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

USD could pull back bringing likely strength for the likes of GBP/USD and AUD/USD.

A stack of Canadian dollar coins wrapped around a US dollar note
Source: Bloomberg

Dollar Index could sell off from trendline resistance

The Dollar Index has been exhibiting clear lower highs over the past week, and today seems to be continuing that trend with a bearish engulfing candlestick formation following a third touch of this trendline.

Currently we are seeing the 20-period SMA (four-hour) providing support, which has been relatively reliable in the past. However, should we see the price move below $97.50 then it would be the indicator I would need to expect a move lower towards the $96.70 area. However, a move above the descending trendline resistance, (currently $97.9) would point towards a possible move up to $98.05 which is the level that needs to be taken out for a bullish continuation outlook.

For now, I am bearish given the trendline resistance, coupled with lower highs and the bearish engulfing formation. This would be a more confident view once the price moves below $97.50 or else a move above $98.05. Bear in mind that the outlook for the Dollar Index is key for direction in dollar crosses across the board.

GBP/USD triangle points to gains

GBP/USD remains within an ascending triangle formation, with the price having moved to the lower end of this spectrum for now. As the price tracks the lower end of this formation, there is clear support in existence. As such, I expect a move higher towards $1.567 in accordance with a continuation of this formation. Given the nature of this pattern, I expect to see a bullish break once the pattern is completed, with $1.58 and $1.593 key resistance points at that time. However, in the short term, given the somewhat bearish outlook in the Dollar Index, a day of GBP/USD strength would make sense.

RBA pushes AUD/USD higher

The RBA chose to keep rates unchanged overnight, yet it was the statement which took traders by surprise, with the removal of a phrase relating to expectations of further weakness for the AUD. This understandably put a rocket under the AUD/USD overnight, leading to a 115 point rise in the last six hours. However, with the price currently at a key trendline resistance, there is the possibility of a short-term selloff. Should that occur, $0.7366 and $0.7351 would be immediate support levels.

I believe that given the sheer amount of losses over recent months, today’s news could spark some sort of medium term recovery. However, my long term view is one of bearishness. For now, I am looking for the reaction to this trendline. A break higher would point towards a return to $0.7417 resistance, which if broken would give a more bullish outlook. Otherwise, we could see a short-term move lower, where I would be watching $0.7366 and $0.7531.

USD/CAD selloff likely to be short-lived

Today is seeing a retracement lower, following recent gains that have broken this pair to new multiyear highs. However, I see this move lower as an opportunity rather than any sort of change in view. With that in mind, I am bullish as long as the price remains above C$1.286, where a move back to C$1.3103 (July high) and C$1.3064 (2009 peak) would be seen as likely support levels to instigate another move higher. Consider that this pair is highly correlated with the price of oil, and thus any recovery in crude could bring a bit of CAD strength back to the table.  

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