FX snapshot: US Dollar Index, GBP/USD, EUR/GBP, AUD/USD

Dollar resurgence overnight points to a more bullish outlook, while EUR/GBP selling and a possible AUD/USD reversal completes the picture.

Source: Bloomberg

Dollar spike brings potential bullish overall outlook
Yesterday saw price fall lower for the Dollar Basket, and hit our target at 05.93, yet despite selling off further, we have opened with a major gap higher, which has been followed up with a short-term pennant and subsequent break higher.

The price is now approaching the highly significant 96.75 resistance level which if broken would then point towards the crucial 96.89 level. Given that we have essentially been trading within a triangle formation over the past month (lower highs, higher lows) there has been little clear direction.

However, a break above 96.74 and in particular 96.89, would bring a clearer bullish picture into play. Thus, further short-term upside appears likely, yet how price responds to those levels are likely to dictate what the outlook is for the medium term in the dollar index.

GBP/USD sells off once more, yet breakout will dictate next play
Yesterday did indeed saw GBP/USD sell off once more, following a retracement higher. However, we are seeing some clear choppiness above the crucial $1.517 mark and how we move out of this period will dictate where we go next.

The latest move lower failed to create a new low, which is a possible bullish heads up. However, I would want to see a close above $1.5289 to give me confidence that we will see this pair trend significantly higher back towards $1.533 and $1.5467 levels. Otherwise, should price close (in 1- or 4-hour chart) below $1.517, then this would be a strong bearish indication and would point towards a move towards $1.5.

EUR/GBP selling off sharply, with more expected
Yesterday saw EUR/GBP fail to break lower through the £0.7322 support level, instead using it as a base to move back towards the top end of the month-long range.

However, this has clearly reversed now and the move below £0.7322 is even more evidence that we are seeing a very strong move in play here. I expect to see price return back towards the lower end of this range which has generally been between £0.7241 and £0.7259.

We are likely to see some form of pullback or retracement within this move, yet that will be seen as an opportunity for the bears to come in once more. Thus I am bearish and expect that should we see any retracement, it would be highly unlikely to move back above £0.735.

Could AUD/USD bounce point towards further upside?
Yesterday I mentioned the idea that we were likely to soon see a bounce following a strong early bout of selling in AUD/USD. However, while we have seen that bounce, the pair has managed to follow that up with a strong move back to $0.7044.

The subsequent second bounce this morning shows that we have an ascending triangle in play with higher lows and flat-lining resistance at $0.7044.  Thus while price remains above $0.6979, I expect us to follow this bullish formation up with another move higher and a break to the upside.

However, should we see a move back below $0.6979, then it would look like a continuation lower would be on the cards.

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