the coming week.

The selloff seen through late September to early October brought about a substantial bounce throughout the past two weeks. With price initially seeing the break below $2.1286 and the 20-period SMA, we have since seen both treated as ongoing resistance points.

The 20-period SMA in particular is providing very reliable resistance, just as it did support on the way up. Given that the dominant trend since this market topped off in August has been one of selling, I expect to see a strong move lower for this market over the coming weeks.

Simply watch out for continued creation of new lows and lower highs. As such, I expect a break back below $2.1093 and towards $2.1 in the coming days, where $2.08 is attainable in the coming weeks.

Be aware of the UK GDP figure released this morning for fundamental risks.

GBP/AUD chart

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