USD technical idea – It's ‘hammer time'

If you can get the direction of the USD right, you can pretty much gauge the direction of other asset classes; such is its influence.

With this in mind, the current technical set-up in the USD basket is looking much more constructive after a period of trending lower.

As seen on the daily chart, we saw a bullish hammer candle on the daily chart, although the same pattern is seen on the weekly. This candle pattern effectively shows that the bulls have effectively rejected lower prices and wrestled back control from the bears. What arguably makes this even more bullish is that price held above downtrend support and it’s always important to wait for the daily close above or below a key support level. To go even one step further, we have seen a higher high today despite no change to the implied probability of future rate hikes from the Federal Reserve. Stochastic momentum has mirrored the move higher, which again is bullish.

We are yet to see any bullish confirmation in momentum, with the five-day moving average yet to cross above the ten-day average, but things are looking much more constructive for the USD. A move into 94.00 (the blue rectangle area) looks likely, but the real upside comes on a break of the downtrend resistance and a move out of the wedge formation. This would be very bullish given the length of time the wedge has been developing. I like the idea of being long, keeping position sizing to a minimum, but increasing exposure on any break through the wedge (currently at 94.26). I would exit on a move through 92.50.

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